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Lawsuit Accuses Prestigious Universities of Colluding on Financial Aid

By Joseph Fawbush, Esq. | Last updated on

Since the Sherman Antitrust Act, federal law has prohibited price-fixing as a general rule. But under Section 568 of the Improving America's Schools Act of 1994, universities that are "need-blind" (meaning that they don't factor an applicant's ability to pay into admissions decisions) are allowed to work with their competitor schools to help determine need-based financial aid given to students. The idea behind the antitrust exception to the Sherman Act is to allow eligible, participating universities (the "568 Presidents Group") to work together to establish common principles for assessing financial need.

But a new lawsuit, filed in federal court in the Northeast District of Illinois, nonetheless claims that 16 of America's most prestigious private universities used Section 568 as a smokescreen to collude to reduce the amount of financial aid given to students. The former students named as plaintiffs in the complaint allege that the elite schools use a common methodology to lower the amount of financial aid given to students, thereby saving the universities money and driving up tout-of-pocket costs of attending their schools.

Read the complaint and thousands more with a free trial of Westlaw Edge.

The Facts Alleged in the Complaint

The complaint alleges that, far from being need-blind, the defendant universities favor the wealthy and well-connected. Instead of using Section 568 for its intended purpose, the lawsuit alleges, these universities are using the exception to artificially inflate the cost of tuition. Without collusion these schools would compete to offer the best financial aid packages to attract the students they have admitted.

The plaintiffs claim that nine schools named as defendants (Columbia, Dartmouth, Duke, Georgetown, MIT, Northwestern, Notre Dame, UPenn, and Vanderbilt) do not comply with the 568 exception because they consider the financial circumstances of their applicants—particularly for those on the waitlist. The complaint acknowledges that the other named defendants (Brown, CalTech, UChicago, Cornell, Emory, Rice, and Yale) may have used a need-blind assessments, but by entering into a price-fixing scheme with the other named defendants, they too are in violation of antitrust law.

The lawsuit proposes as class all students who have enrolled in the defendant universities since 2003 and that received need-based financial aid that did not fully cover their amount of tuition, room, or board, as well as family members or other third parties who paid or committed to pay for a student's of attending the universities.

The "Consensus Methodology" of 568 Schools

The heart of the lawsuit involves the concerted approach these elite, private universities use to determine an applicant's need for financial aid. The "Consensus Methodology" is a process that the 568 Presidents Group uses to determine how much an applicant (and their families) can be expected to pay. The member schools established this method in 1993, after the Department of Justice initiated an antitrust action in 1989.

While the details are not publicly available, the methodology involves considering factors—such as whether a non-custodial parent will help pay college expenses and whether business or real estate expenses will reduce an applicant's ability to pay—to arrive at a determination of which prospective students need financial aid (and how much).

In 2008, the complaint points out, Yale left the 568 President's Group to institute "a more generous aid policy" than they would have if they remained in the member group. Yale rejoined the 568 Presidents Group in 2018, however.

Yet to Hear Substantive Arguments From Schools

None of the defendant universities have yet responded to the complaint in court. However, NBC News obtained comments from Yale, CalTech, and Brown, indicating that the universities believe their financial aid policies comply with the Sherman Act and all applicable laws.

A case management conference is set for all parties to the lawsuit in late February.

Tips on Getting Need-Based Financial Aid

Paying for Grad School: Loans, Scholarships, and Financial Aid

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