“Admit-deny is also used for legacy students when the school doesn’t want to upset the alum too badly.”
Legacies usually get let down easily via a wait list or a deferral. Legacies typically have higher SES demographics (which is a prime reason why schools have legacy policies). So a money-based policy isn’t the best tool for managing the legacy pool.
Schools do admit/deny because they have to. They all want to say that they are need-blind for admissions, but they also have to meet a revenue budget. Since the school isn’t allowed to manage the financial budget through the admissions decision process, they manage it through the FA process.
Admit/deny isn’t really nefarious. Every school has to meet budget – even Harvard – and they figure out ways to do it. Harvard doesn’t do admit/deny, but they ration their ample (but still limited) financial aid in other ways. Legacy admissions, athlete admissions, SCEA, and (the big one) sky high admission standards all tend to skew their enrolled student population towards the wealthier demographics that Harvard needs to enroll to meet budget. There’s just not enough poor kids with high stats and great ECs to make it a problem for Harvard’s budget.
It would be more honest for schools to say that they are “need aware” when it comes to admissions, but the market seems to prefer to keep the gritty details of finances away from the admissions decision. With the increased transparency from NPCs, you’d think/hope that admit/deny is less of a thing than it used to be.