Yes, Colleges Favor Some Rich Kids. It's Just Math.

(Bloomberg Opinion) -- This week’s lawsuit against 16 top colleges and universities accuses the schools of gaming their federal antitrust exemption in order to admit more wealthy students. Maybe the charges are frivolous. But even if the allegations turn out to have merit, the reason might be that admitting a certain number of rich kids is necessary for sustaining higher education.

The antitrust exemption largely tracks a 1991 agreement that settled earlier charges by the Department of Justice — in that case, that highly selective schools were colluding in, rather than competing on, their awards of financial aid. The law, which will expire this year unless Congress extends it, allows college to use a common financial aid application and common principles in analyzing the information as long as “all students admitted are admitted on a need-blind basis.” The same law prohibits schools from sharing information about “the amount or terms of any prospective financial aid award to a specific individual.” At least in theory, schools unable to share information will use financial aid packages to compete for desirable students of moderate means.

The new lawsuit, filed Monday in federal court in Illinois, alleges that the defendants admit some applicants based on factors that aren’t need-blind — thus violating the exemption’s requirement that “all” students be judged by the same factors. According to the complaint, some of the schools reduce the number of low-income students admitted in order to balance their budgets; and some use financial need as a criterion for admitting from the wait list. If these charges are true, the defendants might be in trouble.

More intriguing is the allegation that some of the schools give an admission preference to the children of those who’ve given money before or who they hope will give money in the future. Here, at least, it might be worth broadening the exemption, because some sort of a preference for a limited number of children of wealth makes sense. After all, at the typical private college or university, the capital budget may be funded by gifts, but 90% or more of the operating budget comes from tuition and fees. To put the matter crassly, that money has to come from somewhere.

Take a quick look at the math. At the typical highly selective school, it's not unusual for 45% of the students pay full tuition and for 55% percent to receive financial aid. That means that if, for example, the average student on financial aid pays 25% of the cost and receives aid for 75%, the 45% who pay full freight must pay 90% of their own instruction costs plus 67.5% (that’s 90% of 75%) of the expense of educating others.

Applicants for need-based financial aid packages are required to divulge significant information about both their own finances and, in most cases, the finances of their families. This process enables the schools to engage in price discrimination by charging students different amounts for the same educational services depending on their ability to pay. This is in general considered a feature of higher education, not a bug. But note what happens: Those who pay the full price for tuition, room, and board in effect subsidize those who don’t. Whether or not schools are allowed to consider wealth explicitly, this system over time will shift more and more of the costs of higher education to wealthier families.

So why not let colleges do directly what they’re in any case bound to do indirectly? Consider the leg up in admission to the children of alumni. Sometimes the advantages are quite high. At Harvard, for example, which admits just under 6% of applicants, an astonishing 30% of the so-called “legacy” applicants are admitted. A preference for the children of alumni also reduces the number of minority students admitted. In an era increasingly concerned about inequality, legacy preferences have become an understandable object of consternation, and some selective colleges have dumped them.

But most schools retain the programs, for a simple reason: They raise money. A college sacrifices a degree of academic quality now “to preserve or improve its selectivity in the future.” The research suggests that legacy admission programs do what they’re supposed to do: Well-to-do alumni increase giving to their alma maters when their children, children-in-law, nieces, or nephews attend. 

Then there are binding-early-decision programs, under which an applicant files by an autumn deadline and, in return for a swift answer, promises to attend if admitted. Critics have long noted that children of privilege are by far the most likely to apply under the programs. Colleges can game the rules by using these programs as proxies for ability to pay, and it’s possible that they do: The academic literature suggests that the mere existence of the early-decision option at a selective school reduces the chance that a well-qualified student from a low-income household will gain admission. It also tends to reduce the overall quality of the entering class and may harm diversity, favoring White applicants at the expense of Hispanic and Asian American applicants. But schools indulge the programs anyway, and one of the reasons is almost certainly because they raise money.

So let’s be explicit. Tweak the antitrust exemption to allow the schools to reserve a small number of slots for the children of wealth. By allowing colleges to consider wealth in awarding, say, 10% of the available slots, we’d let them be honest about using admissions in part to raise money, and progress toward equality might actually be improved: Rich families would be subsidizing education of children from moderate backgrounds. We just wouldn’t be shy about saying so.

You might object that 10% is a lot smaller than 45%, and you'd be right.  But some of those well-to-do students would meet the admission standards anyway, and others will get in through early decision. The sheer number of rich kids might wind up being smaller, but what colleges can't afford to do is eliminate entirely the preferences that benefit them — not unless they plan to cut their budgets and raise tuition.   

And somehow I don't think that's the outcome the litigants want.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen L. Carter is a Bloomberg Opinion columnist. He is a professor of law at Yale University and was a clerk to U.S. Supreme Court Justice Thurgood Marshall. His novels include “The Emperor of Ocean Park,” and his latest nonfiction book is “Invisible: The Forgotten Story of the Black Woman Lawyer Who Took Down America's Most Powerful Mobster.”

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