Please see this article, which shows that in recent years, the use of financial aid has shifted from supporting students with financial needs, and towards financial aid as a marketing tool. Need-based scholarships are now the minority:
http://higheredwatch.newamerica.net/blogposts/2011/a_troubling_milestone_for_higher_education-59952
and this report from the University of Southern California, which goes into the detail of how universities are using outside consulting services who use business algorithms to get the highest return on investment from financial aid offers, with the end result being less aid to needy students and more aid to the wealthy.
http://www.usc.edu/programs/cerpp/docs/EnrollmentManagementInc.ReportFINAL.pdf
This coincides with the other trend of university admissions becoming generally more competitive. Admissions rates have dropped steeply in recent years. Universities need to attract foreign, out-of-state, and wealthy full-tuition students to keep revenue flowing, and this means fewer spots for perfectly good in-state students who previously would have had no problem getting in. This creates all kinds of vicious circles. For example, universities are relying more on early admissions, which is disadvantageous to students with financial need, because they miss the opportunity to compare financial aid offers.
The end of needs-based aid is a real thing, and people in the industry are worried about it, but it’s a bit of an arms race and no single university can decide to pull out on their own without going under. These are the same forces that are encouraging cash-strapped universities to invest in jacuzzi-tub dorms, first-run movie palaces and other high-end amenities in order to attract full-paying well-off students (and more importantly, their parents). With decreasing state budgets, universities are having to get more and more creative with their revenue streams, and that moves them further and further away from the basic mission of providing education and more towards business operations.
There are a handful of universities with endowments so large that tuition is basically a formality, and they are able to offer a subsidized education to most people they admit. These universities, such are Harvard, are only a few in number. Incidentally, the Ivy Leagues have a complicated algorithm they use to recruit athletes, since it all becomes very boring and unsporting if they just buy whatever athletes they feel like.
Again, athletic scholarships are a different scene, but I think it’s worth questioning the value of “merit” scholarships when they used cynically to generate revenue.