Stephen Mihm
It’s been a tough few months in the spotlight for America’s elite universities. But while controversy around DEI policies and campus responses to the Israel-Hamas war have grabbed headlines, another challenge has gotten less attention: a class-action lawsuit alleging that 17 of the nation’s top universities created a “price-fixing cartel” that set financial aid packages artificially low and gave preferential treatment to wealthy applicants.
Despite vehement denials, a growing number of schools have quietly settled. Several cut deals last year, and in late January, Yale, Duke, Brown, and Columbia capitulated, agreeing to pay a total of $104.5 million. Nine more have yet to throw in the towel.
This isn’t the first time the Ivies and their ilk have faced collusion allegations. And perhaps more surprising: the last set of charges ultimately resulted in giving schools broad latitude to compare notes — as long as they met certain conditions, including practicing need-blind admissions. But the history of the nation’s most selective colleges suggests that their competitive natures — and their financial interests — have long made toeing that line unlikely.
Prior to the post-war era, elite schools rarely competed for students, most of whom hailed from wealthy families and went to the same colleges their fathers — or occasionally, mothers — attended a generation earlier. Admissions offices, now a major part of any institution of higher learning, barely existed.
The trouble started in the 1950s, when these schools began recruiting star athletes for their sports teams. Colleges soon found themselves locked in escalating bidding wars, offering ever-larger scholarships to lure top candidates. Unhappy with the drain on resources, they called a truce and started organizing meetings where they simply divvied up the athletic talent between them.
These meetings evolved to encompass the fates of other applicants, including meritorious students who came from lower-income families – another source of scholarship bidding wars. Soon the top schools in the northeast were gathering three or four times a year to compare notes. In 1958, these confabs became known as the “Overlap Group,” nodding to the fact that they focused on students who had been admitted to multiple schools.
The Overlap Group approached low-income candidates in a systematic way: members pooled all available information on a student’s family in order to get a comprehensive assessment of their ability to pay. They also agreed to offer aid exclusively on the basis of need, not merit, and, most significantly, they agreed to offer identical aid packages to students admitted to multiple schools.
The upshot was that the cost of attending Harvard, Tufts, Princeton, Middlebury, or any of the 19 other “Overlap” schools, was essentially the same for any given student. That meant students couldn’t shop around for the best deal, much less try to play one school against another.
Of course, many of the participating schools tried to have their cake and eat it, too. Just as members of railroad pools and other Gilded Age cartels sometimes broke their own rules in an attempt to get ahead, the universities occasionally cut semi-secret deals with students. For example, Princeton began offering $1,000 merit-based “research grants” to prospective students in the 1980s, only stopping the practice after the other Overlap schools cried foul.
In theory, price fixing served the greater good. Admissions officers argued that by putting a ceiling on need-based aid, there was more money to go around for deserving students who could not otherwise afford to attend. Undercutting this high-minded defense, though, was the fact that the Overlap schools also colluded on tuition increases as well as faculty and staff raises, both of which drove up the cost of attending.
In 1987, the Justice Department warned the Overlap Group that they faced legal scrutiny. An investigation followed, and four years later government lawyers charged the members with violating antitrust law. As the case proceeded, a trickle of damaging details reached the press: gossipy emails and memos discussing price fixing in considerable detail. These revelations led The Wall Street Journal to describe the schools as “part of a price-fixing system that OPEC might envy.”
Likewise, the fact that some elite schools opted out of the cartel undercut claims that collusion was not just good but necessary. Stanford, for one, refused to join the Overlap Club, infuriating the Ivies. Eventually, several East Coast admissions officers cooked up a plan to make Stanford “look like one of the Ivies” in its offers of need-based aid. The gambit, dubbed “Operation Highstick,” involved sending a delegation to Palo Alto to sell the idea. Stanford declined.
By 1992, most of the schools agreed to stop meeting in exchange for being dropped from the case. A single holdout, MIT, decided to go to trial, insisting it had done nothing wrong. MIT argued that the system hadn’t disadvantaged students. In fact, it said the need-based aid agreements had actually provided the greatest good for the greatest number.
The government countered that price fixing was an antitrust violation, no matter the social good it might accomplish. MIT initially lost its case, but subsequently won on the appellate level. This led the elite schools’ political allies to give legislative sanction to the practices of the Overlap Group: Congress passed the Improving America’s Schools Act in 1994. Section 568 of that statute provided a limited antitrust exemption for colleges and universities, allowing them to confer on financial aid so long as they practiced need-blind admissions.
The current class-action suit hangs on that last point, alleging that the schools involved sometimes factored a student’s ability to pay into admissions decisions, privileging wealthier candidates. And despite the settlements, the issue may soon escalate: there’s some indication the Justice Department is conducting a probe of its own.
Given the criticism schools are facing today — from admissions policies to campus politics to tuition rates — a repeat of the MIT case, where any gory details are dragged into the light, could be far more damaging this time around. But perhaps it would finally convince our elite institutions, all blessed with enormous endowments, that nickel-and-diming lower-income applicants isn’t worth the price.
Stephen Mihm, a professor of history at the University of Georgia, is coauthor of “Crisis Economics: A Crash Course in the Future of Finance.”
