16 universities sued for anti-trust violations in FA determination

Applying to College
41

Liability for what & to whom ?

Basically,you want the court to apply the per se standard of review. If so, what is the harm that satifies this standard of review ? Certainly,the plaintiffs did not illustrate any such harm.

Then why didn’t the lawsuit show damages to these 5 plaintiffs or to anyone else ?

Are you sure that the schools violated the "safe harbor"provision ? Or would it be wise to read the answers in response to the allegations ?

What if any violations harmed only or mostly full pay applicants ?

There are at least two sides to every story.

P.S. What if the financial aid award received by an applicant resulted in a lower COA to attend an elite private national university than that applicant would have had to pay to attend his or her in-state public flagship university ? Where is the harm ?

2 Likes
42

I’m not a lawyer, so don’t know whether these situations are similar, but DOJ sued NACAC a few years ago. Result was that NACAC was forced to remove several ethics provisions that were generally good for students/families, but DOJ said they were anti-trust violations. NACAC settled because they they didn’t have the $ to continue to fight the DOJ. Here’s the info:

https://www.insidehighered.com/admissions/article/2019/12/16/justice-department-sues-and-settles-college-admissions-group (Inside higher Ed gives 5 free article per month upon registration)

43

I don’t think private parties have a right to sue for violations of the anti-trust violations - that should be up to the DOJ.

2 Likes
44

Based on the reasoning & position of the US Dept. of Justice as illustrated in the NCAC matter referenced above and in other antitrust cases linked to the above article, the plaintiffs could get support from the US Dept. of Justice to encourage the court to apply a per se standard of review to the group of 16 universities’ practice of using the same formula to determine financial aid awards because this practice could lessen vigorous competition by these schools for the same students.

If a per se standard of review is applied by the court against the 16 universities, then the universities would, essentially,not be given an opportunity to defend themselves or to justify the practice of using an identical standard for determining financial need & financial aid awards.

While this could enhance vigorous competition for students in need of financial aid,it might do more harm than good for those in need of financial aid.

The primary purpose of antitrust laws is to promote vigorous competition in the marketplace.

The NECAC matter suggests that it might be better for the group of 16 schools to disband & to use their own method for determining financial need and for designing financial aid awards.

The US Dept.of Justice believes that poaching of students & labor is a practice capable of promoting vigorous competition.

Application of the per se standard of review by the courts means that the 16 schools do not get to defend themselves or their practices due to a clear violation of antitrust law that “is so inherently anticompetitive and damaging to the market that they warrant condemnation without further inquiry into their effects on the market or the existence of an objective justification.”

No need under the per se standard of review for plaintiffs to show competitive unreasonableness or negative competitive effects.

Defendants are NOT entitled to justify their behavior based on any objective competitive justification under the per se standard of review that may be used by a court.

In the NECAC matter, NECAC folded because it did not have enough resources to fight the US Dept. of Justice.

In the instant case (16 schools), the defendants have ample resources to fight the US Dept. of justice if they elect to do so.

The federal courts are different from the federal dept. of justice. Courts are free & obligated to follow the law as interpreted by the court, and are not required to agree with the justice department’s position.

2 Likes
45

The universe of students who are theoretically damaged is limited to those who aren’t full pay or full ride. And those who didn’t get into elite schools not part of the cabal - because if they did they either got better aid offer from the non-cabal school (and chose to attend the cabal school for non-financial reasons) or got better aid at the cabal school. Either way, no damage.

And the universe is further limited by those who only got into one cabal school, because they can’t show they could have gotten more money elsewhere. Unless they can show the only reason they didn’t get in was need.*

And the universe is further limited if students got into more than one and chose the one with less aid.

And the universe is further limited if a student got into more than one school and chose the higher offer.

No one is left. I don’t see how this class action flies. Too many individualized questions.

*Good luck with that with holistic admissions. And the resulting discovery would by definition be a fishing expedition- looking at every admission decision for something that says “give this poor girl’s spot to the kid whose family gave us $5 mil”. That is not how admissions, or class actions, work.

46

Thank you. It’s all very interesting, we will see if the DOJ jumps in on this.

Since NACAC dropped the ethics clauses that DOJ had a problem with, we have seen the following. Better for students/families, or not?

-Schools offering more spiffs for ED apps, things like preferred housing, early registration, higher merit aid. Clearly benefits those who are relatively more affluent/predisposed to take advantage of ED, as well as relatively low income students who are knowledgeable about the system/working with a CBO/college access organization.

-Increase in enrollment deposits (instituted by schools to make it more painful for students to change their minds and enroll elsewhere). Necessary because colleges can now continue ‘recruiting’ students and offering enrollment spiffs even after the student has paid an enrollment deposit somewhere else.

-Increase in transfer app solicitation. Schools contact previous applicants or even those who never applied, with a message saying something like ‘if it’s not working out at your current school, submit a transfer app now’. Sometimes potential transfer schools won’t even require another app (assuming student was accepted in the previous year or two) and/or will honor the financial aid package offered at that point.

Lastly, I wonder whatever happened to this DOJ investigation? https://www.nytimes.com/2018/04/10/us/politics/justice-department-probe-college-early-decision.html

1 Like
47

The case against the 16 universities will be greatly affected by the standard of review that the court decides to use.

If the per se standard of review is used by the court, the plaintiffs will “win”, and the defendants will lose.

If any other standard of review is used, then the outcome is far less certain.

  1. per se rule
  2. rule of reason review
  3. quick look rule

The above are the court created initial standards of review applied in antitrust cases.

48

Wouldn’t it involve a two-step process?

  1. Are the defendants covered by the safe-harbor provision?

  2. If not, they could then be in per se violation of the anti-trust laws.

But, the safe-harbor question is a question of fact (either they are in compliance or they aren’t.) Sounds like that is the likely threshold question.

3 Likes
49

Seems reasonable to me, but antitrust cases don’t always follow a logical pattern. And, a complaint filed by plaintiffs is just one side of the story. The defendants’ attorneys will maintain that their clients (the 16 universities) are protected by this provision. What proof have the plaintiffs offered to the contrary ? The opposing positions may compel the court to look further into the matter because there may be no clear-cut answer as to whether or not the defendants actions have violated the parameters of the safe harbor provision.

We should have a better idea after reading any & all responses from the defendants and, possibly, from the US Dept. of Justice.

50

I am not an attorney. But in 1994 Congress passed the legislation regarding the exemption for antitrust violations and then in response 28 schools created the 568 Presidents Group (from @Mwfan1921’s quotes of the WSJ article).

Here is a graph from a Medium article showing inflation and the rise of COA from 1963 to 2017:

HigherEdCosts
HigherEdCosts1400×868 148 KB

It appears as though in the mid-80s COA started to outpace inflation, and then around 2000 accelerated even more quickly. Considering the bureaucracy of large institutions, I don’t think it’s unreasonable to imagine that it took 5 years for the President 568 group to start to kick things up a notch and see what kind of increases they could get as pertaining to tuition.

Because although most students never apply, much less are accepted, to these 16 elite institutions it’s less a question about them in particular. It’s more that they tend to set the tuition/EFC standards, and then then hundreds of other colleges follow their lead. So if these 18 charged $30,000 COA in 1998 and then $40,000 in 2003 (and up and up) then other schools also started increasing their costs. They might not be matching the costs, but they went on the same upwards trajectory.

But this is about financial aid, people retort, not the sticker price. Well, when these institutions determine what someone is expected to pay, that is the EFC that other schools then tend to follow their model with. And if the EFC is increasing, then the costs to families are increasing. If we take the fictional family with a $100,000 income and $50,000 in savings, if the financial calculations indicate that a family can pay $20,000, then that should be $20,000 in 1998, 2002, 2010, or 2022. Thus if COA has gone from $30,000 to $80,000 that family should have gone from getting $10,000 in financial aid to $60,000 in financial aid. But that’s not what has happened, as far as I know (please let me know if I am wrong). The institutions have been agreeing on how to define that EFC which keeps inching (or jumping) the EFC higher.

To reuse my example from above, say in 2020 the 568 group said the $100k family could contribute $20k, $22k in 2021, and $23k in 2022, even if the family’s income and savings was static (which I do believe happens; again, please correct me if I am wrong). Thus the family has contributed an additional $5000 even if their financial picture remains the same. That is what the non-elite colleges then follow as their model as well. They may not be in the groups or have the exact financial formula, but they probably have a pretty good idea as to what’s being done. My hope would be that this would be the heart of the anti-trust matter, as part of an explanation as to why higher education costs have increased so much faster and higher than most other costs over the last 30 years.

51

Reading the complaint, I still think the crux of the matter is whether the defendant schools are entitled to the 586 exemption. In entering into this 586 group they are without doubt “colluding” but there is a statutory safe harbor for the type of collusion these schools are engaged in with a key condition being that the schools apply need blind admissions. In para 5, Plaintiffs admit “Defendants’ longstanding conspiracy would be immune from the antitrust laws only if they have all been complying with the 568 Exemption.” They then go on to argue that at least 9 defendants do not practice “need blind” admissions based on Plaintiff’s standards (para 6) and the remaining 7 defendants even if they practiced need blind admissions were not entitled to the exemption because they were co-conspirators as part of the group that had noncompliant members (para 7).

This is all detailed out further in Section VII which disclaims the affirmative defense that the 586 exemption is available to these defendants, citing financial considerations used in taking students off the waitlist for Penn and Vandy (VII A 125-130); Columbia being need aware for its School of General Studies (VII A 131-135); Dart and ND using enrollment management (VII B); donor hook generally (VII C). It does appear that the statute and the Plaintiffs only apply “need blind” to domestic students.

The harm from the collusion seems to be a general claim that the collusion resulted in higher net prices all around through reduced aid when the formula and methodologies adopted by the group were applied (Section VI).

Whether Class certification is appropriate is a separate legal matter that will be litigated, but Plaintiffs attorneys definitively are going for it (Section IX), describing the Class as “all U.S. citizens or permanent residents, and purchasers of tuition, room, or board on their behalf, who have (a) enrolled in one or more of the Defendants’ full-time undergraduate programs, (b) received need-based financial aid from one or more Defendants, (c) paid to one of more Defendants tuition, room, or board not fully covered by such financial aid, and (d) first enrolled in one of the Defendants’ full-time undergraduate programs during these time periods (the “Class Periods”)”. These lawyers wouldn’t do this unless they felt they could get class action status – that is where the money is, even in an nuisance settlement.

1 Like
52

The defendants (the 16 schools) will probably file a Motion To Dismiss For Failure To State A Claim Upon Which relief Can Be Granted (Rule 12-b-6 motion) in an attempt to avoid discovery. If granted, this would thwart the plaintiffs attempt to go on a “fishing expedition” for relevant information to support plaintiffs’ claims. And any information retrieved could give rise to additional new claims.

If the motion to dismiss is denied, then the defendants must file an answer to the complaint & participate in the discovery process which will be initiated by plaintiffs.

Discovery is a way to get information from the opposition that may help the plaintiff to refine its claims & to prove some or all allegations.

Defendants want to avoid discovery because it may give plaintiffs more ammunition to bolster, and to prove, their claims & because it may reveal violations of the law, or potential liabilty, by the defendants.

Additionally, the defendants may move for dismissal of the complaint in whole or in part due to a lack of standing.

53

Shouldn’t applicants have been on notice for decades about the “collusion” and the fact that “donor hook” is a thing at the elite private schools? The applicants then knowingly entered into the transaction under these circumstances. Seems like sour grapes after all these years?

54

Wouldn’t this quote, posted above, be relevant to the lawsuit, and suggest that FA awards could in fact be lower on average at the schools in the 568 group? Which could lead a judge to allow for the fishing expedition to see if it’s true or not? @publisher @bksquared?

1 Like
55

At many of the discussed schools, the inflation adjust average cost after FA has remained fairly stable over decades. That is many high endowment per student type private colleges have been gradually increasing the price for full pay kids faster than inflation while decreasing the price for low/middle income kids… in some cases with near $0 cost to parents for families with below ~median US income. Some example numbers I calculated for another thread are repeated below:

Average Net Cost at Stanford Over Time (2013 $)
1999 – $31,700
2000 – $30,400
2001 – $32,800
2002 – $33,100
2003 – $30,600
2004 – $31,400
2005 – $32,700
2006 – $32,600
2007 – $33,100
2008 – $31,900
2009 – $29,300 (large increase in financial aid this year, likely due to new FA policy + subprime mortgage crisis)
2010 – $29,200 (still abnormally low average cost)
2011 – $29,700 (still abnormally low average cost)
2012 – $30,400
2013 – $31,700 (finally recovering from 2009 FA increase and returning to normal level)

4 Likes
56

So, if you’re an applicant, then don’t apply to these schools… Nobody is forcing applicants to voluntarily enter into a transaction… What am I missing?

57

Caveat, haven’t practiced law since the mid 90’s and was a corporate lawyer, so this is just my opinion based on law school recollection.

As @Publisher noted in #53, I am guessing the defendants will move to dismiss the case for a failure to state a cause of action to avoid discovery which is disruptive, expensive and could provide grounds for plaintiffs to make further claims (the fishing expedition). I think the defendants will try to get the issue of what is meant by “need blind” resolved first to establish whether the exemption applies even if we assume the facts asserted by plaintiffs are true (need considered in wait list, School of Gen Studies, enrollment management and donor hook) before going into full discovery.

On Harvard’s reason for not joining the group (and Yale pulling out temporarily because they wanted to award more), it is only relevant if the court finds that the exemption is not available and now we go to the question of whether or not the 586 Group’s collusion served as a restraint on trade. Plaintiffs want to argue that Harvard wanting freedom to go lower demonstrates that the Group’s formula resulted in a higher net price than what would be “market”. The weakness there that I see is that schools have different levels of resources so they can afford different levels of support. There is no law that says there is one “true” net price for every school for a given family. Because Harvard has a $53B endowment, it stands to reason that it can apply more generous assumptions and rules, so I don’t know that Harvard not wanting to be bound by the 586 groups formulas necessarily means the 586 group’s colluded in fixing an artificially higher cost.

4 Likes
58

I think this is in the nature of an antitrust claim. You could voluntarily pay a higher price for widgets knowing that the 2 manufacturers of widgets were colluding on fixing prices, but that would not preclude you from making a price fixing claim under some antitrust statute that allowed for a private right of action.

59

And the question of whether or not they were entitled to the exemption from anti-trust statutues was whether they are truly “need blind”?

60

So, really the litigation comes down to what is the definition of “need blind”? I know schools have the best of intentions, but I though you need to indicate on the main application whether you are seeking FA. If so, how could AOs be truly “need blind”?