It sounds like Wash U. screws its students over. It wasn't like that at Case Western. I got merit scholarships and scholarships from the alumni association. One couldn't impact the other.
Perhaps. However, I was from a middle to upper middle class family and had a ridiculous amount of financial aid and merit scholarships. For a 40k/year school, my family was paying about 5k total, and I graduated with no loan debt. So to an individual, it seems like this policy screws you over, but in general, they are extremely generous, and this policy allows them to move money to other people who need it to afford to come there. There are certainly arguments against it, but a blanket statement like "WashU screws its students over" is certainly unwarranted.