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Does the financial aid methodology utilized by a number of elite colleges constitute price-fixing? That is the claim in a class action lawsuit recently filed in the U.S. District Court for the Northern District of Illinois.
The suit names 40 highly ranked private national universities and the College Board as defendants. Those universities all require financial aid applicants to complete the College Board’s CSS Profile in addition to the Free Application for Federal Student Aid in determining eligibility for institutional funds. Whereas the methodology utilized by the FAFSA takes into account only the income of a student’s custodial parent, the CSS Profile allows colleges to ask for more detailed information about a family’s assets.
That includes the option to require income and asset information from noncustodial parents, and that practice is at the heart of this lawsuit. The lawsuit alleges that the Financial Aid Standards and Services Advisory Committee of the College Board worked with colleges in 2006 to adopt a common methodology for capturing information about the income and assets of noncustodial parents, and describes that as a “conspiracy” that has “substantially raised” the costs that the plaintiffs have had to pay for college.
Here is the essence of the complaint, although the lawsuit does not connect all the dots together particularly well.
- The cost of higher education and the level of student debt has increased substantially, with tuition, room and board increasing 169 percent, in constant 2019 dollars, between 1980 and 2020, and student debt more than tripling between 2006 and 2024.
- Worries about debt levels lead to a number of other problems for students, ranging from mental health concerns to food insecurity and homelessness.
- The Agreed Pricing Strategy (APS) used by the defendants for noncustodial parents has “exacerbated” student debt by raising prices for families that have to report two sets of incomes.
- The use of the APS is anticompetitive because it “constitutes an agreement between horizontal competitors related to price.”
Price-fixing is a common claim in antitrust cases, and this is not the first time it has been raised with regard to higher education. In the early 1990s a group of 23 Northeastern colleges known as the Overlap Group were accused of antitrust violations for their practice of agreeing on common financial aid offers for individual applicants. They claimed it was to remove cost as a major factor in college choice, but in retrospect it is hard not to see the practice as price-fixing.
More recently, in 2022, a class action lawsuit was filed against members of the now-defunct 568 Presidents Group over their common financial aid methodology. That methodology was developed in the aftermath of the Overlap Group case, when colleges were granted an antitrust exemption to collaborate on financial aid guidelines as long as they were need-blind in admission. The suit claimed that the institutions in question were not truly need-blind in certain areas, like in offering admission off wait lists or to transfer students. The colleges involved denied any wrongdoing, and yet many of them have already settled.
There are two other examples. In 2019, the Department of Justice found that the National Association for College Admission Counseling’s ethical prohibition on poaching students committed to or enrolled in another college was noncompetitive because it prevented colleges from offering students lower prices. Worried that legal fees might bankrupt the association, NACAC signed a consent decree and removed the standard from its code of ethics. And three days after the most recent lawsuit was filed, a federal judge in Connecticut dismissed a suit claiming that the Ivy League’s prohibition on athletic scholarships is anticompetitive and a tool for fixing prices.
The plaintiffs in the case against the College Board have asked for a jury trial, undoubtedly hoping that a jury will be more sympathetic than a judge. I am not qualified to weigh in on the legal issues, but here are some ethical questions and issues to consider.
Is an agreement on a financial aid methodology the same thing as price-fixing? It is certainly possible that a group of institutions might agree on a methodology knowing that it will produce a particular result, but I don’t find that here. The plaintiffs argue that, absent the Agreed Pricing Strategy, each individual college would unilaterally develop its own “fair” formula. But would that be better than a common methodology? That could force families to complete different forms and report different information for every college where a student is applying.
Plenty of colleges don’t use the CSS Profile at all, and a number that require it don’t ask for information from noncustodial parents. For example, Vanderbilt University (not a defendant) uses the CSS Profile but does not require information from noncustodial parents. Another CSS Profile user, Colgate University (also not a defendant), does require information from noncustodial parents, but it is classified as a national liberal arts college rather than a national university. In its attempt to allege a “horizontal” conspiracy within a “relevant market,” the lawsuit argues that universities and liberal arts colleges are fundamentally different kinds of institutions. I don’t find the attempted distinction convincing.
During the nearly half century that I have worked in college admission and college counseling, the language and goals around financial aid have changed substantially. Higher education is one of the few commodities where different consumers pay different amounts according to their financial situation. That qualifies as morally praiseworthy but not necessarily morally obligatory. It would be defensible for colleges to set a sticker price and provide no aid, but fortunately they haven’t gone that route because they believe in access and fairness as institutional goals. Today those goals compete with the goal of maximizing revenue. The use of institutional funds is tied less to a family’s ability to pay and more to its willingness to pay.
The lawsuit contends that “Absent this agreement the University Defendants would have competed in offering financial aid in order to enroll their top candidates.” I wonder if that is actually the case. A lot of institutional aid is what has traditionally been called merit aid, used to entice enrollment from applicants who otherwise wouldn’t choose a particular college or university. My rule of thumb has always been that you don’t receive merit aid at any college where you are fortunate to be admitted. Most of the 40 defendants don’t need to buy students with financial aid, for reasons identified later in the complaint.
One is selectivity. Elite colleges have large enough applicant pools that they could admit multiple freshman classes with little change in the class profile. Given how selective most of the defendant universities are, there would be very few students admitted to multiple institutions and able to compare price. Secondly, among students considering those universities, brand preference is as important a factor as cost. I have certainly had parents state that they were willing to pay for Dartmouth College, but not for a comparable institution not as high in their pecking order.
From an ethical perspective, the real issue here is what obligations noncustodial parents have for their children’s college educations and what obligations do colleges have to noncustodial parents. If I were a noncustodial parent, I would certainly want colleges to take into consideration only the income from the custodial parent, especially if it just happens to be the lower income. That would be especially the case if I had a divorce settlement or prenuptial agreement specifying that one parent would be responsible for college costs. But do I have a right to expect that, and have I been wronged if the methodology used by a college or university requires financial information from noncustodial parents?
I think the clear answer is that a student’s family bears the primary responsibility for paying for college. That should be determined by the ability to pay rather than the willingness to pay, and colleges have the right to know what assets a family actually has, especially since the college is being asked to contribute its own funds to make the student’s attendance possible.
Is that fair? I don’t know. It clearly imposes an added burden on students who have parents who aren’t in the picture or refuse to participate, and I would hope there are procedures to help those students. It is also the case that there is no such thing as a financial aid methodology that doesn’t benefit some and penalize others. The clearest example of that is back in the day when families who saved for college actually lowered their eligibility for aid compared with those who were spenders.
I’ll be interested to follow this case as it progresses. I hope the plaintiffs have a stronger case than what I see in the filing.