Federal district judge ruled last week that 23 of the nation’s most prestigious colleges and universities had violated federal antitrust law for more than 20 years when they met to compare the financial-aid packages they planned to offer students admitted to more than one of the institutions.
Judge Louis C. Bechtle, of the Eastern District of Pennsylvania, rejected arguments put forth by the colleges that antitrust law did not apply to them and that their financial-aid practices had so much social value that the courts should permit them to continue. In a strongly worded decision, he also said that the 23 colleges, all members of the Overlap Group, had exaggerated the dangers of abandoning their activities.
The Massachusetts Institute of Technology, the defendant fighting the case, vowed to appeal the decision. Charles M. Vest, president of MIT, said the ruling “would effectively erode the freedom of opportunity to get a college education regardless of income.”
Some other educators agreed and said the decision could lead to bidding wars in which colleges would offer exorbitant aid packages to top students by cutting back on financial assistance to needy students. However, others said the decision did not pose a danger to higher education and still others said students and their families would benefit.
Charles A. James, Acting Assistant Attorney General for the Antitrust Division, issued a statement saying that students “have the right to compare prices among schools just as they do in shopping for any service.”
Judge Bechtle’s ruling came more than three years after the Justice Department started an investigation of the financial-aid practices of private colleges. While the department studied the finances of dozens of higher-education institutions, it focused on the Overlap Group, which was founded in 1958 and consisted of the eight Ivy League universities, MIT, and 14 other colleges in New England, New York, and Pennsylvania.
Last year, the department charged MIT and the Ivy League institutions with violating antitrust laws, but MIT was the sole defendant facing the trial because the Ivy institutions had settled before the trial by agreeing to abandon their Overlap activities. No charges have been filed against the other 14 Overlap members, but the group effectively suspended its operations last year while negotiations with the Justice Department over a possible settlement were proceeding.
When the investigation started, college officials said they were stunned because Overlap’s activities had not been secret and had the support of much of the higher-education establishment. College officials said their consultations on aid packages led to more-accurate aid awards and helped insure that limited aid funds went to the neediest students.
Justice Department officials and critics of the Overlap Group argued that the colleges’ philosophy was paternalistic and illegal. Students and their families should be able to select institutions based in part on price, the critics said.
In a two-week trial this year, these arguments were restated by MIT and the Justice Department. Many other colleges and college associations urged the court to side with MIT.
Judge Bechtle’s 49-page decision rejected nearly all of MIT’s arguments. While he said that some strictly educational functions of higher education might well be exempt from antitrust laws, he said the laws would apply to anything that was “commercial in nature,” and that he could “conceive of few aspects of higher education that are more commercial than the price charged to students.”
MIT’s argument that the Overlap activities were not commercial was “pure sophistry,” the judge said.
He added that the Overlap Group’s activities had denied students and their families their right -- secured by antitrust law -- to select colleges based at least in part on their cost.
“The evidence adduced at trial clearly established that the awarding of financial incentives in the form of aid by institutions of higher education is a traditional feature of student recruitment,” he wrote. “The evidence also established that the receipt of financial incentives in the form of aid weighs heavily in a student’s and his or her family’s decision-making process about which school to attend. No reasonable person could conclude that the Ivy Overlap Agreements did not suppress competition.”
While Judge Bechtle criticized the Overlap Group, he also stressed that there was no reason why the colleges could not continue to offer financial aid based only on need, as long as they didn’t compare the aid awards they planned to offer individual students. “Every institution, with or without Overlap, is free to embrace independently any admission and financial aid policy it wishes,” he said.
He also noted that the reauthorization of the Higher Education Act, signed into law by President Bush this year, explicitly gave colleges the right to declare jointly that they would offer aid based only on financial need and to consult on definitions of need.
Reaction to the decision depended in part on whether people believed it was important for colleges to compare the aid awarded to students admitted to more than one institution -- something Congress did not authorize. Mr. Vest of MIT said in an interview that “experience has shown that the ability to understand these things on a case-by-case basis is very important.”
He predicted that, without such comparisons, the small group of private colleges that continue to offer aid based only on need would “begin to slowly erode away.” He also noted that the provision in the Higher Education Act would expire in two years, and that, unless Congress renewed the measure, colleges might not be able to consult each other on any aid policies.
Mr. Vest said that Overlap Group members such as Brown and Wesleyan Universities had already considered modifications of their aid policies. “We are all hanging on by our fingernails,” he said. “Schools are precarious in their ability to support their beliefs and principles.”
At the same time, Mr. Vest said that MIT was committed to keeping its aid policies.
William R. Cotter, president of Colby College, another Overlap Group member, said he too had no plan to change aid policies. But he added that it would be more difficult for the college to continue its need-based approach if other institutions started to offer more merit awards.
“If the whole world changes, you have to be sure you’re not the last one,” he said.
Mr. Cotter said there had already been evidence that Overlap Group members were making differing aid offers to students, meaning that some students ended up with more aid than they may have needed. “That’s regrettable, because it means some students who needed aid probably didn’t get it,” he said.
Michael S. McPherson, a professor of economics and co-director of the Project on the Economics of Higher Education at Williams College, predicted that the most elite institutions -- Harvard, Yale, and Princeton Universities -- would probably stick to their policies. But he said Judge Bechtle was wrong to assume that the other members of the Ivy League and many other prestigious colleges in and out of the Overlap Group have the financial resources or commitment to continue to meet the full need of students and to disavow merit scholarships.
“Not all Ivy League schools are equally powerful,” he said. “Those on the less-selective end compete fiercely with those outside the Ivy League.”
John Shattuck, vice-president for government, community, and public affairs at Harvard, said that he was disappointed by the decision, but that it would have “limited practical effect.” He said that the consultation that Congress has allowed colleges to continue should be enough to keep need-based aid in place at Harvard.
He said Harvard had “no intention” of seeking to return to the system of comparing aid awards given to students admitted to Harvard and other institutions. Asked if that would still be true if MIT had won the case, Mr. Shattuck declined to comment.
Some education observers said students and their families were the big winners in the decision. Kalman A. Chany, president of Campus Consultants Inc., a financial-aid consulting service in New York City, said that Overlap would have benefited students only if the comparisons of aid awards had always led to students’ receiving the more generous package from both institutions.
Mr. Chany, author of The Student Access Guide to Paying for College, said the evidence introduced in the trial indicated that in most cases, the colleges had come up with an aid package in the middle of their two estimates or a figure closer to the less generous package. “The student is not necessarily better off with Overlap,” he said.
Mr. Vest said the long-term effect on MIT and other colleges would be minimal if MIT wins the case on appeal. The only action the judge took against MIT was to bar it from consulting with other colleges on aid awards -- something it has not done for two years, anyway, because of the Justice Department investigation.
The Justice Department is expected to seek a formal agreement from the non-Ivy Overlap institutions to abide by the same agreement the Ivy League universities accepted. A Justice Department spokeswoman said last week that she could not comment on the government’s plans.
MIT and other Overlap institutions could also face potentially damaging lawsuits. People who can prove that they were hurt by antitrust actions can win triple damages in federal court. One student, from Wesleyan University, filed such a suit shortly after the Justice Department investigation became public.
That suit has been bogged down in deliberations over whether the student can make the suit a class action. Class-action status was initially denied, but it under appeal. College officials, predicting that MIT would prevail in the case, said they would fight any antitrust actions brought against them.
Throughout the case, and again last week after the court decision, there was much speculation about why MIT alone decided to fight the case. Some higher-education officials, while denying that there was an organized plan to pick one institution to go to court, said they were pleased that there was one willing to do so, and that it was MIT.
As a major engineering institution, they said, MIT has many first-generation college students and lacks the “old money” image of Ivy League universities.
MIT officials said last week that they had made the decision to fight the case based solely on their conviction that their aid policies were legal and educationally sound.
Mr. Vest said that his views on offering need-based aid dated to his own freshman year, at West Virginia University in 1959, when he was awarded a merit-based scholarship. Mr. Vest said that his parents, while not wealthy, could afford to pay for his education, so he returned the money and asked the university to give it to someone more needy.
“I continue to believe that,” he said.
On the claim that the Overlap Group’s activities are non-commercial and exempt from antitrust law:
“MIT endeavors to except the Overlap process from antitrust liability based on the assertion that it solely implicated non-commercial aspects of higher education. According to MIT, Overlap had a non-commercial impact, was not commercially motivated, and was revenue neutral. ...
“MIT provides educational services to its students, for which they pay significant sums of money. The exchange of money for services is commerce in the most common usage of that word. By agreeing on aid applicants’ families’ expected financial contribution, the Ivy Overlap Group schools were setting the price aid applicants and their families would pay for educational services. The court can conceive of few aspects of higher education that are more commercial than the price charged to students.
“MIT’s attempt to disassociate the Overlap process from the commercial aspects of higher education is pure sophistry. Although MIT characterizes its financial aid as “charity,” in essence, MIT provides a “discount” off the price of college offered to financial aid recipients.
“Further, accepting for the moment MIT’s assertion that the impetus for instituting Overlap was to distribute more fairly limited financial resources for student aid, the means chosen to effectuate this goal -- the elimination of merit scholarships and insuring that commonly admitted aid recipients would pay the same regardless of which institution they decided to attend -- is unquestionably commercial in nature. Not only did the effects of Overlap fall within the sphere of commerce, but its existence struck at the heart of the commercial relationship between school and student.”
On the argument that the Overlap system should remain in place to prevent “bidding wars” for top students:
“The message to be gleaned from MIT’s defense is that the moment the Ivy Overlap Group schools are no longer able to jointly eliminate price competition, they will immediately bow to faculty pressure to enroll the very highest caliber student at high cost and at the expense of needy students, leaving behind hallowed principles of equality of educational access and opportunity and the resultant societal benefits which they have so ardently underscored.
“William Bowen, past president of Princeton University, believes that if Overlap ends, the member schools will take `one step back toward the economic segregation of higher education.’
“Can the Ivy Overlap Group members’ purposes be so fragile that their primary goal of having the most desirable students outweighs their ability, without Overlap, to pursue diligently even an imperfect policy of promoting the virtue of student diversity and the advantages of making available to needy students the benefits of these elite educational institutions? Will there also be lost the value to be gained by signaling to all prospective students that they can in fact aspire to attend an Ivy Overlap Group institution even though their families may be of limited means? The court thinks not.
“If MIT and the other Ivy League schools were to so easily abandon these objectives merely because Overlap was not in play, then the court could only conclude that their professed dedication to these ends was less than sincere.
“By the same token, if these policies are as meaningful as MIT avows, and these institutions refuse in any way to forsake admitting the “best of the best,” then they should be willing to dedicate the necessary resources to insure the continuation of these policies.
“It is certainly true that these decisions, like nearly every important decision these schools must make, will be difficult and will have a financial impact in other areas of the schools’ operations. The end of Overlap will only portend the end of need-blind admissions and schools’ ability to guarantee the full need of their aid applicants if the schools decide that other financial priorities occupy a higher investment and financial plane. The dilemma over resource allocation always triggers budgetary balancing, and that is likely to be called for here.
“Such balancing is not new, nor is it unreasonable, if the suggested method of avoiding it is to act contrary to the law.”
July 1989: The Justice Department starts to collect extensive financial information from private colleges, including all members of the Overlap Group. Eventually, at least 57 colleges will be asked to provide information.
August 1989: The investigation becomes public knowledge.
September 1989: A Wesleyan University undergraduate files a class-action, antitrust lawsuit against his institution and 11 other Overlap members. (Class-action status has since been denied, but the matter is under appeal.)
March 1991: The Overlap Group says it will suspend its annual spring meetings, at which aid packages of students admitted to more than one member institution were compared.
May 1991: The eight Ivy League universities agree to stop sharing financial-aid information the same day the Justice Department formally charges them and the Massachusetts Institute of Technology with violating antitrust laws. The Ivy League agreement ends the case against those institutions, but MIT vows to fight the charges in court.
January 1992: The Justice Department starts to notify colleges in the investigation that are not Overlap members that they are no longer part of the inquiry.
June 1992: A trial on the charges against MIT begins in federal district court in Philadelphia before Judge Louis C. Bechtle.
July 1992: President Bush signs the reauthorization of the Higher Education Act, which includes a provision allowing colleges to declare jointly that they will award student aid based only on financial need, and to consult with each other on definitions of need -- provided that individual award packages of students are not compared.
September 1992: Judge Bechtle rules against MIT, which says it will appeal the decision.
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