Yale, MIT Sued for Colluding to Limit Financial Aid Packages

(Bloomberg) -- More than a dozen top U.S. colleges including Yale, Columbia and MIT were sued for allegedly conspiring to manipulate the admissions system to hold down financial aid for students and benefit wealthy applicants.

The proposed antitrust class action lawsuit, filed Sunday in federal court in Chicago, accuses the university “cartel” of a long-running scheme to collectively adopt “a common formula for determining an applicant’s ability to pay” tuition, rather than competing freely over financial aid by trying to attract students through more generous aid offers.

At the same time, more than half of the schools have given preferential treatment to wealthy applicants by tilting the scales to favor the children of “past or potential future donors” and “through a largely secretive practice known as ‘enrollment management,’” according to the complaint.

“Elite, private universities” are “gatekeepers to the American Dream,” making the alleged misconduct “particularly egregious because it has narrowed a critical pathway to upward mobility that admission to their institution represents,” according to the suit -- on which one of the lawyers, Eric Rosen of Roche Freedman LLP, was a prosecutor on “Varsity Blues,” the biggest college admissions cheating case the U.S. Justice Department has ever pursued.

The antitrust suit was reported earlier by the Wall Street Journal.

‘Need-Blind’ Admissions

Besides Yale and Columbia universities and the Massachusetts Institute of Technology, the defendants in the suit are Brown, Caltech, the University of Chicago, Cornell, Dartmouth, Duke, Emory, Georgetown, Northwestern, Notre Dame, the University of Pennsylvania, Rice and Vanderbilt.

The schools are allegedly acting illegally in claiming an antitrust exemption under Section 568 of the Improving America’s Schools Act of 1994. The exemption applies only to schools that practice need-blind admissions, according to the suit.

Some of the richest U.S. colleges describe themselves as need-blind in admissions because they don’t examine the finances of a family as a consideration before admitting the applicant. In order to qualify for need-based money, families must fill out long questionnaires about their finances.

Colleges use formulas to determine what they will offer in grant aid that doesn’t need to be paid back. They differ, and richer schools can afford to be more generous. For example, some colleges don’t consider home equity when making financial aid awards.

Many of the schools named in the suit offer some of the most generous financial aid to low-income students. 

Colleges Respond

Yale spokesperson Karen Peart said Yale’s financial aid policy is fully compliant with all applicable laws. MIT said it was reviewing the lawsuit and would “respond in court in due time.”

Brown spokesperson Brian E. Clark said the university hadn’t been served with the lawsuit and was aware of it only from news media reports, but that, “based on a preliminary review, the complaint against Brown has no merit and Brown is prepared to mount a strong effort to make this clear.” Clark said Brown “is fully committed to making admission decisions for U.S. undergraduate applicants independent of ability to pay tuition.”

Caltech said it is reviewing the suit and couldn’t comment on the specific allegations but has “confidence” in its financial aid practices.

Dartmouth, Emory, Notre Dame, Duke, Northwestern, Cornell, Rice and the University of Chicago declined to comment on the pending litigation. The rest of the schools named in the complaint didn’t immediately respond.

Unlike in many corporate antitrust cases, the lawsuit appears to rely mostly on public documents to allege a conspiracy hiding in plain sight. It accuses the schools of coordinating their scheme through formal membership in the “568 presidents group,” which it says was formed in 1998.

Although the group’s website suggests its mission is to promote need-blind admissions and ensure compliance with Section 568, the truth “is the opposite,” according to the complaint. Because membership is a matter of public record, it’s possible to trace which colleges have been parties to the alleged conspiracy over time, according to the suit, which states when each of the schools allegedly joined or left the group.

Sticker Shock

With growing wealth from endowment performance, colleges have been criticized for their high prices, approaching $80,000 a year for tuition, room and board, books and other expenses. About three dozen schools changed their financial aid policies more than a decade ago to offer grants instead of loans.

One top school that isn’t among the defendants in the suit is Harvard University. It is among the universities that have declined to participate in the 568 group because it would limit the financial aid it could provide, according to the suit. 

Stanford and Princeton universities are among the wealthiest colleges not listed as members on the group’s website.

The case is Henry v. Brown Univ., 22-cv-125, U.S. District Court, Northern District of Illinois (Chicago).

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