“568 Cartel” Antitrust Lawsuit Could Cost Elite Universities Billions

In an ironic twist, the longstanding practice of favoring wealthy applicants might cost these universities billions of dollars.
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  • A recent District Court ruling denied the motion of 17 elite universities to dismiss a financial aid price-fixing lawsuit.
  • The suit claims this "568 Cartel" violated antitrust laws by failing to remain need-blind in admissions decisions.
  • It also claims the group's shared methodology for determining financial aid reduces award amounts.
  • A ruling in favor of the plaintiffs could result in damages exceeding $4 billion.

The war against the "568 Cartel" rages on.

On Aug. 15, a District Court judge denied the defendants' motions to dismiss the financial aid price-fixing litigation against 17 elite private universities officially known as the "568 Presidents Group."

A loss or settlement in this case could cost these institutions billions of dollars.

What Is the '568 Cartel' Lawsuit?

Dubbed the "568 Cartel" in the suit, the 568 Presidents Group includes six Ivy League schools and other top institutions such as Northwestern University, Vanderbilt University, the University of Chicago, California Institute of Technology, Massachusetts Institute of Technology, and Johns Hopkins University.

The group's name refers to Section 568 of the Improving America's Schools Act of 1994, a congressional sanction allowing these colleges to formulate common approaches to awarding financial aid.

The case — Henry et. al. vs. Brown University et. al., filed in January — claims 10 of these colleges are in violation of the Sherman Antitrust Act because they don't uphold a commitment to need-blind admissions as required by Section 568 and, therefore, aren't entitled to its protections. The remaining seven institutions may or may not have adhered to need-blind admissions policies, the complaint claims, but they "nonetheless conspired with the other Defendants," which would make them equally guilty of antitrust violations.

Absent the commitment to need-blind admissions, the suit alleges, what these colleges are doing is illegal. The argument is compelling enough for the U.S. Department of Justice, which in July issued a "statement of interest" recommending the case continue.

As a result of this conspiracy, says the claim, these universities have artificially reduced financial aid awards and increased the net cost of attendance through the use of a "consensus methodology" for determining aid. Thousands of students paid higher tuition and incurred larger debt absent competition among these institutions.

How do these colleges stray from their need-blind commitment? By favoring wealthy families in some admissions decisions, according to the lawsuit. Admissions offices consider the financial need of students on the waitlist, engage in "enrollment management" practices to secure full-pay students, and woo kids of donors or potential donors.

In the judgment of the court, these exceptions to a fully need-blind policy warranted a ruling against the universities.

"The Court concludes that, regardless of which interpretation of 'need-blind' it adopts, the plaintiffs have plausibly alleged that the defendants do not admit all students on a need-blind basis," wrote District Judge Matthew F. Kennelly in the court's opinion.

Universities Call Plaintiffs' Interpretations of Need-Blind 'Absurd'

Judge Kennelly denied three separate motions to dismiss the case. One was joined by all the defendants. In a separate motion, Brown University, Emory University, the University of Chicago, and Johns Hopkins University argued claims against them should be dismissed because they weren't "members of the conspiracy during the relevant time period."

Yale's motion argued the university doesn't use the consensus methodology to determine aid and didn't participate in the 568 Group from 2008-2018. Yet the court ruled Yale "can still be held liable for the acts of its alleged coconspirators."

As part of their defense, the 568 universities argued the plaintiffs' interpretation of "need-blind" would prohibit them from considering financial hardship in a positive way, inhibiting their "efforts to shape economically diverse classes for the benefit of the entire student body." If universities are to be truly "need-blind," they must turn a blind eye to those most in need of aid.

Calling this conclusion "absurd," the 568 universities said the court should adopt their position. The court, in turn, found this argument "unpersuasive."

The absurdity doctrine permits courts to disregard the plain language of a statute to avoid an "absurd and unjust outcome."

But Kennelly noted the doctrine doesn't apply in this case because the concept pertains to linguistic, not substantive, concerns. Interpreting a statute in such a way that it would prohibit universities from helping disadvantaged students "arguably might make for bad policy," he wrote, "but it wouldn't render the 568 Exemption absurd."

No Exceptions for Waitlists, Transfers, and Donors' Kids

Plaintiffs argued the 568 universities consider financial status when evaluating transfer applicants, waitlisted students, and children of donors. The court rejected the defendants' counterarguments for all such circumstances.

Regarding waitlisted students, the universities claimed the evidence was "too general or too old" to support the allegation that students were admitted on a need-aware basis. The court concluded such arguments "do not fly."

It also rejected the universities' contention that the need-blind requirement doesn't apply to waitlisted students. The 568 exemption "expressly states that 'all' students must be admitted on a need-blind basis," Kennelly noted.

With respect to children of wealthy donors, the universities argued "such preferential treatment is based on the increased likelihood that the school will receive a donation, not on the decreased likelihood that the student will require financial aid."

"Not so," Kennelly countered. Universities benefit both ways—they don't have to award aid and they stand to realize sizable philanthropic contributions.

A Potential Billion-Dollar Penalty

The universities must respond to the lawsuit by Sept. 9. Meanwhile, attorneys for the plaintiffs are celebrating this key victory.

"We look forward to winning substantial restitution for the 200,000 students who have been harmed by the collusion of these 17 elite universities and to ending their unlawful practices," said Robert D. Gilbert, managing partner of Gilbert Litigators & Counselors, a lead firm for the plaintiffs, in a statement. "In order to do so, in this next phase of the case, we also look forward to taking the depositions under oath of the decisionmakers at each university who participated in this antitrust conspiracy which has inflicted harm on so many middle-class and working-class families."

How substantial might the restitution be? Documentation submitted to the court and obtained by BestColleges suggests a ruling in favor of the plaintiffs could result in damages in excess of $4 billion. Even settling out of court could cost these universities an eight-figure sum, collectively.

Beyond the financial implications, the 568 Cartel universities must face judgment in the court of public opinion.

Having tired of rising tuition costs, soaring loan debt, endowment hoarding, and opaque admissions practices, the American public won't abide a practice that, albeit allegedly at this point, conspires to reduce financial aid for needy families.