College aid pools ruled price-fixing Judge in test case rules against MIT

September 03, 1992|By Los Angeles Times

WASHINGTON -- A federal judge ruled yesterday that colleges and universities that share information on the finances of their prospective students before giving out scholarship aid violate federal laws against price-fixing.

The ruling by U.S. District Judge Louis C. Bechtle in Philadelphia came in a test case filed by the Massachusetts Institute of Technology and called a halt to a 34-year-old practice among Ivy League colleges of collaborating before offering financial aid to their applicants.

Although yesterday's decision dealt specifically with MIT, a Department of Justice attorney said that federal attorneys were continuing to examine financial aid policies at colleges across the nation.

"Our investigation is continuing," said Charles A. James, the acting director of the department's antitrust division. University officials "would be wise to read this opinion closely," he said.

According to Judge Bechtle, a university is a "commercial enterprise," and financial aid grants determine the price that a student will pay for that commercial service.

MIT President Charles M. Vest said that he had read Judge Bechtle's opinion and planned to appeal it.

"Student aid is the opposite of an across-the-board price-fixing policy. It is a gift-setting policy," Mr. Vest said in a statement issued by the Cambridge-based university.

During the 1980s, tuition at the nation's colleges and universities rose far more rapidly than the rate of inflation. These soaring costs in a time of low inflation led many students, parents and some government officials to suspect that the institutions might be engaging in a form of price-fixing.

Without attacking tuition-setting policies directly, the government undertook an investigation three years ago into financial-aid policies at 55 institutions. However, it brought price-fixing charges only against MIT and the eight Ivy League colleges, whose officials met annually to compare notes on the financial status of their applicants.

Since 1958, the nine prestigious colleges in the Northeast had agreed to give out scholarship aid based only on a student's financial need, not on his or her academic merit.

In addition, the nine schools agreed that their financial aid officials would meet annually and set common standards for measuring a family's financial status. The universities said that they wanted to equalize their financial aid offers so that students could choose a school based on a reason other than money.

But Department of Justice attorneys said that this policy had the effect of blocking free competition for students, and competition could result in larger financial aid offers for some of them.

In its civil suit against the Ivy League contingent, the government charged the nine schools with violating the Sherman Act and its ban on conspiracies "in restraint of trade."

In response, the eight Ivy League colleges agreed to stop sharing information on prospective students. They are Brown, Columbia, Cornell, Dartmouth, Harvard, Princeton, Pennsylvania and Yale.

But MIT officials chose to fight the government in court. MIT contended that its scholarship awards were a type of "charitable gift," not the equivalent of a price set by a commercial company.

Judge Bechtle declared that it was "pure sophistry" to suggest that a $1.1 billion university such as MIT is not engaged in a commercial activity.

By conspiring with the eight other schools to establish levels of financial aid, "the member schools created a horizontal restraint which interfered with the natural functioning of the market by eliminating students' ability to consider price differences," Judge Bechtle wrote in his 49-page opinion.

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