Background, Reasoning Given in Financial Aid Suit

More than ten months ago, the Department of Justice sued MIT and the eight members of the Ivy League for alleged violation of the Sherman Antitrust Act. The complaint was filed in the Federal District Court in Philadelphia on May 22, 1991.

The government contended it was an unlawful and unreasonable restraint of trade and commerce for the schools to agree to give financial aid solely on the basis of economic need, and to cooperate in making sure that private financial aid given to commonly admitted undergraduates was based solely on the students' financial need. The Ivy League colleges signed a consent decree in May; MIT refused to do so. A trial in this case was expected to occur in the summer of 1992.

In the latest development, the Department of Justice on April 3 filed a motion asking the court to decide the case summarily in the government's favor-on the ground that it was a routine "per se" case of price-fixing-without holding a trial to hear MIT's side. MIT will oppose the government's motion and, during the next few weeks, will prepare a full, detailed response. In the meantime, MIT has issued this statement on the substantive issues in the case. Chief Judge Louis Bechtle of the Federal District Court in Philadelphia last week called both parties to a hearing in the court on April 23.

There are a number of problems with the government's move to bar a trial in this case, which would extend the Sherman Antitrust Act to private charitable aid to college students. These are the problems MIT sees:

  • The government suit would pit talented, wealthier students against talented, poorer students.
  • Congress mandates need-based aid to conserve scarce federal funds; private colleges should be allowed to do the same.
  • The Justice Department says need-based aid is all right for athletes; it should also be all right for their classmates.
  • The cost of education to MIT is far greater than the amount contributed by students.
  • MIT provides seven times the scholarship aid provided by the government ($21 million compared to $3 million).
  • ������Student financial aid is a charitable activity essential to the educational mission of MIT, a non-profit institution. Never in the 102 years of the Sherman Antitrust Act has the law been applied to a charitable activity of a bona fide educational institution.

The government's motion for summary judgment against MIT is based on a fundamental misunderstanding of the purpose and the role of undergraduate financial aid policies at MIT.

MIT believes that its own financial aid funds should be used to promote equality of opportunity among outstanding high school graduates. All MIT students are admitted to MIT on the basis of merit without regard to their financial ability to pay. And all MIT financial aid is given to admitted students solely on the basis of financial need.

On the other hand, the government asserts that financial aid should be available on a competitive basis, even to some students who do not depend on aid in order to attend college. Government lawyers say students deserve the "benefits of competition."

In other words, the government's motion ignores the economic reality that giving scholarships to talented, wealthier students will take scholarships away from talented, poorer students, and thus close the door to those who are unable to attend MIT without scholarship assistance.

In the world promoted by the Department of Justice, intellectually talented applicants from families of limited means must either be rejected as unable to pay, or, if admitted, some of them must be told to fend for themselves because scholarships that otherwise would have been available to them have now been consumed in the competition between them and some other students (who did not depend on financial aid to attend). For MIT, this would be unacceptable, particularly given the uniformly high qualifications of all of the students MIT admits.

Congress requires all colleges and applicants to agree to a need-based Financial Aid Form system, designed to conserve scarce federal funds and to ensure that federal financial aid is awarded only to students whose families can demonstrate financial need.

This was precisely the intent of the private aid system set up by the private colleges to assess the financial need of students who had been admitted to more than one of the colleges. The private colleges' financial aid system was established to ensure that their limited, private financial aid funds were distributed solely on the basis of need.

Indeed, the federal policy was developed after the private system and was modelled on it. The Department of Justice is saying that colleges and universities may no longer engage in their cooperative way of achieving their goals.

The government lawyers say that private colleges cannot even agree among themselves that the colleges will all grant aid based solely on need.

Ironically, there is one exception to the government's position. In the consent decree, the Justice Department says that schools may jointly agree to limit themselves to need-based aid in the case of student athletes.

The Justice Department position is inconsistent. If need-based aid is all right for athletes, it should be all right for their classmates.

The government's motion also ignores the economic reality that the cost of education at MIT is far greater than MIT's charges to undergraduates. For example, in a recent year, the cost of education at MIT was $235 million, while the income from student tuition, room, board and fees was $135 million-100 million below cost.

Private financial aid provided by universities has become the critical factor in preserving educational access and need-blind admissions over the past decade.

The government share of scholarships granted to MIT students has fallen from 37 percent of all scholarships in 1980, to 12 percent of all scholarships in 1990. Last year, tuition for MIT undergraduates totalled $66 million. Financial aid scholarship grants paid $27 million of that-21 million from MIT, $3 million from the federal government, and $3 million from outside sources. Thus, MIT provides $7 of its own private charitable funds for every $1 of federal scholarship grants to MIT undergraduates.

In addition, some $4 million in outside "merit aid" grants, such as ROTC grants from the armed services and community scholarships, were awarded to students irrespective of their financial circumstances.

The business activities of universities are subject to the Sherman Act; this has never been at issue in this case. However, the activities challenged by the government are not business activities but rather are charitable activities which are essential to MIT's educational mission. In the 102 years of the Sherman Antitrust Act, it is unprecedented for the law to be applied to a charitable activity of a bona fide educational institution.

In MIT's view, MIT's use of its own funds for financial aid is a charitable activity that is not subject to the Sherman Antitrust Act. MIT does not seek special treatment under the law. As a non-profit institution of higher education, however, MIT has as its mission a major responsibility to provide the best possible educational opportunities for able students without regard to the financial circumstances of their families. MIT actively recruits large numbers of highly talented low and middle income students of all ethnic and racial backgrounds. MIT's current class of first year students reflects the US population patterns projected for the year 2025, when these students will be in their 50s and will be leaders of an American work force in which no single national/racial group is in the majority.

Need-based financial aid is the policy that makes it possible for MIT to accomplish its objectives.

MIT has never sought to benefit financially from its aid policies, and any suggestion to the contrary is totally unfounded. The only guiding principle for MIT's financial aid policies has been to open the door for an undergraduate education to every meritorious candidate for admission.

This important principle cannot be sustained under the requirements imposed on schools by the Department of Justice, and so MIT has refused to sign the consent decree offered by Justice to the universities that were sued last May.

MIT believes that important issues of public policy need to be addressed by the courts in resolving this case, and it looks forward to addressing and resolving these issues in a trial on the merits.

A version of this
article appeared in the
April 15, 1992

issue of MIT Tech Talk (Volume
36, Number

Topics: National relations and service

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