Judge has to choose: charity or business?

With the antitrust trial of the Massachusetts Institute of Technology now over, a federal judge must decide if MIT broke antitrust laws by agreeing with Ivy League schools on how to define financial need and dispense financial aid. U.S. District Judge Louis Bechtle is expected to make a decision sometime in the next several weeks. A win for MIT might lead to a revival of the Overlap Group, a group of 23 private colleges and universities which had agreements on financial aid policies. A government victory would probably spell its permanent end. But before reaching a verdict, Bechtle will have to consider a key question that dominated the two-week trial and has pitted the Justice Department and MIT against each other: Is MIT just another corporation selling a product -- education, in this case -- and therefore subject to antitrust laws like any corporation? Or is MIT, like all colleges, a charity whose financial aid practices lie outside the scope of those laws? Thane Scott, MIT's lead lawyer in the case, said during closing arguments last Thursday that giving needy students financial aid is an act of charity by MIT, adding it is "not wise to impose commercial rules on charitable institutions." "MIT's function is to teach, build and discover . . . . In the eyes of the Antitrust Division [of the Justice Department], such an institution is indistinguishable from a manufacturer of toaster ovens or porcelain fixtures." But Bruce Pearson, the government's chief lawyer in the case, painted a different picture of MIT and the other Overlap schools, which would meet annually to coordinate the "family contribution" paid by students who were accepted at more than one Overlap school. "Nothing can be more commercial than the price an organization charges for goods and services," Pearson said in his summation. "And family contribution [towards tuition] is the price." Overlap meetings ended in 1991, after a two-year government investigation of the Ivy Overlap Group -- which included just MIT and the Ivy League -- concluded that the agreements were a form of price-fixing. A government probe of 14 Overlap schools outside the Ivy League continues. The focal point of Overlap each year was the spring meeting. School officials would swap proposed aid packages for commonly accepted students and attempt to "meet in the middle" before sending out aid packages to students. Last spring, the Ivy League schools signed a consent decree agreeing to end the Overlap meetings rather than fight an expensive lawsuit. MIT refused to sign the decree and wound up in court. One reason MIT decided to fight the case alone -- spending an estimated $1 million in the process -- was its conviction that MIT broke no laws, even if the antitrust laws are applied in this case. Scott argued that MIT did not "make a dime off Overlap," challenging the government's assertion that in raising the average price students paid to attend, Overlap also raised revenues. Instead, cooperation at Overlap was designed to avoid bidding wars among rival schools for the best students, Scott said. He said any money MIT might save by raising one student's required family contribution would be used to increase aid for a poorer student, leading ultimately to "revenue neutrality." Scott praised Overlap's effects, noting that the agreements supported socio-economic diversity because the "high-need" student population includes many minorities. "It was to these students that the Overlap message was addressed: pull yourself up by your boot straps and we will be there for you," he said. "Overlap gave students hope." But Pearson challenged MIT's "social policy defense." He said that such an argument is irrelevant in antitrust cases and, moreover, that minorities were actually harmed by Overlap. Pearson cited evidence that MIT's cost for minorities was higher after Overlap meetings than it would have been using just the federal formula. And he said the number of minorities at MIT and Princeton, whose former presidents defended Overlap during the trial, decreased during the 1980s. Pearson also argued that the Overlap agreements -- which included a common pledge to give aid only on the basis of need rather than merit -- could not be justified on the grounds that schools lacked the money to compete for students. He said that merit aid "does not bust the bank" and quoted the size of MIT's $1.5 billion endowment while noting that the school's financial aid budget is only a "small fraction" of its $1 billion annual budget.

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