Price-Fixing for the Good of Students

In the early 1990's, a Department of Justice antitrust investigation, along with subsequent court rulings, changed how many private colleges conducted their financial aid dealings, and not necessarily for the better.

The DOJ investigation resulted in a suit against the Ivy Overlap Group, a group consisting of 8 Ivy League schools plus MIT which met annually to discuss students' financial aid packages and prevent bidding wars over students. The DOJ argued that this was an antitrust violation--that the colleges were engaged in price-fixing by deciding on a common family contribution amount for individual students admitted to multiple Overlap Group schools.

The DOJ suit essentially ended communications among colleges about their financial aid practices, which has escalated the bidding wars for top students (precisely what the Overlap Group sought to avoid). For colleges, this means more and more money is spent on merit-based financial aid to woo the most desired students and less aid is available for students who actually need it.

Policymakers aren't happy about the shift away from need-based aid and colleges aren't happy about spending their money to compete with other schools. And so The Institute for College Access and Success has responded with a white paper talking in more depth about the intersection of antitrust law and higher ed financial aid, and also offering a potential compromise that would allow colleges to collaborate on financial aid policy and hopefully end current bidding wars, while not violating any laws (see IHE's article on the TICAS proposal here).

If more collaboration shifted money from merit aid to need based aid, the results could be pretty dramatic. According to TICAS's analysis of financial aid data from the College Board Annual Survey of Colleges, the 946 institutions that participate in the College Board survey provided $3.3 billion in financial aid that was in excess of student need, while $2.4 billion in unmet need remained.