Adam Smith once said that competitors rarely mingled, except to fix prices. Was he right? Several days ago, 16 elite universities, many of them Ivies, were sued in federal court over their financial aid practices. It’s the latest in a series of legal drama swirling around these more prestigious schools. Could it be that society assigns too much import to this handful of uber-wealthy schools, leading them to think they’re above the law?

Harvard and Race-Based Admissions

Within days, the Supreme Court will decide whether to take up a case against Harvard University and their practice of looking at an applicant’s race when deciding whether to offer him or her admission. Harvard defends the practice as being in the interest of diversity. But Students for Fair Admissions argues that Harvard violates federal civil-rights law by holding Asian American applicants to higher standards.

In 2018, a U.S. district court sided with Harvard. In 2020, the First U.S. Circuit Court of Appeals also sided with Harvard. Plaintiffs have now appealed to the Supreme Court. In the Trump Administration, the Department of Justice argued in support of the plaintiffs that Harvard’s practice was harmful to Asian American applicants. But under the Biden Administration, the DOJ has reversed course.

Harvard once very publicly sought to limit admission from Jewish students. According to U.C. Berkeley sociologist Jerome Karabel, Harvard’s President A. Lawrence Lowell (1909-1933), wanted to cap their Jewish population at 15% of the student body. Jewish admission had risen from 7% of freshmen in 1900 to 10% in 1909, 15% in 1915, 21.5% in 1922, and 27.6% in 1925.

In 1926 Harvard moved away from purely academic-based admissions. They began to look at subjective factors like “fitness.” They began requiring a photo of each applicant. Lowell even asked the admissions committee to impose higher standards on would-be Jewish incoming freshman.

The practice died out after WWII, but as rejection rates from elite schools have soared — some now turn away as many as 20 students for every 1 they admit — how they choose who gets in is shrouded in mystery. Enter Operation Varsity Blues.

Operation Varsity Blues

This was an elaborate admissions cheating scheme involving parents, consultants, test administrators, coaches, and others. Parents paid to change their kid’s SAT test answers — often without the kid’s knowledge. Parents paid for fake letters vouching for their kid’s supposed athletic skill. Or pretended their kid had a learning disability and needed extra time on standardized tests. Consultant Rick Singer collected the cash, then arranged for a series of bribes and kickbacks, all with the goal of getting teens admitted at top schools. The FBI busted the scam in 2019, with arrests including 33 parents, two SAT and ACT test administrators, one proctor, nine college sports coaches, and one university administrator. It’s been written up in a book, and there’s a Netflix movie.

So What’s the Latest?

Sixteen major U.S. universities are being sued by former students for alleged antitrust violations. At issue is how these schools cooperate in the determination of financial-aid awards for students. The schools are Yale, Georgetown, Northwestern, Brown, Cal Tech, University of Chicago, Columbia, Cornell, Dartmouth, Duke, Emory, MIT, Notre Dame, U Penn, Rice, and Vanderbilt. They’re part of a group known as the 568 Presidents Group. The number 568 refers to a section of legal code that’s a carve-out from antitrust laws. The carve-out means that — unlike other schools — these colleges can collaborate on financial aid formulas. Under one condition: At no point in the admissions process can they consider a student’s ability to pay. They must be completely “need-blind.”

The suit alleges that the universities in fact do consider the financial status of the students who apply, in three specific ways. One, by giving an admission edge to the kids of wealthy donors. Two, by giving special treatment to the children of potential future donors. And three, by considering the financial means of wait-listed students.

The suit claims that, as a result, these schools have offered less financial aid per student, overcharging more than 170,000 financial-aid recipients by hundreds of millions of dollars, if not more. Therefore, the plaintiffs argue, these schools should no longer be allowed to collaboratively draw up their financial aid formulas. 

I don’t know how strong the merits of the claims are, but I recall the famous dictum of Adam Smith. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

In other words, what do you expect to come from a conversation among college admissions officials over how much money students should pay? Will the result of that conversation be one that favors students or colleges? You tell me. What’s particularly unbecoming is that these schools have gargantuan endowments.

We’ve Been Here Before

In 1991, the 8 members of the Ivy League and MIT were charged with price fixing. The schools were meeting to discuss students who had been admitted to more than one of their schools. What would they discuss? Their anticipated financial aid offers, of course. In other words, they’d discuss the net price they’d be asking students to pay. Schools claimed this would allow the students to pick a school based on fit rather than price. Prosecutors said the practice unfairly limited competition. Long story short, paperwork was signed, and the schools agreed to end the practice.

But in 1994, Congress passed an antitrust carve-out for schools that practiced need-blind admissions. Talking about individual applicants was still taboo. But the carve-out allowed the need-blind universities to collaborate on common guidelines for how to assess financial need. That’s when a bunch of schools, including the ones now being sued, formed the 568 Presidents Group. They began meeting a few times a year to discuss their financial aid calculation methods.

And here we are.

I’m not a genius. But my hunch is Adam Smith was on to something.

Dr. Alex Chediak (Ph.D., U.C. Berkeley) is a professor and the author of Thriving at College (Tyndale House, 2011), a roadmap for how students can best navigate the challenges of their college years. His latest book is Beating the College Debt Trap. Learn more about him at www.alexchediak.com or follow him on Twitter (@chediak).