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Prestigious universities formed ‘cartel’ to inflate cost of attendance: lawsuit

Administrators gave admissions edge to wealthier applicants, lawsuit alleges

A group of America’s most prestigious universities formed a “cartel” to keep the net price of attendance artificially high, according to a lawsuit filed in an Illinois federal court this week.

The lawsuit was filed against 16 schools that are being accused of illegally colluding to limit the amount of financial assistance they offer students. Such a practice would save schools money and prevent students from fleeing to competitor schools that offered more generous financial aid packages.

“In critical respects, elite, private universities like Defendants are gatekeepers to the American Dream,” reads the lawsuit. “Defendants’ misconduct is therefore particularly egregious because it has narrowed a critical pathway to upward mobility that admission to their institutions represents.”

The schools accused of illegal collusion include Brown University, Northwestern University, the Massachusetts Institute of Technology, Dartmouth College, University of Chicago, Cornell University, Georgetown University, University of Notre Dame, Vanderbilt University, Yale University, University of Pennsylvania, Duke University, and others.

“We have conducted a multi-year investigation of these practices, which we allege are unlawful, and we plan to vindicate the rights of more than 170,000 financial aid students and their families whom we believe have been overcharged by these elite universities,” said attorney for the students Robert Gilbert in a statement provided to The College Fix.

University leaders have been quick to deny the charges.

“Yale spokeswoman said the school’s financial aid policy is ‘100% compliant with all applicable laws,’ while a Cal Tech spokeswoman said the school has confidence in its aid practices and a Brown spokesman said the complaint was without merit,” The Wall Street Journal reports.

The class-action lawsuit was filed by five former undergraduates who attended some of the universities accused of wrongdoing.

The lawsuit hinges on Section 568 of the “Improving America’s Schools Act of 1994,” which generally grants schools an antitrust exemption as long as they accept students on a “need-blind” basis. Need-blind admissions generally prohibit a school from taking into account a family’s ability to pay when making admissions decisions.

The lawsuit alleges schools formed a “cartel” to keep financial aid awards down, yet failed to adhere to the requirement that admissions be “need-blind.”

“At least nine Defendants [the accused schools] for many years have favored wealthy applicants in the admissions process,” the lawsuit reads.

“These nine Defendants have thus made admissions decisions with regard to the financial circumstances of students and their families, thereby disfavoring students who need financial aid. All Defendants, in turn, have conspired to reduce the amount of financial aid they provide to admitted students,” plaintiffs write in their lawsuit. “This conspiracy, which has existed (with slightly varying membership) for many years, thus falls outside the exemption from the antitrust laws.”

The 16 schools all collaborate in a group known as the 568 Presidents Group, which the students allege prevents member schools from increasing financial aid awards.

The lawsuit cites the notable absence of Harvard from the group, arguing the prestigious school stayed out of the compact so it could provide more generous financial aid awards.

“Harvard’s then-Director of Financial Aid, Sally Donahue, said in 2008 that Harvard never joined the 568 Cartel because its financial-aid formula would have yielded financial-aid packages that were smaller than what Harvard wanted to award,” the lawsuit states.

“In 2015, one anonymous university president who refused to participate in the 568 Cartel described it as ‘an insider’s game’ that belonged to a ‘bygone era.’ Observing that some schools had left the 568 Cartel to offer more financial aid, this anonymous president opined that ‘the notion of a collective that would constrain money is counter to public policy.’”

The students also note that the rule requiring “need-blind” admissions, which grants the Presidents Group immunity from antitrust laws, is often not followed.

For instance, they note a number of schools get around this requirement by taking income into account for students placed on waiting lists, a process they label “need-aware” admissions. Vanderbilt University, for example, once posted on its website that it “reserve[s] the right to be need aware when admitting waitlisted students.”

The lawsuit also charges the University of Pennsylvania with utilizing a similar waiting list strategy. Attorneys told The Fix that Columbia University is “need aware” at least for its School of General Studies, which accounts for about 30 percent of the undergraduate population.

Other universities allegedly determine who they admit through a secret process they call “enrollment management,” which the students allege can be used to choose students based on their ability to pay.

“One of the key purposes of enrollment management is to limit the number of financial-aid-eligible applicants who are admitted to the institution to achieve financial and budgetary objectives,” the lawsuit claims. “The effect of these practices is to disadvantage applicants based on their need for institutional financial aid.”

Further, the lawsuit notes many schools give preferential admissions status to both large donors to the school and children of alumni, many of whom are high-income applicants.

“Privileging the wealthy and disadvantaging the financially needy are inextricably linked; they are two sides of the same coin,” reads the lawsuit.

“Varsity Blues took on the side door of admissions,” said Eric Rosen, a former federal and state attorney who led the prosecution team charging parents who tried to bribe schools to gain entry for their children.

“This case takes on the back door—alleging that, while conspiring together on a method for awarding financial aid, which raises net tuition prices, defendants also favor wealthy applicants in making admissions decisions. The law does not allow them to do both,” said Rosen in a statement provided to The College Fix. Rosen is now a partner at one of the law firms filing the action.

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About the Author
Senior Reporter
Christian focuses on investigative, enterprise and analysis reporting. He is the author of "1916: The Blog" and has spent time as a political columnist at USA Today, the Milwaukee Journal Sentinel, and National Review Online. His op-eds have been featured in The New York Times, Wall Street Journal, New York Post, City Journal, Weekly Standard and National Review. He has also been a frequent guest on political television and radio shows. He holds a master’s degree in political science from Marquette University and lives in Madison, Wisconsin.