And a study released in May by the New America Foundation analyzed federal data on what students pay out of pocket for college, and found that the share of students receiving merit aid more than doubled, from 8 percent to 18 percent, at public colleges between 1995–1996 and 2007–2008. At private colleges, that share rose from 24 percent to 44 percent—and at all colleges, the share of students receiving aid based on need barely changed.
"With their relentless pursuit of prestige and revenue, the nation's public and private four-year colleges and universities are in danger of shutting down what has long been a pathway to the middle class," wrote Stephen Burd, author of the New America study.
Why is this happening? For starters, colleges are in a perpetual race to rise in published rankings. Second tier schools are using offers of aid as lures for highly qualified students who might not otherwise attend—even if those students don't really need the money.
Many colleges are also constantly striving to maximize their revenue, and to that end, some give preference to wealthy applicants. The New America study found that "10 percent of college admissions directors at four-year colleges (and nearly 20 percent of those at private liberal arts colleges) reported that they give affluent students a significant leg up in the admissions process."
(Read more: Bill to lower student loan rates heads to Obama)
Grants and scholarships covered 37 percent of low income students' college costs in the 2012-2013 school year, down from 42 percent in 2008-2009, according to Sallie Mae. But middle income students increased the share of funding they got from grants and scholarships, and use of grants and scholarships by wealthy students was essentially unchanged.
Declining enrollment isn't likely to help. Enrollment fell 2 percent in the school year just ended, and the trend may continue for several years. If colleges fall short of their admission targets, they also fall short on revenue, and that makes distributing aid based on need more challenging.
Sandy Baum, a senior fellow at George Washington University's graduate school of education, agrees that colleges are using merit aid in ways that don't fit the mission of financial aid. But the underlying trends, she says, are complex.
Baum co-authors an annual report by the College Board called "Trends In Student Aid," and in that national survey, she said, it became clear that less selective colleges offer a larger share of aid that is not based on need.
(Read more: The most expensive colleges in America—really)