Financial Aid Blues: Elite Colleges See Federal Antitrust Exemption Expire As Price-Fixing Lawsuit Advances

Education Editors’ Pick Financial Aid Blues: Elite Colleges See Federal Antitrust Exemption Expire As Price-Fixing Lawsuit Advances Emma Whitford Forbes Staff I write about K-12 and higher education. Following New! Follow this author to stay notified about their latest stories. Got it! Oct 5, 2022, 11:56am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin The University of Pennsylvania is one of 16 universities being sued for allegedly violating .

. . [+] antitrust laws.

Jumping Rocks/Universal Images Group via Getty Images It isn’t just parents struggling with college financial aid formulas these days. Some of the nation’s most elite colleges have a problem too. At midnight, September 30th, a 28-year-old federal antitrust protection known as the 568 Exemption, expired.

Originally passed as part of the Improving America’s Schools Act of 1994, it had allowed colleges to agree on a common financial aid formula without running afoul of the antitrust laws, so long as they practiced “need-blind” admissions—meaning they didn’t consider financial need when deciding whether to admit undergraduates. That followed an August setback for the schools, when a federal judge—egged on by the U. S.

Department of Justice—refused to dismiss a private lawsuit alleging 16 top colleges engaged in an illegal “price-fixing cartel” by using that common formula without adhering to the requirements of the 568 Exemption. The schools being sued (all in the top 50 of Forbes’ America’s top colleges list ) are Brown University, California Institute of Technology, the University of Chicago, Columbia University, Cornell University, Dartmouth College, Duke University, Emory University, Georgetown University, Massachusetts Institute of Technology, Northwestern University, University of Notre Dame, University of Pennsylvania, Rice University, Vanderbilt University, and Yale University. While the FAFSA form parents are filling in now determines eligibility for federal loans and grants, these elite schools collect additional family financial information through the College Board’s separate Institutional Methodology and then, as members of the 568 Presidents Group , agree on a consensus methodology for determining each family’s financial need.

It’s up to each school to determine what mix of grants and loans they’ll include in their institutional aid package—over and above the federal aid a student receives. But the idea is that they won’t compete for students based on their assessment of a family’s need or discriminate against students when it comes to admissions based on ability to pay. The lawsuit against the 16 schools, filed in January in the U.

S. District Court for Northern Illinois, alleges they “artificially inflated the net price of attendance for students receiving financial aid,’’ by eliminating competition between them when it comes to financial aid. The plaintiffs in that case are seeking certification as a class action suit and compensation for more than 170,000 students who attended the schools over the past 18 years.

They’ve also asked for an injunction that would prohibit the colleges from discussing and agreeing on financial aid formulas in the future. The suit alleges, among other things, that some of the schools violated the 568 exemption–and thus the antitrust law–by considering the financial need of students and their families in deciding whether to admit waitlisted or transfer students and by giving preference to children of wealthy past or potential future donors. (Coincidentally, the world’s richest man, Elon Musk, was a transfer student at the University of Pennsylvania , as was former President Donald Trump.

) MORE FOR YOU Livestream Shopping Stays Hot As Whatnot Valuation More Than Doubles To $3. 7 Billion ‘Live At Yankee Stadium’ Brings Billy Joel’s New York State Of Mind To Big Screen The Many Tangible Benefits Of Creating More Granular DEI Goals In August, District Court Judge Matthew Kennelly rejected three different motions (one by all the schools, one by Yale and one by Chicago, Emory and Hopkins) to have the suit dismissed. He concluded the plaintiffs had made sufficient allegations that the colleges’ actions were not protected by the 568 Exemption (as the schools contend they were), for the case to proceed.

Kennelly, in his 26-page opinion , also found other arguments the schools made for dismissal—including that the plaintiff’s allegations were too broad and speculative, and that the four-year statute of limitations on antitrust had passed—unconvincing. Significantly, the Department of Justice, in a July statement of interest filing, had urged Kennelly to allow the case to continue. In that filing, the DOJ argued that the 568 Exemption was meant to be narrowly construed and that if at least some of the defendant schools hadn’t properly followed need-blind admissions, then an agreement among all of them wasn’t protected by the antitrust exemption.

It is unclear how the expiration of the 568 Exemption might affect the case or, more immediately, the schools’ current financial aid practices. Predictably, the plaintiffs crowed about the expiration. “Now defendants do not have any excuse for their collusion, which must end,” Robert Gilbert, a lead counsel for the plaintiffs, said in a statement.

In an August letter , U. S. Senators Marco Rubio (R-Florida) and Mike Lee (R-Utah) came out in favor of letting the exemption expire and threw their support behind the lawsuit.

“We expect that injecting competition back into the higher-education market through elimination of the 568 Exemption and robust enforcement of the antitrust laws by the U. S. Department of Justice will enhance education outcomes and lower student costs,” they wrote.

“As such, we request that the Department of Justice promptly investigate whether any academic institutions have violated the antitrust laws in their coordination of financial aid awards—whether before or after expiration of the 568 Exemption—and help restore competition in higher education. ” Spokespeople for Columbia, Duke and Caltech declined to comment on the expiration. In an email, Cornell University spokesperson Joel M.

Malina did not directly address questions about whether Cornell will continue to collaborate with other institutions to set financial aid methodology, or whether the university will push Congress to renew the exemption. Instead, he reaffirmed the importance of the exemption. Wrote Malina: “For thirty years, this provision has enabled need-blind universities, like Cornell, to maximize aid resources, increase access to higher education, and protect need-based aid for low- and middle-income families.

” MORE FROM FORBES Forbes America’s Top Colleges List 2022 MORE FROM FORBES Billionaire Alma Maters: The 11 Most Popular Colleges Among America’s Richest By Conor Murray Send me a secure tip . Emma Whitford Editorial Standards Print Reprints & Permissions.