Penn among group of colleges sued for colluding to hold down financial aid packages

More than a dozen top U.S. colleges including the University of Pennsylvania, Yale and Columbia were sued for allegedly conspiring to manipulate the admissions system to hold down financial aid for students and benefit wealthy applicants.

The proposed antitrust class-action lawsuit, filed Sunday in federal court in Chicago, accuses the university “cartel” of a long-running scheme to collectively adopt “a common formula for determining an applicant’s ability to pay” tuition, rather than competing freely over financial aid by trying to attract students through more generous aid offers.

At the same time, more than half of the schools have given preferential treatment to wealthy applicants by tilting the scales to favor the children of “past or potential future donors” and “through a largely secretive practice known as ‘enrollment management,’ " according to the complaint.

"Elite, private universities" are "gatekeepers to the American Dream," making the alleged misconduct "particularly egregious because it has narrowed a critical pathway to upward mobility that admission to their institution represents," according to the lawsuit.

A Penn spokesman said the university typically does not comment on pending litigation.

Besides Penn, Yale and Columbia universities, the defendants in the suit are Brown, Cal Tech, the University of Chicago, Cornell, Dartmouth, Duke, Emory, Georgetown, the Massachusetts Institute of Technology, Northwestern, Notre Dame, Rice and Vanderbilt.

The schools are allegedly acting illegally in claiming an antitrust exemption under Section 568 of the Improving America's Schools Act of 1994. The exemption applies only to schools that practice need-blind admissions, the suit says.

Some of the richest U.S. colleges describe themselves as need-blind in admissions because they don't examine the finances of a family as a consideration before admitting the applicant. In order to qualify for need-based money, families must fill out long questionnaires about their finances.

Colleges use formulas to determine what they will offer in grant aid that doesn't need to be paid back. They differ, and richer schools can afford to be more generous. For example, some colleges don't consider home equity when making financial aid awards.

With growing wealth from endowment performance, colleges have been criticized for their high prices, approaching $80,000 a year for tuition, room and board, books and other expenses. Many of the schools identified in the suit offer among the most generous financial aid to low-income students. About three dozen schools changed their policies more than a decade ago to offer grants instead of loans in financial aid packages.

One top school that isn’t among the defendants is Harvard University. It is among the universities that have declined to participate in the so-called 568 Cartel because it would limit the financial aid it could provide, according to the suit.

In 2008, Harvard's director of financial aid at the time, Sally Donahue, said the school never joined the group because its financial aid formula would have yielded packages smaller than what it wanted to award, according the the complaint.

The case is Henry v. Brown University., 22-cv-125, U.S. District Court, Northern District of Illinois (Chicago).