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Is Your Kid’s College Conspiring Against You?

October 17, 2024

A lawsuit filed in Chicago on October 7 alleges that 40 universities conspired to rig their student aid packages to maximize the tuition and costs they extracted from college applicants who came from divorced families. Penn, Villanova, Lehigh and Carnegie Mellon are among those named as conspirators.

The issue has been floating about for years. Mom and Dad divorce, and Mom has primary custody; or maybe they are doing the modern thing and sharing physical custody equally. It comes time to apply for college. With that comes the FAFSA application. One parent earns 3x as much as the other parent. So, the question on the consumer (college applicant) side of the transaction is who files the FAFSA and what is disclosed?

It is alleged that while divorce lawyers and clients were sweating the buyer’s (borrower’s) side of the transactions trying to put together the “best package”, the universities were not standing idly by. The allegation, according to press reports, is that the colleges demanded income data from both parents even though only one of those parents had primary custody of the child. Until 2006 the complaint suggests that each college had its own way of assessing need. But during the ensuring years, colleges decided together to get financial data from both parents. The complaint, filed as a class action, terms what occurred to be a pricing cartel.

Confession. My last class in anti-trust law was during the Carter administration. But in those ancient days, competitors were not allowed to share information that would embarrass competition. In those days, it meant that bar associations and other trade groups could not share information about what they charged consumers. This class action is a bit different and it’s not clear that the sellers (i.e., colleges) are sharing information related to the buyers’ (college kids) ability to pay college costs. The other complication is that a child who completes high school is technically an independent buyer. In Pennsylvania his/her parents have no duty to contribute anything to the undergraduate enterprise. So, by what authority does a college ask me to provide income data about parents who are under no legal duty to contribute?

Suffice to say, the issue is complicated, and colleges don’t like to be embarrassed. But it’s a fascinating legal issue where it is not clear who has what duty to whom in what would seem to be a pure capitalist market.