I think they want the spots for wealthier children; he is receiving financial aid. I am not usually prone to paranoia.
Yes, you're right. College admission officials (especially at the most sought-after schools) do seek students who have challenged themselves academically by taking the highest level classes they can handle.
Given that your son seems to have the academic strength to elect top classes, you need to find out exactly why he is being steered away from the more advanced math and bio courses. Perhaps the school counselor and/or teachers have reasons that go beyond his good grades.
Similarly, last spring, my friend “Nora" (not her real name) wondered why her son, “Nick," who was just finishing 8th grade, had not been placed in freshman Honors English for the fall. She asked his 8th-grade English teacher who explained that, although Nick had earned an A- in the 8th-grade class, he was pushing himself very hard to do it, and so the teacher worried that high school Honors English would be too much pressure. But after Nick spent his freshman year bored to tears in “Regular" 9th-grade English, Nora convinced Nick's guidance counselor to place him in the Honors class for 10th grade, and the counselor agreed.
But, conversely, “Samantha" was wary of Honors Spanish 4, even though she had an “A-" in Spanish 3 and had been recommended for the Honors class. “I always got 100 on my homework and projects, so that kept my grades up," she explained, “but I got B's and B-'s on the tests and quizzes, and I really think my foundation was pretty weak." Indeed, when she got to Honors Spanish 4 she struggled and wished she'd opted for the easier class.
The moral of the story is that grades alone aren't always telling. So, ask your son if he feels that he's really ready for the more rigorous classes. If he insists that he is, talk to the school counselor and/or teachers to see why he is being held back. If their reasons don't convince you, try insisting that your son is given a shot at the tougher classes. If that still doesn't work, you may have to enlist a higher-level administrator (e.g., principal or headmaster) or a school board member to advocate for your son. (In some private schools there is also a dean or other official who oversees scholarship students and might be an ally for you.) But before you proceed, you'll also have to weigh the pros and cons of potentially ruffling feathers.
Finally, although college admission officials do like to see students challenge themselves, it won't be a total deal-breaker if your son isn't in only the most rigorous classes as long as he does well in the ones that he does take. However, if you feel that he's being stuck there for the wrong reasons, and the explanations that you get from school officials don't ring true, this may indeed be a battle you will want to pick.
You might also want to post this query on the College Confidential Parents' forumto see if other parents have been in a similar situation (especially parents of scholarship kids) and, if so, how they dealt with it.