By Sam Ozer-Staton
If you know any parent in America, you’ve likely heard a version of the following refrain: the cost of sending a kid to college, these days, is nothing short of criminal.
Last month, a group of college graduates sued 16 prestigious U.S. universities, alleging that they participated in “a price-fixing cartel that is designed to reduce or eliminate financial aid as a locus of competition, and that in fact has artificially inflated the net price of attendance for students receiving financial aid.”
What that means, translated into plain English, is that a group of elite universities used a shared formula to calculate applicants’ financial need, and in doing so, colluded to illegally limit competition and jack up tuition costs.
The lawsuit is one of many recent developments in a moment of upheaval for higher education. The Supreme Court last week announced that it would hear a pair of affirmative action cases, and a handful of elite colleges have said that they will no longer consider legacy as part of their admissions processes.
But do the long-standing financial aid practices of elite universities amount to a violation of antitrust laws?
The plaintiffs certainly think so. That’s because of what is known as the “The 568 Presidents Group,” a group of 28 private universities that meet annually to agree upon a common formula to determine the “expected family contribution” of financial aid applicants. That formula is called the “Consensus Methodology,” and it effectively determines the net price that financial aid applicants pay to attend school.
The 568 Presidents Group was created in response to a 1994 law that exempted from antitrust laws universities where “all students admitted are admitted on a need-blind basis.” The idea was to establish a set of common guidelines that prevented bidding wars over low-income students (so, for example, one school couldn’t come in with a significantly better offer than another), while also establishing a mechanism that would prevent universities from favoring wealthy applicants. Such an arrangement would be mutually beneficial: it would save the colleges money in competing for talented applicants, and in exchange, the colleges would agree not to rely on income in admissions decisions.
The problem, according to the plaintiffs, is that colleges aren’t actually need-blind. “Under a true need-blind admissions system, all students would be admitted without regard to the financial circumstances of the student or student’s family,” but, the lawsuit alleges, “[f]ar from following this practice, at least nine Defendants for many years have favored wealthy applicants in the admissions process.”
How, exactly, do colleges favor high-income applicants in admissions? The complaint names a number of ways. There are the “development admits” whose admissions chances are significantly increased by their family’s status as past or likely donors. There’s the practice of “enrollment management,” where particular schools engage in econometric modeling that forecasts the cost implications of their admissions and financial-aid decisions. There’s the “waitlist” loophole where schools take into account financial need when making decisions about who to admit from a waitlist.
According to the lawsuit, as a result of those “need-aware” practices, the 16 universities have overcharged at least 170,000 financial-aid recipients by hundreds of millions of dollars. By those calculations, all of those impacted former students would be eligible to join the class-action lawsuit, which was filed in federal court in Chicago, where the 568 Presidents Group meets annually.
But antitrust lawsuits are notoriously difficult to prove. This lawsuit, like nearly all antitrust cases, alleges a violation of the Sherman Act, a 1890 law that outlaws “every contract, combination, or conspiracy in restraint of trade.”
Peter McDonough, vice president and general counsel of the American Council on Education, told the New York Times that he doubts the 16 colleges were in violation of antitrust laws, if only because they have such good lawyers.
“I’d be surprised to ultimately find that there’s fire where this smoke is being sent up today,” he said, adding that the schools named in the lawsuit are “very antitrust aware and particularly sophisticated. They have good advice provided to them.”
Eric Rosen, one of the plaintiffs’ lawyers and a former federal prosecutor who tried the “Operation Varsity Blues” case, said that by “systematically favoring wealthy applicants,” the colleges did not abide by the exemption granted to them in the 1994 law. “Varsity Blues took on the side door of admissions,” he said in a statement. “This case takes on the back door—alleging that, while conspiring together on a method for awarding financial aid, which raises net tuition prices, defendants also favor wealthy applicants in making admissions decisions. The law does not allow them to do both.”
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