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According , higher education has reached a troubling milestone: the country’s public and private four-year colleges are now spending a greater share of their institutional aid dollars on than on meeting the financial need of the low- and moderate-income students they enroll.

The report from the Education Department’s National Center for Education Statistics provides the clearest picture to date of how colleges, , have fundamentally changed the way they spend their institutional aid dollars, to the detriment of low-income students.

Fifteen years ago, colleges primarily devoted their aid funds to making college more-accessible and affordable for those with financial need. For example, according to the report, here is how colleges divided up their institutional aid among first-time, full-time students in the 1995-96 school year:

• At public four year colleges, 8 percent received merit aid, while 13 percent received need-based aid

• At private colleges, 24 percent  received merit aid, while 43 percent received need-based aid

But in the years since, colleges’ priorities have dramatically shifted. The report found that by 2007-08, merit aid trumped need-based aid at these institutions:

• At public colleges, 18 percent received merit aid, while 16 percent received need-based aid

• At private colleges, 44 percent received merit aid, while 42 percent received need-based aid

The report also found that “merit aid” does not always go to the meritorious. According to NCES, about 19 percent of first time, full time students at four-year colleges who had SAT scores ranging from 0 to 699 received merit awards from their schools or states, as did 27 percent of those with scores from 700 to 999. In addition, 20 percent of those who had grade point averages of less than 2.0 (below a “C”) received this assistance.

Colleges, in fact, are increasingly using their institutional aid dollars to recruit wealthy students in order to maximize their revenue. The schools generally try to achieve this goal by offering generous institutional aid award to these otherwise “full pay” students, even if these individuals are not as qualified as their less-affluent peers. That leaves the schools with fewer dollars to spend on the low-income students they do enroll.

The overall effect of this change in institutional aid strategies is hardly surprising. From 1995-96 to 2007-08, the share of high-income students receiving grants from any source (the federal government, states, and colleges) has grown from 13 to 18 percent. At the same time, the share of low-income students receiving grant aid has dropped from 41 to 37 percent, the report states.

These numbers are alarming in and of themselves. But judging from other recent reports and studies that we’ve written about, the shift from need-based to merit-based aid has only accelerated over the last few years as colleges have grappled with the financial downturn and significant reductions in state higher education funding. For example:

• A recent survey that Inside Higher Ed (IHE) conducted of 500 college admissions officers found that colleges are working increasingly hard to bring full pay students to their campuses. , this is a particularly pervasive strategy at public colleges and universities. “At public doctoral and master’s institutions, more admissions directors cited the recruitment of full-pay students as a key strategy than cited providing aid for low-income students.” These practices are not exclusive to public institutions. ������Ƶ a third of four-year private liberal arts colleges have also ramped up their recruitment of affluent students, the online publication reported.

• In August, Sallie Mae released showing that the share of students from middle-income and high-income families who received grant and scholarship aid in the 2010-11 academic year jumped significantly from the previous year, while the proportion of low-income students receiving these awards remained “mostly flat.” The influx of grant aid for the more-affluent students helped reduce the cost of college, on average, for these families, while low-income students generally had to pay more. According to the report, the average cost of college for students from families with incomes of $100,000 or more fell by 18 percent to $25,760, while it rose by 14 percent to $19,888 for those families making less than $35,000.

• The University of Southern California’s and the released a report in September decrying the fevered competition among four-year colleges for top students and those who can pay full freight.  In that report, the organizations spoke out against “the increased practice of awarding financial aid to students without regard for actual need.” The report, entitled “,” acknowledges that “there are good arguments for institutions to make limited and judicious use of merit aid to attract some students who could add to the vitality of an incoming class. However, “the practice has grown to the point of significantly reducing the funds to qualified students from lower income households who could benefit from a college education,” the report states.

Higher Education has indeed reached a milestone, but it’s not one that should make college leaders and lobbyists proud. Hopefully the NCES report will finally spur policymakers to take notice of how colleges are, as , increasingly using “financial aid as a weapon for competitive advantage,” rather than as a tool for advancing the federal government’s mission of making college more accessible and affordable for those who would not be able to attend without the help.