Interesting take on need-based financial aid: it's partly third-degree price discrimination.
Higher education’s response to its acquiring the role of gatekeeper of much of the job market is a story in itself. It has behaved in a way that is suggestive of massive monopolistic imperfections in the market for its product. Confronted with a significant increase in demand for its services (due at least in part to Griggs), it has engaged in overt price discrimination against students and their parents. Assisted by certain government rules, they carefully estimate the maximum amount a student’s family can pay in determining tuition charges. Discounts in the form of scholarships and work-study jobs are given to those who are thought unable to pay the full amount. By this method, colleges and universities are attempting to capture as much as they can of what economists call the consumer surplus that occurs in market transactions.
It's third degree price discrimination because a price-sensitive group (due to the limited average family income of those in the group) gets the discount. Much the same is said about merit scholarships where members of the group have more options available to them, also making them relatively price-sensitive.
HT to The Door.