Once again, the US Department of Justice has ruled that colleges and universities are not exempt from antitrust law. This line of thinking, consistent across three US presidential administrations, has also consistently missed the mark.
As we follow this long and winding road, we find that the latest misguided lawsuit has been filed by former students of several select universities (Duke, Northwestern and Vanderbilt Universities) who claim in a class action lawsuit that their alma maters and 13 other universities illegally collaborated to fix financial aid scholarships. These universities are or were members of the 568 Presidents Group. The plaintiffs argue that while these institutions claim to have been allowed to work together (under the antitrust section 568 exemption in the U.S. Schools Act Improvement), the institutions did not meet the criteria for the exemption.
To qualify for the exemption, schools must be need-blind in the admissions process, and plaintiffs argue that nine of the 16 did not meet the criteria for need-blindness, and the other seven, by conspiring with those nine, were also in violation. Although adhering to a consensual methodology for providing need-based aid – permitted under the exemption – they have been accused of unlawfully limiting financial aid, thus harming students and families who pay the fees. bills. Plaintiffs claim that the net prices paid were higher than they would have been in the absence of the consensus methodology, and that reimbursement and damages are due.
The Purpose of the Consensus Methodology
Each member of the group of 568 presidents certifies that they are blind to need on an annual basis. These institutions believe they meet the requirements of Section 568. Unlike “need-conscious” schools, which reject otherwise eligible and desirable students based on their need for institutional financial aid, these institutions pledge not to take account a student’s need for financial assistance. account in the admissions process. They see it as a contribution to the public good by supporting academic success and economic mobility, in accordance with their missions as non-profit institutions. By working on a consensus methodology, they hoped to prevent institutions from competing for high-income students with more financial aid than needed, at the expense of financial aid for low- and middle-income families who could not afford to do without.
The purpose of the consensus methodology is to calculate what families would need in financial assistance to make their student’s participation financially possible. The establishment would then offer, if it had the means, a set of financial aids, including scholarships, loans and work expectations, which would meet this need. The idea is that it would prevent schools from competing for top-earning students through unnecessary financial aid scholarships. Given what schools spend on financial aid, the students the universities wanted to avoid net price competition for are high-income students, not low- or middle-income students, as the suit claims.
Avoid the zero-sum scenario
Many colleges that are not members of the 568 Presidents group because they are aware of the need have argued for extending the exemption to them so that they can reduce their merit aid or student financial aid expenditures at the beyond what they need to attend. They feel pressured to offer merit-based aid, compete for many students they would like to enroll, and often lose to other institutions if they don’t offer it.
Students and their families care about the net price they are asked to pay, but they also care about the programs offered by colleges and universities. Colleges compete for students by offering programs that the talented and wealthiest students in their applicant pools desire. This can range from spending money on the academic mission of the institution, such as hiring talented teachers and reducing class sizes, to amenities such as good food and dormitories. At selective colleges, there is an arms race to attract wealthy students by spending on the programs that appeal to them. And this arms race has worsened as income inequality has grown in America over the past 50 years.
This puts low- and middle-income students at a disadvantage because these high-income students are willing and able to pay for these programs and amenities. If a school chooses not to invest in it, students can go elsewhere. Spending on these programs are resources that could be used for financial assistance based on need. And, if schools could work together to limit spending on wealthy students, low- and middle-income students could get more financial aid based on need.
It is true that some students will be disadvantaged if colleges can cooperate to protect the resources of low- and middle-income students. It is high-income students who have benefited from college competition, both because they arrive with significant resources invested in their K-12 education, making them attractive candidates, but also because they can pay the full sticker price. With fixed resources, the allocation of those resources is a zero-sum game. If spent on programs, these resources cannot be spent on financial aid. If spent on merit aid for high-income students, colleges cannot further reduce the price for low- and middle-income students. Antitrust laws are not helpful in improving the welfare of all consumers of higher education.
Alignment of Federal Antitrust Laws with Financial Aid Policies
Federal financial aid policies reinforce the benefits of making higher education accessible to students, regardless of family income. Through federal grant and loan programs, particularly aimed at low- and middle-income students, as well as various special tax provisions, all institutions of higher education receive grants and can contribute to the public good, in particular by educating students from all backgrounds and supporting economic opportunity and social mobility, in exchange for these grants.
Many selective colleges and universities are doing better with low- and middle-income students than they have in the past. Their Pell Grant shares are up and the net price they are asking them to pay is down. For the 16 universities listed in the lawsuit, between 2008-9 and 2019-20, their average share of Pell grant recipients increased by 4.5 percentage points. And net prices for four income categories reported to IPEDS (0-30,000, 30,001-48,000, 48,001-75,000, and 75,001-110,000) fell by almost $4,500 to $9,000. . This set of 16 universities on average further increased their share of low- and middle-income students (measured by Pell shares) and asked them to pay net prices below the average of a set of colleges and universities. universities with the highest endowments in the world. country.
At the same time, these selective institutions are wealthier than ever and could do more to increase the socio-economic diversity of their students. Yet, unlike plaintiffs who argue that these colleges have no right to cooperate, allowing even greater cooperation between these institutions – as well as those currently aware of the need – would further benefit low- and middle-income students. Federal antitrust laws and federal financial aid policies work at cross purposes. Allowing greater exemptions under antitrust laws would align these two sets of federal policies and support the goal of increasing educational attainment and supporting equal opportunity. Access to the exemption could depend on the actual success of recruiting and educating more low- and middle-income students, directly supporting federal policy goals.