I went thru a similar situation going into my junior year. It was more due to a coaching change (the guy retired) and left behind "proposals" to alter athletes scholarships for the new guys (They hired a separate head XC and T & F coach) that started only a couple weeks before the school year started. They obviously didn't know us from an athletic standpoint and just went with the suggestions made. I was struggling athletically due to injures/overtraining. I figured I lost it due to those circumstances and attempted to go thru an appeal process to get some of it back (it was a decent amount of money). I never got mad with it, I just wanted to feel like I wasn't just a piece of meat to them (expendable). The next few seasons I worked hard and ran better but never well enough to justify getting back on the payroll.
It sucks when you feel like they don't respect what you've been doing there for the last few years and the commitment to daily training (especially being a top performer). It seems to me he values your commitment to the team (and your performance) as a way to boost his own career instead of trying to nurture what he has now. I've come to know this (college running) is a lot like a business and with that comes choices by management (coaches) to alter pay based on various circumstances (whether justifiable or not).
You have the right to not compete for him if thats what you wish and I doubt your teammates will look down on you for that choice (they'll side with you before the coach). If you love competing and want to be the best you can be, then it is easy to except the decision he's made and kick a$$ during the upcoming season(s). Those teammates (assuming you get along with them very well) will probably be life long friends and are definitely not worth leaving. The relationships you have with people will go long beyond the pride of a great running career.
In the end its just a game. It was a time that I got to run at a high level against some damn good runners and display my hard work. I had a lot a disappointments too from my running career (it just concluded this May) and looking back on if it all was worth it (raced 8 total seasons in 5 yrs). While disappointed with the fact I didn't see the athletic success I wished, I have those memories of all the shenanigans on those easy days, putting foot to a$$ on those hard workout days, and everything that happened with those guys outside of the 2ish hours a day of practice. It isn't the same without teammates to train with daily. I'm not sure how committed you are to running post collegiately (like higher end races/sub pro level stuff) but that won't be as fun as the training you get with those guys you train with now. I hope to get the opportunity to hit my "goals" for running a little post collegiately (I mostly ran between the 800-3K region in track)
I hope your decision you make is the right one for you and don't have to deal with the regret of making the wrong choice. If that coach seriously lacks the respect toward you and what you've done now, it's likely that won't change. It'll be hard going to practice and having lost respect in who he is (and what he does from a coaching standpoint). You've gotta weigh the pro's to staying (teammates, training with them, memories made, academic opportunities ) versus the con's (crappy coaching situation, lost financial support). If you aren't to pinched for money and are willing to deal with this coach, staying will be much better long run. Otherwise, head to another school to do your thing there under their dollar (hopefully).
Good luck with the training this fall (wherever you end up doing it at).