Revealing Objectives in University Financial Aid: An Inverse Optimization Approach

This study uses inverse optimization to uncover the implicit objectives driving financial aid allocation decisions across U.S. higher education institutions. Analyzing data from 3,130 institutions in the 2021–22 IPEDS dataset, we estimate the strategic weight each institution places on four competing goals: access (coverage), equity (need-based targeting), prestige, and cost control. Private nonprofit universities prioritize prestige (54.8%), awarding an average of $23,155 per student; public universities emphasize broad coverage (59.7%) with more moderate awards; and for-profit institutions adopt mixed strategies, balancing access and need. By recovering these revealed institutional priorities from observed behavior, we provide the first large-scale quantitative evidence that financial aid is frequently used to enhance institutional reputation rather than expand access. These findings highlight the equity implications of strategic aid allocation and offer a methodological framework to evaluate whether institutional priorities align with access goals.