In general, if you make a sacrifice to earn something, that something isn't a privilege.
And that sacrifice will be for nought, due to adversity scoring.
This is a very bad idea.
But for college admissions, I don't think it is unreasonable to judge a kid for how well they did relative to the advantages they were given.
If my dad makes a sacrifice by working 100 hours a week to buy me a Maserati, the car is definitely a privilege not something I earned. And yeah, I may have lost out on spending time with my dad, but that wasn't a choice I made, so while it cost me something it wasn't a sacrifice on my part.
Are need based scholarships denigrating the hard work of wealthy parents?
No, you certainly are not. But this is completely different from adding a hidden adversity score to the SAT. Your proposal is equality of opportunity to earn merit. The other proposal is manipulation of outcome to negate merit.
Declaring that one denigrates people while the other doesn't based solely on outcome vs opportunity requires arbitrarily picking an observation point that supports your view.
A policy that gives 5K to low-income families to allow their children to compete effectively on the SAT is not denigrating.
I firmly believe that if you pose this question to the world, a near complete majority of people will rule the latter is fair, the former is not. There is no arbitrary pick of an observation point here. These are two completely different policies.
And the first sentence is strange. If equal opportunity versus equal outcome is a merely a matter of perspective, then you can draw your lines even further! After all, whatever effects poverty and weaker education had on students in their ability to perform on the SAT certainly won’t have disappeared once they stroll across the campus green!
You can contribute the hidden adversity scores to course grades, contribute it to graduate honors, contribute it further to employment opportunity and promotion. You can draw your line at retirement and benefits if equal opportunity vs equal outcome is merely a matter of perspective.
Even the definition of merit and earned achievement is largely arbitrary. I'm successful because of the way I was created and raised. It's not a personal accomplishment.
Hard work should be rewarded because it's a basically useful for society to do so, not because it's some kind of absolute moral imperative.
To the extent that this proposal ceases to award hard work, from a societal perspective, it's gone too far. However it doesn't come close to doing that.
Looking at the metrics they're using, the only likely widescale impact on behavior is that people are less likely to move to rich neighborhoods with high scoring schools. I don't see this as a problem.