Penn one of few schools still facing lawsuit alleging collusion to reduce financial aid

Penn has yet to settle in the ongoing price-fixing class action lawsuit after five schools involved in the case settled this week.

In January 2022, Penn and 15 other private schools were named in a class action lawsuit for allegedly colluding to reduce need-based financial aid and raise tuition costs. Five schools, including three Ivy League universities, settled on Jan. 24 of this year, agreeing to pay $104.5 million between them.

The lawsuit focuses on how schools determine financial aid packages and share information with one another. The case, which was filed in the Illinois district court, alleges that the universities used illegal methods to artificially increase tuition costs when calculating financial need – calculations that were done collaboratively. Approximately 200,000 students have been impacted by financial aid price-fixing at the 17 schools, including most of the Ivies. 

A University spokesperson told the DP that they typically do not offer comment on pending litigation.

As of this week, eight of the schools have now settled, but still insist that the lawsuit is without merit. Penn has not yet settled, but could face larger settlement depending on how long it waits, according to Penn State Professor of Law John Lopatka.

Lopatka told the Washington Post that the risk to remaining defendants increases each time one settles. He explained that in cases like this one, if the defendants lose at trial, they will be responsible for all the damages with the settlement amounts from other schools subtracted.

“As defendants drop out and settle, there are fewer remaining defendants who potentially are going to be left holding the bag,” he said. 

The suit also alleges that nine of the schools, including Penn, are not actually need-blind in their admissions decisions. Specifically, the plaintiffs alleged that Penn is need-aware when making waitlist decisions and favors the children of wealthy past or potential donors.

The schools that settled last week include Columbia University and Duke University, who will each pay $24 million. Brown University will pay $19.5 million, while Yale University and Emory University will both pay $18.5 million per last week's settlement. 

The five schools are the first to settle in 2024, following the lead of three universities that settled last year.

The first was the University of Chicago, who agreed to pay $13.5 million in August 2023. In October of last year, Rice University reached the highest settlement to date, agreeing to pay $33.7 million. Vanderbilt University also settled in 2023 for an undisclosed amount. 

The practice of comparing financial aid packages for admitted students dates back to the mid-19th century, when Ivy League schools and the Massachusetts Institute of Technology agreed upon fixed packages for students admitted into multiple of the schools.

In 1991, the Justice Department brought a case against the Ivy League and MIT for working together as part of the “Overlap” group to coordinate on financial aid. In the case, the Ivy League settled, and MIT’s case went to trial in a Philadelphia district court where the school lost. 

In that case, MIT’s argument was that they fixed financial aid awards to ensure that aid was distributed in an equitable manner among students.

After the MIT case, Section 568 of the 1994 Improving America’s Schools Act, commonly known as the antitrust exemption, was granted to all schools by Congress. The exemption allows schools to agree on a financial aid formula because they use need-blind admissions practices and grant full demonstrated aid to all students. 

In September 2022, after the initial case had been filed, Congress did not renew the exemption, which means that schools such as Penn do not have legal protection to collude on financial aid packages. 

The court will hold a class certification hearing in 2025 to determine whether common issues are shared among the individual cases for each school. If Penn does not settle before then, and the case goes to trial as a class action lawsuit and the University loses, then Penn will be liable for wrongdoing at all of the named schools. 

The University is represented by WilmerHale in the case, the same firm that prepared former President Magill for her congressional hearing in December of last year.