Private colleges seek antitrust carve-out for cost-related woes

By Claude R. Marx. Originally published on FTC:Watch on August 18, 2017.

Many private colleges are having trouble with their finances and they say getting a carve-out of the antitrust laws might help them.

That's the motivation behind the National Association of Independent Colleges and Universities for asking Congress for a five-year exemption from antitrust restrictions so they can discuss emerging business models "for the purpose of promoting affordability."

They face lower prices from public colleges and universities and a growing interest in free tuition programs at public colleges in some states. Against that backdrop, they feel the need to explore all alternatives.

"We are reaching a price tipping point," NAICU Vice President Sarah Flanagan told FTC:WATCH. "There are solutions available to public colleges but private colleges can't get together and have a public policy conversation about this."

Most private colleges are regional institutions and they compete over students with less expensive public universities. But the private colleges say they often face a pricing war in which they're disadvantaged, which is why they need to "develop new business models through mutual collaboration and understanding."

Flanagan said the exemption would give them a fixed period in which they could find solutions that would help preserve the diversity of higher education.

There is already an exemption to the antitrust laws for colleges that offer need-blind admissions, or decisions made regardless of the applicant's financial needs, if they want to meet to discuss financial aid programs.

Currently, 65 colleges and universities — 63 private and two public — have need-blind admissions, but Flanagan said most private institutions don't have the financial resources to do that. However, an additional 22 colleges and universities — all private — have said they will meet 100 percent of the needs of those students that they admit.

Despite the altruistic goals of the colleges, that's not sufficient to justify an exemption from antitrust laws, said Richard Brunell, vice president and general counsel of the American Antitrust Institute.

"They are concerned about the cost of acquiring customers. That is not adequate justification," he said in an interview. "They are having to discount tuition too much to stay competitive."

Barak Orbach, an antitrust professor at the University of Arizona Law School, had an even harsher assessment.

"Right now, they can't fix prices and want an exemption to be able to do that," he told FTC:WATCH. "It is a competitive environment, but this is not the way to solve it."

The issue of costs has received considerable attention as many families struggle to send their kids to school.

From the 2011-2012 academic year to the 2016-2017 academic year, the average annual cost of tuition at private colleges and universities increased from $29,700 to $33,480, a 13 percent increase, according to data compiled by the College Board. During the same period, the average annual cost of in-state tuition at public colleges and universities increased 9 percent, from $8,820 to $9,650.

Those figures represent the list price. With scholarships, loans and other financial resources, the net cost is $14,980 for private colleges and universities and $3,980 at public colleges and universities, according to the College Board.

Colleges and universities have had to be especially careful about how much they discuss financial aid since 1993 when the Justice Department achieved a partial victory in its lawsuit against eight Ivy League schools and the Massachusetts Institute of Technology for violating the Sherman Act.

The schools were faulted for having collectively agreed to only give financial aid based on need and to collectively determine the financial aid of commonly admitted students. The Ivy League institutions agreed to settle the litigation by consent decree, but MIT declined to settle and took the case to court.

MIT lost at the district court level, but the US Court of Appeals for the Third Circuit ordered a new trial, saying the lower court needed to use a "rule of reason" analysis when evaluating the challenged behavior

The Justice Department and MIT settled rather than face each other in court again. The settlement allowed colleges that do need-blind admissions to agree on methods of determining student need.

Congress has expanded the reach of that exemption to the antitrust laws for those institutions.

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