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Top Schools Face Backlash Over Financial Aid Misuse Allegations

Aug. 17, 2022, 9:00 AM

Charges that 17 of the nation’s top universities rigged acceptance to avoid paying too much in financial aid could drive away students across economic and racial lines, education experts warned.

“The allegation suggests that colleges want to look good without actually being too good, and by allegedly colluding with one another, they’re trying to buy their student bodies, especially diverse students, for a cheaper price,” said Derek W. Black, professor of education law at the University of South Carolina. “Don’t want antitrust litigation? Stop holding down financial aid packages because the kids today, they don’t really want a monolithic institution. They want more diversity. And you’re driving those students away.”

A federal judge in Chicago ruled Monday that the colleges and universities—including Columbia, Duke, Georgetown, Yale, Northwestern, and the Massachusetts Institute of Technology—must face an antitrust class action over charges they conspired to hold down financial aid packages, in part by illegally considering a student’s ability to pay in acceptance decisions.

The case could hurt minority recruitment at the schools, said Lynn Pasquerella, president of the American Association of Colleges and Universities.

“There’s been a historic challenge with diversity in elite, independent institutions and part of it has to do with the social and cultural capital of people thinking, ‘I don’t deserve a place in the academy,’” said Pasquerella. “So that sense of belonging necessary for students to thrive in elite institutions is undermined.”

The suit, filed in the US District Court for the Northern District of Illinois, accuses the university “cartel” of a long-running scheme to consider applicants’ financial needs when they apply to college, in violation of the so-called 568 exemption to federal antitrust law. Section 568 of the Higher Education Act provides a limited antitrust shield to colleges that act in concert to determine common financial aid metrics, assuming they accept students on a “need-blind” basis—with no regard to their financial needs.

The suit claims the 17 schools violated that directive. It said 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 secretive practice known as enrollment management.

“When cases like this are brought to the fore, then that reinforces this sentiment that higher education is no longer an avenue toward upward social mobility, which of course is at the center of the American Dream,” said Pasquerella. “Especially for people of color.”

Discovery, Definitions

The schools, which had sought dismissal of the case, must respond to the amended complaint by Sept. 9. But the discovery process, involving interviews with “many dozens” of university presidents, admissions directors, and office staff, could take 18 months, said Ted Normand, an attorney for the plaintiffs, and co-chair of Roche Freedman.

“Aside from the ultimate resolution, this provides a fascinating glimpse into what happens inside the room when the university financial aid committee makes decisions,” said Bill Kovacic, an antitrust professor at George Washington University Law School. “It unveils a set of decisions normally shrouded from outsiders. For institutions unaccustomed to having that element of their governance in public view, that could be nervous-making.”

The case was brought by current and former students of the schools, and at least one parent, who claim that preferential treatment for wealthy applicants was based in part on seeking donations from family members if they were accepted.

“It’s likely that there’s a good argument that the statute focuses on whether someone is penalized for seeking financial aid,” said Doug Melamed, a professor at Stanford Law School, who questioned some aspects of Kennelly’s decision. “It’s not interested in whether, within the universe of applicants not seeking financial aid, those who are regarded as potentially large benefactors are treated more favorably.”

Attorneys for the colleges did not respond to a request for comment.

The other colleges named as defendants are Brown, Cornell, Dartmouth, Emory, Notre Dame, Rice, Vanderbilt, Johns Hopkins, the University of Pennsylvania, the University of Chicago, and the California Institute of Technology.

The case is Henry et al v. Brown University et al, N.D. Ill., no. 1:22-cv-00125, 8/15/22.

To contact the reporters on this story: Ayanna Alexander in Washington at aalexander@bloomberglaw.com; Dan Papscun in Washington at dpapscun@bloombergindustry.com

To contact the editor responsible for this story: Gregory Henderson at ghenderson@bloombergindustry.com