Elite Universities Face Price-Fixing Allegations
A potential class of more than 170,000 former students that received financial aid to attend 16 of the top universities in the United States may be entitled to hundreds of millions of dollars in damages, according to a complaint recently filed in the U.S. District Court for the Northern District of Illinois.
The plaintiffs allege that these private, national universities, which rank in the top 25 of U.S. News & World Report, violated Section 1 of the Sherman Act by collectively adopting a methodology that considers a “family’s ability to pay for college.”
At the heart of the complaint is Section 568 of the Improving America’s Schools Act of 1994, an antitrust exemption commonly referred to as the “568 Exemption.” To fully understand the 568 Exemption and the proposed class’s antitrust lawsuit, a brief history lesson is required. In 1991, the U.S. Department of Justice filed an antitrust lawsuit against eight Ivy League universities and the Massachusetts Institute of Technology for “conspiring to restrain price competition on financial aid to prospective students.” According to the DOJ, the nine universities “explicitly fixed the amount of money that the families of financial aid applicants had to pay to attend one” of the nine schools. All defendants, except MIT, entered a consent decree at the time of the complaint’s filing. MIT, by contrast, litigated the case, and the Eastern District of Pennsylvania declared the conduct per se illegal.. In 1993, the Court of Appeals for the Third Circuit rejected the per se treatment for the coordinated conduct, finding that the lower court failed “to adequately consider the procompetitive and social welfare justifications” of the universities’ agreement concerning financial aid.
Shortly after the Third Circuit’s decision, MIT and DOJ settled the case, and the 568 Exemption was born. The 568 Exemption exempts from the antitrust laws agreements among two or more “need-blind” institutions to, among other things, “award such students financial aid only on the basis of demonstrated financial need…” or to “use common principles of analysis for determining the need of such students for financial aid….”
In this case, plaintiffs allege that, starting as back as 2003, the 16 universities skirted the need-blind process by favoring wealthy students, instead of disregarding a student or a student family’s wealth. Specifically, the complaint alleges that the various universities were all members, at various time periods, of the “568 Cartel”, also known as the 568 Presidents Group. According to the complaint, the 568 Cartel created a methodology to explicitly “assess the income and assets” of all financial aid applicants. By assessing the income and assets of its potential students, the complaint alleges that the common methodology is not need-blind, and therefore, antitrust immunity under the 568 Exemption is unavailing. Instead, the complaint characterizes the methodology as a naked price-fixing agreement between the 16 universities that limits competition for financial-aid offers and drives up the net price for attendance for students seeking financial aid.
The higher education space continues to be a hotbed for antitrust allegations, and, given the institutions involved, the complaint’s allegations, and the potential defenses, this case should garner significant attention by both the public and antitrust bar.
Edited by Gary J. Malone