FOCUS: Breaking the Trust Part I

Once a year, they came to Wellesley, Mass., armed with numbers and a "charitable" purpose -- to agree how much financial aid their schools would offer commonly-admitted students. It was the annual spring meeting of the Ivy Overlap Group, and financial aid officials from member schools -- the eight Ivy League schools and the Massachusetts Institute of Technology -- were on hand for two whirlwind days of meetings. By that time, each school had admitted its class for the year and had already made an independent decision about much money -- if any -- it would offer prospective students. They came to Wellesley to see what the competition was offering. Officials from the various schools shared aid offers for commonly-admitted students and then tried to iron out the differences in those offers. For example, suppose Harvard University thought a student's family could afford to pay $12,000 towards the cost of attendance, but Yale University believed the family could pay only $10,000. At Wellesley, officials from the two schools would try to fill in the gap. In some cases, they would agree to disagree. But when the difference exceeded $500, as in this hypothetical case, school officials typically found common ground, either at one of the two figures, or possibly somewhere in the middle. The overarching goal of the information sharing, according to the Manual of the Council of Ivy League Presidents, was "to neutralize the effect of financial aid so that a student may choose among Ivy Group institutions for non-financial reasons." By eliminating variations in financial aid offers, officials also hoped to avoid costly bidding wars for the most talented students -- advance agreements took away financial bargaining power from students who might try to play one school off another. The spring meetings ended in 1990, after the U.S. Justice Department said the Ivy Overlap Group's practice was anti-competitive price-fixing and a violation of the Sherman Antitrust Act. Under threat of a lawsuit, the eight Ivy League schools agreed in 1991 to abandon Ivy Overlap. Only MIT fought on, choosing to defend in court what it claimed were legitimate principles important to the future of higher education. Earlier this month, U.S. District Judge Louis Bechtle ruled in favor of the government. Barring a successful appeal by MIT, the decision probably insures the permanant end of the Ivy Overlap Group. · Bechtle's ruling has caused alarm among many administrators at the University and in higher education circles who fear that the affected schools may eventually have to change long-cherished financial aid policies -- like need-based aid and need-blind admissions -- in order to remain competitive. Advocates of Overlap say that the policy of giving only need-based aid -- no more than a student truly needs, regardless of merit -- could be threatened in the long run. Some prestigious schools, such as the University of Chicago and Duke University, offer merit scholarships. But the Ivy Overlap schools argue that since all of their students have merit, it makes no sense to give merit awards. Plus, because of the growing fiscal crisis in higher education, there is little money even for needy students, and giving money for merit alone would be senseless, they argue. Overlap provided a way for Ivy Overlap schools to ensure that all nine universities actually practiced what they preached. While the schools say they will now carry on the practice of offering only need-based aid independently, the end of Overlap means it will be harder for school officials to check up on their colleagues, particularly as time goes by. As a result, some officials say, there could be a whittling away over time, as schools find it harder and harder not to give some students just a little added incentive to attend. "The danger you get is that [schools] get to a point where they see a need to compete and then they begin giving money to students who don't demonstrate need," David Merkowitz, director of public affairs at the American Council on Education, said last week. Once the schools began giving merit aid, he said, they would have less money to spare for needier students who are fully qualified but not quite as impressive academically. These students would be hurt, possibly to the point where they could not afford to attend those colleges, opponents of merit aid say. "The effect of this [ruling], particularly over time, will be to impair the ability of schools to allocate aid based on need," Michael Gass, a lawyer for MIT, said last week. "Some students will be hurt. The number of aid dollars out there is not unlimited and it is shrinking daily." In a worst-case scenario, college officials say, some schools could have to choose between playing the merit aid game or sticking with the policy of need-blind admissions, under which students are admitted without regard to their ability to pay. If schools are forced to abandon need-blind admissions, they say, the result will be a decrease in the socio-economic diversity of college campuses because only the most wealthy applicants would be able to attend. University officials say the University does not face such a tradeoff in the foreseeable future, but they agree that a switch to merit aid by another Ivy League school would set a bad precedent. The government, however, in presenting its case last summer, pointed out that the schools belonging to Ivy Overlap are among the wealthiest schools in the world and do not need "collusion" to maintain the policies. In his opinion, Bechtle agreed, noting that if need-based aid and need-blind admissions are "as meaningful" to the schoools as they say, "then they should be willing to dedicate the necessary resources to ensure the continuation of those policies." Bruce Pearson, the government's lead lawyer in the case, said last week that greater competition for students -- which the government maintains students deserve in a free-market society -- would not overly diminish the wealth of those schools. "It's hard to believe that the consequences would be as catastrophic as they say, given that undergraduate financial aid currently is such a small part of their budget," Pearson said. · The government began its investigation into the Ivy Overlap Group's financial aid agreements in 1989, and brought the case to trial in Philadelphia this summer, charging that the nine schools' policy of equalizing financial aid packages was illegal price-fixing. Justice Department attorneys also claimed at the trial that the Ivy Overlap Group limited the decision-making process of potential students by removing price as a consideration for choosing a school. MIT, in return, argued that universities are "charitable organizations," not answerable to the same laws as commercial establishments. The lawyers said the schools are non-profit, educational insitutions, and the Sherman Antitrust Act was not aimed at them. Meanwhile, Ivy Overlap stopped meeting, and the Ivy League schools settled with the government, rather than spend the money to fight the suit. They agreed not to discuss financial aid policies for the next ten years. If MIT had won the suit, the Overlap meetings would have been allowed to resume. Bechtle's ruling, however, forces MIT to comply with the Ivy settlement. There is some legislative relief for Overlap schools in the updated version of the Higher Education Act, which Congress passed this summer and President Bush recently signed into law. The legislation allows schools to devise a common method of determining financial aid and to agree to offer need-based aid only. But schools are still prohibited from sharing specific financial aid information or discussing any aspect of the future where money is concerned. So while the members of Ivy Overlap may reach an agreement on need-based aid in the future, there would be no way to enforce such an agreement. Stanley Hudson, MIT's financial aid director, testified during the trial that several students in the past year have told him that they had been offered more money by an Ivy League school than by MIT. Hudson's testimony seemed to make a reality what MIT was arguing in the abstract: with Overlap gone, the schools in question wanted some students badly enough that they offered them more money than they needed. But financial aid directors from around the Ivy League insist that they have not strayed from the Overlap policies and said that they do not believe any other schools have either. They say that the difference in aid packages is natural, a result of varying methods of interpreting a student's needs. And without Overlap, they say, keeping the differences minimal is difficult. Rather than iron out differences in the annual meeting, officials said they now hear about other schools' offers through the students themselves. Jim Miller, Harvard's financial aid director, said this summer that his office received reports about the "larger divergence" than in the past between Harvard's aid awards and those of its Ivy League rivals. But Miller said there will be no bidding, although the students who report the differences may be hoping Harvard will hike its offer in response. "We want to be as clear as we can that we're not playing that game," he said. "We will only respond to people with legitimate financial concerns." William Schilling, the University's financial aid director, said between 30 and 35 students accepted by the University this year called with news that another Ivy League school had offered a more attractive aid package. While the University did not match the offers, he said there was an attempt to get "as close to the other award if we could understand some basis for why the difference was there." Those prospective University students whose aid offers were changed were not given more than the standard University financial aid fomula said they needed, even if that made the University's offer less competitive, Schilling said. In many of those cases, he said the Overlap meeting would have brought the University's award more into line with the others because aid officers would have discussed how they arrived at the packages. Now the only way to see whether the amount of aid should be changed is to reevaluate the University's own methods alone, he said. Still, he said he would be "surprised" if there is a move among Ivy League schools to establish merit aid and said that "the paranoia that is out there is out of proportion to what is really happening." "There is at Penn a strong commitment to need-based aid and we would be reluctant to part from it," he added. Echoing lawyers for MIT, Miller criticized merit scholarships because of their drain on need-based financial aid. "A merit scholarship program to my mind is a zero-sum proposition," he said. "If we're giving them on merit, we're taking them from somebody else [with need]." The Council on Education's Merkowitz went even further in condemning the effects of merit aid. "It merely confirms the current social and economic systems and the current distribution of income in society," he said, because the very brightest students are often from "affluent families." But MIT's Gass said a shift to merit aid was "inevitable" in the wake of the court ruling. If other schools do not begin to give merit aid, "they are going to let the brightest students get away because other schools are going to bid them away [by offering merit aid]," he said.

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