End of 568 Cartel Could Mean More Financial Aid for Students

• A group of 17 elite colleges faces a class-action lawsuit claiming members illegally conspired to fix financial aid awards and overcharge students.
• Congress recently declined to renew the antitrust exemption allowing these colleges to operate in this fashion.
• As a result, competition for top students may result in larger financial aid packages.

Thanks to Congress, time has run out on the "568 Cartel," the 17 elite private colleges accused of illegally conspiring to fix financial aid awards and overcharge thousands of students.

Might this move spur greater competition for students and result in more generous financial aid packages from our nation's most selective universities?

Lawsuit Alleges Elite Universities Conspire to Limit Financial Aid

A class-action complaint filed with the U.S. District Court in Illinois last January claims 17 elite private colleges are in violation of the Sherman Antitrust Act and have conspired over many years to limit financial aid awards to thousands of students.

This group of colleges, known formally as the "568 Presidents Group" and dubbed the "568 Cartel" in the suit, includes six Ivy League schools and other top institutions such as Northwestern University, Vanderbilt University, the University of Chicago, California Institute of Technology, and Massachusetts Institute of Technology.

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 — as long as they strictly adhere to need-blind admissions.

However, the suit claims they have not — instead, these elite colleges favor wealthy families in some admissions decisions, 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.

Absent the commitment to need-blind admissions, the suit alleges, what these colleges are doing is illegal.

And 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.

This argument was compelling enough for the U.S. Department of Justice, which in July issued a "statement of interest" recommending the case continue.

A month later, a District Court judge denied the defendants' motions to dismiss the case.

"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.

Attorneys for the plaintiffs seek "substantial restitution" for the 200,000 students allegedly harmed by these unlawful practices.

How substantial might that restitution be? Documentation submitted to the court suggests a ruling in favor of the plaintiffs could result in damages exceeding $4 billion.

The 568 Antitrust Exemption Expired … Now What?

On Sept. 30, the Section 568 antitrust exemption expired, meaning these 17 universities no longer have legal cover to collude on financial aid policies — with or without the commitment to need-blind admissions.

Attorneys for the plaintiffs are celebrating this decision.

"Congress rightly concluded that the Section 568 antitrust exemption should not be renewed," said Robert D. Gilbert of Gilbert Litigators & Counselors, a lead counsel for the plaintiffs. "Defendant universities never complied with the congressional mandate that they be need-blind regarding all students and all families in admitting students. Instead, for decades they exploited the exemption to favor wealthy applicants and families, and to disfavor applicants from middle-class and working-class families.

"Moreover, by agreeing not to compete, they overcharged these applicants and families, and forced them to bear unnecessarily high debt. Now defendants do not have any excuse for their collusion, which must end."

So one possible outcome of the case, the dissolution of the 568 Cartel, is no longer on the table, thanks to Congress. But of course, the case moves forward, seeking justice for the students and families allegedly harmed over many years.

The 568 Cartel Universities Might Increase Financial Aid

What might change immediately, though, is the way these elite universities compete for students through financial aid packages. Absent the "consensus methodology" regulating how these universities determine aid, they're free to make that decision at the institutional level.

To some extent, the 568 schools already exercise some institutional discretion, as the group admits:

"Need analysis procedures have traditionally depended on 'professional judgment' applied locally," the 568 website explains. "Although the Consensus Approach standardizes many policies that are subject to professional judgment, the 568 Group recognizes that no system will completely eliminate disparate results or the effects of individual institutional 'packaging' decisions, which are beyond the scope of the 568 Group's activities."

In other words, the 568 schools have always enjoyed some wiggle room in making individual award decisions. But now they can do so unrestrained by a common methodology governing how they determine aid. Given that these universities compete fiercely for top students, doing so by increasing aid awards seems like a logical conclusion.

It's certainly what the plaintiffs' attorneys are banking on.

"Now that 'Section 568' has expired, we look forward to seeing true competition on price by these elite universities," said Ted Normand of Roche Freeman, another lead counsel for the plaintiffs. "Students who require financial aid will benefit during the admissions process, receiving the maximum aid they and their families deserve and that will be generated by the competitive process, not limited artificially by the so-called maximum price they and their families can afford. Defendants are and should be leaders in providing high quality affordable higher education, so we expect to see beneficial ripple effects across America's other colleges and universities."

Meanwhile, the class-action suit moves forward … slowly.

The parties have until Jan. 31, 2024, to conduct fact discovery, during which time institutional records will be reviewed and college officials deposed. No trial date has been set, though one is not expected to take place until late 2025. Along the way, the universities could agree to settle out of court and likely face a hefty fine.

Students applying to the 568 universities this fall might benefit from more generous aid should they be accepted. For some low-income and middle-income students, perhaps that increase will make all the difference.

We'll never be able to quantify the full ripple effect of the 568 Cartel's dissolution, but countless students could benefit in the long run.