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Are colleges colluding with each other on financial aid packages?

On Behalf of | Feb 8, 2022 | Education Law

Tuition at elite colleges and universities has risen faster than inflation in the past few decades, according to the College Board. For example, tuition at Yale this year is $59,950, which doesn’t include room and board.

In principle, lower income students often don’t have to pay the full rate because most reputable institutions of higher education are need blind on financial aid. That is to say, they don’t allow the question of whether the student can afford the full tuition rate to influence their decision on whether that student is admitted. Then, each institution puts together a package of grants, loans and campus employment opportunities to cover each student’s cost of tuition, food and housing.

Ideally, this would result in competing packages and the student would be able to choose the best package for their needs. Also ideally, the students most in need of help would get the most favorable treatment.

It may not actually work out that way. According to a recent class-action lawsuit brought by five college graduates, 16 of the nation’s most prestigious universities have essentially colluded with each other since at least 2003 to reduce the overall amount in financial aid that each expends. As a result, the lawsuit claims, about 170,000 financial aid recipients and their families have been overcharged in the last two decades by hundreds of millions of dollars. These are the colleges and universities named in the suit:

  • California Institute of Technology
  • Brown University
  • 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
  • Yale University

The class action is being brought as an antitrust, or price fixing, complaint. In essence, it argues that the colleges and universities work together through an organization called the 568 Presidents Group. The group purports to be a way for colleges and universities to discuss common principles of financial aid.

However, several top colleges refused to join or left the 568 Presidents Group upon discovering that participation resulted in less financial aid being delivered to needy students. Some of them now offer more generous financial aid packages.

If true, would these allegations amount to price fixing?

It’s possible, although it appears that the colleges and universities may be relying on an antitrust loophole written into the Improving America’s Schools Act of 1994. Part of the lawsuit examines whether the institutions should be allowed to use this loophole.

The lawsuit does not claim that other colleges and universities outside the 568 Presidents Club have colluded to limit financial aid offers. It only accuses the 16 named universities of violating antitrust laws.

This lawsuit is still early in the legal process. First, the federal judge will have to determine whether the allegations, as written, meet the basic threshold of a legitimate claim. Then, the judge will need to decide whether the plaintiffs should be allowed to represent the proposed class, which includes all U.S. citizens and permanent residents who attended or paid tuition at any of these institutions.

Only once those decisions are made will the judge set a date for a hearing on the merits of the case. Moreover, the parties could negotiate a settlement at any point.

The arguments in the proposed class action are intriguing, and it doesn’t seem like good public policy to allow elite colleges and universities to work together to limit financial aid.

Leigh Law Group is not involved in this lawsuit. We represent students in a wide variety of education law issues across California.

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