Addressing the ‘missing middle’ in college financial aid

College affordability continues to be at the center of policy debates. Increasingly, families believe college to be unaffordable even if net prices (costs after accounting for financial aid) have not increased for most families or institutions over the past decade. Yet even if net prices are not significantly increasing, financial aid may still be insufficient to make college truly affordable for families, especially given inflation in other spending categories. This can be especially true for middle-income families.

Middle-income families, typically earning between $50,000 and $125,000 annually, often earn too much to qualify for substantial need-based aid and too little to absorb tuition without strain. This group represents roughly 50% of U.S. households and includes many of the students higher education relies on to sustain the nation’s professional workforce. Yet the architecture of student-aid formulas increasingly limits grant support while pushing these students toward higher levels of borrowing and greater reliance on work.

While overall college completion rates have remained relatively stable—or modestly improved—across income groups in recent years, these aggregate trends can obscure the distinct pressures facing middle-income students. Increased borrowing and competing work demands may not always reduce completion outright, but they can extend time to degree, raise stop-out risk, and narrow students’ post-college economic mobility.

This is not simply a funding shortfall. It is a design failure.

Where the system breaks down

From an economic perspective, higher education functions as talent infrastructure. When it performs well, it produces skilled graduates who fuel productivity, innovation, and civic life. When it performs poorly, costs compound across individuals, institutions, employers, and regions.

The breakdown is especially visible in the “missing middle.” Federal and state aid formulas appropriately prioritize low-income students, but assistance often declines rapidly as family income rises or fluctuates. Programs such as the Pell Grant phase out at relatively modest income levels, leaving families just above eligibility thresholds with limited grant support despite constrained financial capacity. State programs can create similar affordability cliffs rather than gradual transitions in support. In addition, the aid students receive can vary year to year due to income shifts or policy adjustments, creating uncertainty that disrupts financial planning and persistence.

At the same time, sticker price growth has outpaced wage growth for many middle-income households. Public institutions, in particular, face declining per-student state appropriations, rising technology and infrastructure costs, expanded student-support expectations, and competitive labor markets for faculty and staff. Tuition is often one of the few adjustable revenue sources. While institutions continue to pursue efficiencies, these structural pressures complicate efforts to hold tuition flat without compromising quality or student services.

The result is a structural gap: Families with limited liquidity and limited aid eligibility are often forced to rely on increased borrowing and student employment, both of which can undermine academic progress and completion. For example, students working more than 20 to 25 hours per week are significantly less likely to complete a bachelor’s degree. Yet for many middle-income families, that tradeoff has become normalized. Many middle-income parents have borrowed more over time as sticker prices have risen; however, recent caps to the federal Parent PLUS loan may limit their ability to fully rely on federal grants to cover costs.

Designing aid for the missing middle

Addressing the financial challenges facing middle-income students will require a mix of federal, state, and institutional policy responses that improve predictability, better target limited grant aid, and reduce reliance on borrowing.

Providing families with predictable, multiyear financial aid commitments is one institutional approach that would support better long-term planning and reduce the volatility that can disrupt enrollment decisions. Guaranteeing a baseline level of aid over multiple years—while preserving flexibility to adjust in cases of significant financial change—can help families make more informed choices about college access, persistence, and completion.

Recent “tuition-free” guarantee programs for families earning approximately $150,000 have expanded opportunity in important ways. However, these models require substantial and sustained funding streams that many public universities cannot support without redistributing aid from other populations or constraining institutional capacity. As a result, while promising, these approaches may be difficult to scale broadly across the higher education landscape.

At the federal and state levels, policymakers should consider revisiting how financial aid formulas assess a family’s ability to pay, particularly for those who fall above traditional need-based aid thresholds but still face significant financial constraints. Expanding eligibility for need-based grant programs or introducing targeted “middle-income” grant tiers could help close this gap while maintaining a strong focus on the lowest-income students.

Targeted, shared-investment approaches—such as state-institution matching grant programs or incremental aid guarantees tied to income bands—may offer a more sustainable path forward. These models distribute responsibility across sectors while providing families with clearer expectations about college costs and available support. In this context, philanthropic funding can play a catalytic role by supporting the initial launch of such programs with a defined sunset period. A time-limited co-funding model allows institutions to pilot aid strategies, assess impact, and build the internal and external commitments needed to sustain them once philanthropic support concludes—whether through state appropriations, institutional reallocation, enrollment growth, or dedicated revenue streams.

Policies that improve predictability and reduce unmet need are likely to support more consistent enrollment intensity, shorten time to degree, and reduce cumulative borrowing among middle-income students. Without more intentional policy design, middle-income students will continue to navigate a system that assumes a level of financial capacity they do not have—undermining both institutional goals and broader workforce outcomes.

Institutional response in practice: A philanthropic model

In the absence of comprehensive, large-scale policy solutions, some institutions have begun testing targeted approaches to better support middle-income students. One example is the Thompson Working Families Scholarship, a multi-institution philanthropic initiative designed to address gaps in financial aid for middle-income students while maintaining a focus on long-term institutional sustainability. Established with generous support and design input from Bob and Ellen Thompson, the program provides $290 million supporting more than 15,000 students at Grand Valley State University, Saginaw Valley State University, Bowling Green State University, and Michigan Tech University before the foundation sunsets in 2033.

Rather than functioning as a permanent funding source, the model is designed to test whether a more structured, shared-investment approach to financial aid can improve student outcomes in ways that institutions could sustain over time. At its core, the model seeks to reduce financial risk for students while requiring institutions to participate in both the cost and design of the intervention.

Several design elements distinguish this approach. First, philanthropic funding is matched by participating institutions, ensuring shared ownership and encouraging universities to internalize the cost of improving student success. Second, the program requires proof of income by at least one working parent, which is verified by the institutions’ financial aid offices. Third, by reducing unmet financial need, the model aims to moderate student employment—supporting work as a component of the college experience, around 10 to 12 hours of work per week, while avoiding the levels that can interfere with academic progress.

In addition to financial support, the program incorporates structured engagement components, including civic participation and cohort-based experiences, intended to strengthen students’ connection to their institution and improve their ability to navigate available resources. These elements reflect an understanding that affordability is not solely financial, but also shaped by clarity, confidence, and a sense of belonging.

Our early observations of participating institutions’ performance metrics (including GVSU) suggest that this type of model can make a difference. Across participating institutions, first-year retention rates for scholars average above 89%—significantly higher than national benchmarks. Students work fewer destabilizing hours. Cumulative debt at graduation is lower than for comparable middle-income peers. Time to degree shortens. Civic participation increases.

From an institutional perspective, these are not merely student-success metrics. They are leading indicators of workforce readiness: persistence, reliability, and leadership engagement.

These are early results, and not causal estimates from a program evaluation, but they provide encouraging signs the scholarship is helping students across these institutions. The most important takeaway is the structure itself. Elements such as shared responsibility, predictable aid, and intentional reductions in unmet need can inform policy and institutional practice even in regions without access to significant philanthropic investment.

At the same time, its reliance on philanthropic funding underscores a central limitation: Such approaches are not, on their own, scalable solutions to the broader challenges facing middle-income students.

The primary value of this model lies not in its permanence, but in what it can demonstrate. By testing a structure that reallocates financial risk away from students and aligns institutional incentives around completion, it offers a potential blueprint for how public systems and institutions might design more sustainable approaches if supported by broader policy frameworks.

The way forward

Higher education has long understood itself as a ladder of opportunity. But ladders require rungs that are properly spaced. For the missing middle, many of those rungs are either too far apart or structurally unsound.

This problem will not be solved only by adding more dollars alone. It will be solved by examining incentives, stabilizing aid design, sharing responsibility across sectors, and aligning financial architecture with completion. Thoughtful design is what spaces the rungs properly—and design, unlike demographics or politics, remains within our control.