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Lawsuit claims 16 top colleges overcharged over 170,000 students by ‘hundreds of millions of dollars’

Abigail Johnson Hess | Tuesday, Jan 11 2022 3:05 PM EST

On Sunday, a lawsuit was filed in Illinois federal court against 16 prestigious universities on behalf of five former college students who believe the schools overcharged more than 170,000 financial aid recipients by “at least hundreds of millions of dollars.”

Some of the country’s most exclusive universities were accused: Brown University, the California Institute of Technology, the University of Chicago, Columbia University, Cornell University, Dartmouth College, Duke University, Emory University, Georgetown University, the Massachusetts Institute of Technology, the University of Notre Dame, Northwestern University, the University of Pennsylvania, Rice University, Vanderbilt University and Yale University.

The suit alleges that the schools use a shared methodology to calculate applicants’ financial needs, that these schools occasionally consider financial status in the admissions process and that this system amounts to price-fixing, which is “almost always illegal,” according to the Federal Trade Comission.

“Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms,” reads the FTC’s website. “When competitors agree to restrict competition, the result is often higher prices.”

CNBC Make It reached out to all of the universities but most declined to comment.

“Yale’s financial aid policy is 100% compliant with all applicable laws,” said Karen N. Peart, spokesperson for Yale University.

“The University has not been served with the lawsuit, so we are aware of it only from media reports. 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,” said Brian E. Clark, spokesperson for Brown University. “Brown is fully committed to making admission decisions for U.S. undergraduate applicants independent of ability to pay tuition, and we meet the full demonstrated financial need of those students who matriculate. If we are served with the complaint, we will conduct a full review and respond as appropriate through the legal process.”

Experts say while it is impossible to know the outcome of the lawsuit, many of the key claims are not surprising.

Elizabeth Tandy Shermer, associate professor of history at Loyola University Chicago and author of the book “Indentured Students,” says schools have historically used the same, or similar, criteria to determine financial need and avoid competing over which school will offer the more generous financial aid package.

That’s actually how we got the FAFSA,” says Shermer, referencing the Free Application for Federal Student Aid, which students submit in order to receive assistance. “A bunch of elite schools were really tired of competing with each other… And so they came up with the CSS and it became the FAFSA financial aid form.”

In this instance, all of the accused schools are members of the 568 Presidents Group, an affiliation of 28 colleges and universities, which meets multiple times a year to coordinate their aid formulas. The group is legal on the grounds that the schools do not consider financial need in the application process. The claim that schools such as those listed in the lawsuit consider financial need when making admissions decisions is a key distinction because institutions that label themselves as “need-blind” are exempt from antitrust legislation.

In 1991, all eight members of the Ivy League, as well as MIT, were charged with price fixing by The Justice Department, which said that the schools would explicitly discuss how much aid to offer students who had been admitted to one or more schools. The Ivy League schools settled the case and agreed to stop collaborating in this way. MIT shifted away from the practice as well.

Christopher Rim, CEO of college consulting firm Command Education says most schools consider financial need when making admissions decisions — including many (but not all) schools that claim to be “need-blind.”

For one, he says “virtually every college” asks students about their financial status, and if they will require aid, during the application process.

“If [colleges] didn’t care about financial needs, or whether or not you can afford tuition, they wouldn’t ask that,” says Rim, who attended Yale and maintains that his alma mater does a superior job of separating financial aid and admissions decisions.

Plus, most elite institutions have robust admissions teams who can easily deduce how wealthy a student is by assessing a student’s school, neighborhood, extracurriculars — or even simply by googling the value of the home a student lives in.

Admissions councilors “know whether or not students are financially capable of affording them or not.”

“Some schools are very honest that they’re aware,” says Rim. “But some schools are not as honest and transparent about this process as they could have been.”

CNBC

Originally published on CNBC on Jan 11, 2022

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