Lawsuit From Former Students Alleges Financial Aid Price Fixing at Elite Universities
Federal subsidies for higher education lead to market distortions that affect financially needy students.
Sixteen elite universities, including Yale, Brown, and the Massachusetts Institute of Technology (MIT), are named in a lawsuit filed Monday in the U.S. District Court for the Northern District of Illinois. The lawsuit claims the named schools violated antitrust regulations by colluding to reduce institutional financial aid packages to students.
The lawsuit was filed by five former undergraduate students of three schools named in the suit. Former students Sia Henry (Duke), Michael Maerlander (Vanderbilt), Brandon Piyevsky (Northwestern), Kara Saffrin (Northwestern), and Brittany Tatiana Weaver (Vanderbilt) all attended their schools with the help of need-based financial aid. They claim in their lawsuit that all of their institutions currently belong or recently belonged to a member organization called the 568 Presidents Group, an association of universities founded in 1998 that the plaintiffs argue "has explicitly aimed to reduce or eliminate price competition among its members. As a result of this conspiracy, the net price of attendance for financial-aid recipients at Defendants' schools has been artificially inflated."
The 568 Presidents Group gets its name from Section 568 of the Improving America's Schools Act (IASA) of 1994, which "sets forth the conditions under which financial aid officers from different colleges and universities may establish common approaches for awarding non-federal, or institutional, student aid." The most significant provision in the law, and the one the plaintiffs say schools have violated, is that financial aid officials may only communicate across institutions about aid if they practice "need-blind" admissions, which means that they do not discriminate on the basis of an applicant's ability to pay. In short, the group exists to provide a way for competing universities to work together to the maximum extent allowed by federal law.
The 568 Presidents Group claims that cooperation between member schools has "result[ed] in a more accurate and reliable assessment of [a] family's financial circumstances." The website mentions the need for a standard way to value assets like rental properties owned by students' families as well as liabilities like "unusually high medical and dental expenses" when determining who gets financial aid and how much. The group also says its methodology is "more equitable and institutional funds will be awarded in a way that supports the maximum number of students."
But officials at several schools both inside and outside the group have said that its consensus methodology leads member schools to provide less generous financial aid packages compared to some of their peers outside the group. Caesar Storlazzi, Yale's former director of student financial services, claimed after Yale left the group in 2008, but before it rejoined in 2019, that the methodology employed by the organization hampers the ability of institutions to help needy students.
"By leaving the 568 Group, Yale is now free to give families more aid than they would have gotten under the consensus methodology." Storlazzi said in 2008. "In other words, the percentage of a family's income and assets that Yale takes as a parental contribution is now lower than the percentage taken by 568 schools."
Former Harvard director of financial aid Sally Donahue told the Yale Daily News in 2008 that Harvard never joined the cartel because the consensus methodology would've forced it to give need-based financial aid packages smaller than the school preferred.
An anonymous university president surveyed by the Education Conservancy in 2015 referred to the 568 Presidents Group as an "insider's game" from a "bygone era."
What's more, the plaintiffs also allege that several members of the group are not actually 568-compliant because they openly favor the children of alumni and donors when making admissions decisions, and this awareness of applicants' lack of need "disfavors" students who require institutional assistance to attend.
Iain Murray, the vice president for strategy at the Competitive Enterprise Institute, believes that complex federal regulations surrounding student loans have created a landscape that allows this sort of behavior to proliferate.
"One of the problems with areas where there are complex federal regulations, as there are with student financial aid, is that it makes it much more difficult for market competition to work," Murray told Reason in an email. "It's easier to see price competition at work when there are fewer rules. I can't say whether or not there has been price-fixing in this area, but it'd be easier to tell if that's the case were federal rules less complicated."
The ever-increasing cost of college has been a source of frustration and debate for both politicians and American families. Although the schools in the 568 Presidents Group allegedly offer less financial aid than other schools, this is hardly an issue specific to this cohort. There is mounting evidence that the proliferation of federally-backed student loans explains rising tuition costs. Federally-backed loans incentivize colleges to raise tuition costs, because they know families have access to subsidies. If the claims in the lawsuit are true, it suggests colleges are also operating in their own businesslike interests by limiting the number of truly poor students they admit and subsidize in order to minimize the amount of money they need to spend from their own coffers.