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2) Why do colleges need to know the races of the applicants?
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They are required to ask by a federal law that is tied to all the funding programs (including federal support for student financial aid) that essentially all colleges receive money from. Students are NOT required to tell. Colleges are permitted to report as many students as may be as "race unknown," and colleges are not expected to guess anything about a student that the student doesn't tell them. See the newly revised FAQ post at the beginning of this huge thread for links to the federal regulations.