Is Georgetown really need-blind? A recent lawsuit indicts Georgetown as part of a massive higher education cartel
NEIL TRACEY: A recent antitrust class-action against Georgetown and sixteen other top Universities claims every Georgetown student's deepest suspicion: Georgetown isn’t really need-blind. The suit alleges that for the past two decades, sixteen top universities engaged in an illicit price fixing cartel that resulted in higher tuition for over 170,000 students. The schools indicted in the lawsuit include: Georgetown, Brown, UChicago, Columbia, Cornell, Dartmouth, Duke, Emory, MIT, Northwestern, Notre Dame, UPenn, Rice, Vanderbilt, and Yale.
This current lawsuit is deeply connected to the previous Varsity Blues case (also against Georgetown), which exposed how wealthy families were able to buy their admission to elite universities. Now, this current class action alleges that these universities are not actually need-blind because they systematically privilege wealthy students in their admissions processes. Infact, these Universities are engaged in a massive price fixing-scheme. According to the complaint, this scheme is organized through the 568 Presidents Group: the organization in charge of creating the college financial aid system. In order to understand the lawsuit, and financial aid at top colleges, it is critical to look at the history of this ill-understood institution and the collusion that has accompanied it.
What is the history of collusion in collegiate financial aid?
The practice of colleges collaborating to standardize financial aid across schools has a long tradition. Starting in the early 1950s all eight Ivies and MIT coordinated to solve an issue that they dubbed “Overlap” cases– students admitted to more than one institution. To ensure that they were not competing for the same top students and athletes, these nine universities hold an “Overlap Meeting” every year.
Eventually, this meeting evolved into a standardization of the financial aid process. This standardized formula assured that while students might receive offers from two or more constituent members, their financial package would be identical. These financial packages were still coordinated through yearly meetings where the Ivies and MIT got together and went student by student from their admitted class to clear up any discrepancies. Eventually, these annual “Overlap Meetings” expanded to other schools and, at their peak, garnered representatives from 53 top academic institutions.
In 1991, the Department of Justice sued nine of these institutions for price collusion (there was not as convincing a case for the other universities)– an antitrust violation of section one of the Sherman Act. In response, all eight Ivy League colleges settled with the DOJ and agreed to stop the alleged collusion. The only hold-out was MIT, which went to court to fight the suit but was found guilty in 1992. As part of the compromise settlement with the eight Ivies, Congress enacted section 568 of the Improving America’s Schools Act (IASA).
What is Section 568?
Under Section 568 of the IASA, schools that are need-blind, meaning they do not look at students' financial need when determining acceptance, are not permitted to discuss individual students' financial packages. However, need-blind universities are given three major exceptions from typical antitrust enforcement.
Colleges are allowed to agree to award aid only on the basis of financial need
Colleges are allowed to use common principles to award aid
Colleges are allowed to use a common form (FAFSA) to determine financial need
As a result of section 568, twenty-one colleges and universities formed the 568 Presidents Group. This group, founded in 1998, operates under Section 568 to coordinate financial aid and agrees to only award aid on the basis of financial need.
A lot of this might seem pretty standard for modern-day students who are accustomed to the current financial aid system, but in order to appreciate just how drastic these rules are, we have to consider the counterfactual. What if all top colleges were in the practice of giving out merit awards? What if they had to compete among themselves on price in order to get the top students? How much lower would students be paying?
So what about the current case?
In the current complaint, the plaintiffs allege that the 568 Presidents Group has served as the vehicle for price collusion. Specifically, they claim that the group’s “Consensus Methodology” for financial aid is a form of price discrimination. However, the Presidents Group is unlikely to contest these allegations because of an exemption provided by section 568. Instead, the Presidents Group will likely concede that they are a cartel engaged in price discrimination, but will contend that they are exempt from antitrust litigation under Section 568.
Countering the likely defense that Section 568 provides exemption from antitrust litigation, the plaintiff’s case alleges that these elite colleges do not qualify for antitrust exemption under Section 568 because only need-blind colleges are eligible for exemption under this section and these universities are not need-blind. As such, the plaintiff’s case is essentially an indictment of the entire elite college application system, alleging that it favors wealthy students over middle class and lower income students, and disqualifying it from protection under section 568.
The guilty ruling in the Varsity Blues is critically tied to the current one and is cited in the complaint. Moreover, the plaintiffs point out that Universities acknowledge that they prefer legacy admissions and the children of donors – both a form of class discrimination. Finally, the plaintiffs point to the practice of “enrollment management,” which is “the systematic integration of the functions of admissions, the relationship between tuition and fees (pricing) and financial aid.” According to the plaintiffs, the managerial integration of these supposedly separate offices results in admissions offices disproportionately admitting rich students.
So what?
The fact that college admissions aren’t equal is clear to anyone who has attended an elite college campus. For example, the median family income at Georgetown is $224,000 and roughly ¾ of the student population comes from the top 20% of the income distribution. Inequity in the college application process goes far beyond simply raising prices for consumers — access to educational opportunities is not an economic “good” equatable to oil, cars, computers, or food. Access to educational opportunities is about economic freedom and social mobility. No one puts this better that the plaintiff’s complaint itself:
“In critical respects, elite, private universities like Defendants are gatekeepers to the American Dream. Defendants’ misconduct is therefore particularly egregious because it has narrowed a critical pathway to upward mobility that admission to their institutions represents. The burden of the 568 Cartel’s overcharges falls in particular on low and middle-income families struggling to afford the cost of a university education and to achieve success for their children” – Plaintiff’s Complaint
This lawsuit is a long overdue step to a more equitable higher education system. Our democracy can not survive without socio-economic mobility and an avenue for advancement for everyone. This lawsuit is not just about the millions in consumer harm to current and former students: it is about protecting democracy itself.
Neil is a Junior in the College majoring in Government and Economics with a minor in Philosophy. Originally from Arlington, MA, he enjoys running, grilling and considers himself a coffee connoisseur.