On October 7, Eileen Chang ‘21, as well as a Boston University student, filed a class action antitrust case against the College Board, along with 40 top tier universities for price fixing. They claim that in 2006 the College Board and many of its university members decided to consider the assets of non-custodial parents (NCP) when measuring the financial need of applicants whose parents are separated.
As a result, the plaintiffs claim that their financial aid packages were artificially reduced compared with what they would have received if their non-custodial parent’s ability to pay was ignored.
Background
The goal of most colleges is to distribute available financial aid funds in a fair manner. The simplest approach is used by many public colleges nationwide and the four statutory colleges at Cornell. They take the annual appropriation from the taxpayer-supported SUNY budget and use it to lower the in-state tuition for every New York resident student.
However, most colleges try to distribute available financial aid based upon need, where need is based on parents’ ability to contribute. At the other end of the spectrum are Albert Einstein Medical School, Cooper Union, and the University of Austin, who do not collect any tuition from their students.
The federal government sponsors the FAFSA as a system to collect data and measure financial need. The College Board sponsors a competing system called the “College Scholarship Service Profile.” Cornell and other top private colleges use the CSS Profile, while many public colleges use the FAFSA.
In 2006, a debate raged within the financial aid community as to whether to require non-custodial parents to submit their tax returns and other data for consideration under the CSS Profile. Although each university makes its own decision on how to handle NCP data, the College Board leadership encouraged its members to use the CSS Profile calculation. In contrast, FAFSA does not require non-custodial parents to provide data.
The complaint alleges, “[t]he ten universities in the Top 50 private universities that do not require NCP financial data are Gonzaga University, Loyola Marymount University, Pepperdine University, Princeton University, Rensselaer Polytechnic Institute, Santa Clara University, Vanderbilt University, and Yeshiva University.”
The Lawsuit
Although two college students from divorced families are the plaintiffs, the lawsuit is engineered by Steve W. Berman, who is a named partner in the Hagens Berman firm. That firm’s website lists approximately 200 class action lawsuits handled by the firm. Hagens Berman was one of two firms that recently settled with the NCAA over its rules preventing payment to student athletes.
The suit was filed in the federal District Court in Chicago. It requests a jury trial and certification of the class. The two plaintiffs are suing to represent the rights of a large group of students and alumni, estimated to be at least 20,000, who applied for financial aid with non-custodial parent’s data from the 40 named colleges.
Because the suit is filed using Section 1 of the Sherman Antitrust Act, if the plaintiffs win, they will get three times the damages that they prove at trial. Since the Sherman Act is a federal law, the plaintiffs get to file in federal court and to use the federal rules governing class-action lawsuits.
The lawsuit seeks to hold the College Board and the 40 colleges to “joint and several liability.” This means that if all but one party settles or is not liable, but just one defendant is held liable by the jury, that one party will have to pay the total amount due. This puts a heavy burden on the defendants to settle.
The plaintiffs argue that because of the conspiracy, applicants with NCPs got a smaller financial aid package than they would have if the NCP data were ignored. The complaint notes, “the average net price for the forty Defendant universities is approximately $6,200 more than for the ten non-NCP schools in the top 50 private universities.” However, the defendants will argue that the college-wide differences in “net price” can be caused by factors other than including NCP assets. Indeed, if the financial aid budget for each college is fixed, the average cost of attending would not change as financial aid dollars shift between students with NCP to students from non-divorced families.
At trial, the Plaintiffs will have to hire economists as expert witnesses to show the impact of the alleged conspiracy on the availability and size of financial aid awards.
Expected Outcomes
As a first step, the Defendants will move to dismiss the lawsuit, and the Plaintiffs may have to amend their complaint to beef up details about the conspiracy.
If the Plaintiffs survive the motion to dismiss and gain certification of the class, they will try to pressure the Defendants to settle. Cornell is a defendant in a separate antitrust class action lawsuit that secured $284 million in settlements. Of that, the law firms got $98 million. Cornell and six other colleges continue to fight that case.
Because of public outrage over the size of that settlement, the colleges may be less willing to settle or less generous in the settlement terms of this case.
Meanwhile, Cornell will retain a first-rate law firm to defend its interests in this case, with those legal expenses either raising tuition or reducing funds available for financial aid for current or future students.
Antitrust cases like this involve years of discovery and reviewing documents.
The pending litigation has made Cornell’s financial aid staff less willing to speak to the press or to shared governance groups. This lawsuit could be pending for another four years, casting a long-term cloud over public debate of Cornell’s financial aid policies.
RELATED: Cornell Lags in Financial Aid
Although the College Board has not announced any plans to discontinue its CSS Profile, greater care will be expected when the College Board or its financial aid committees gather.
As word spreads of the $284 million successful settlement in the other antitrust case, more class action lawsuits can be expected over every facet of calculating financial aid. If this continues, Cornell may decide to outsource financial aid decisions to a company with a good AI model to insulate itself from such liability.
