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Colleges say they could lower tuition — if only they could talk to each other about it

Colleges say competition has resulted in tuition costs going up.  (Butch Dill/AP)
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Pssst: America’s private colleges have an idea to stop, and even reverse, their big annual increases in tuition. They say it would help ensure financial aid goes to the students who need it most.

All they want is for you to trust them. And an exemption from federal antitrust laws that ban consultation about prices and discounts among competitors in any industry.

So far this proposal, from the National Association of Independent Colleges and Universities, is only the subject of quiet talks between private-college lobbyists and congressional committees. Exempting anyone from antitrust law is likely to be hugely controversial, even to fix a problem as daunting as high college costs.

But the colleges say that, for them, competition has resulted in prices going up, not down. That’s because of a self-destructive cycle in which they vie for students by offering bigger and bigger discounts they can’t afford — including to families that may not need them. This pushes up the sticker price for everybody else, shifts money away from students who need it most and threatens the survival of the smallest and most heavily tuition-dependent private schools.

If they could talk to each other, leaders of these private colleges say, they could rein in those discounts. And that would free up money to lower tuition, give more financial aid to students who need it and liberate the institutions from catastrophic bidding wars that are costing them record amounts of money.

“If everyone got into this boat at the same time, then they could drop their tuition. So from a consumer point of view and a public policy point of view, that ought to benefit everyone,” said Richard Detweiler, president of the Great Lakes Colleges Association, which represents 13 private schools in the Midwest.

But there would be losers, too: many of the students who now get those discounts.

For F.M. Scherer, an emeritus professor of public policy at Harvard’s John F. Kennedy School of Government who has focused on antitrust policies, the idea evokes President Harry Truman’s tongue-in-cheek appeal for a one-handed economist.

“This is a case that requires a two-handed economist,” Scherer said.

On the one hand, he said, it’s possible that collaboration could help colleges shore up their increasingly shaky budgets. And that could let them get tuition under control and shift financial aid back to lower-income students.

On the other hand, said Scherer, “it’s just possible that collusion in tuition-setting could be reflected on the cost side by an above-average increase” in the price. “If you relaxed the pressure even more, where would it go? To a general reduction of tuition or to higher educational spending generally on the facilities and staff side? I, frankly, am skeptical.”

The few college presidents willing to talk about an antitrust exemption say they are asking for only a limited five-year trial period during which they promise to discuss lowering costs.

“What’s the fear of letting colleges talk to one another? The answer is that there’s a fear of collusion, that you’re going to drive the price up,” said Steven DiSalvo, president of 1,900-student Saint Anselm College in New Hampshire. “What if the qualifier was that the conversation takes place within a specified period of time, and only if we’re going to drive the price down?”

Colleges once talked to each other routinely about cost and discussed how much financial aid to offer individual students who applied to more than one of them. That prevented those applicants from playing financial aid offices against each other for a better deal.

As many as 150 schools belonged to 24 groups that met to compare notes in this way, according to the advocacy organization Institute for College Access and Success. Then, in 1991, the Justice Department brought charges of price-fixing against the most prominent of these, the Ivy Overlap Group, which included the Ivy League institutions and Massachusetts Institute of Technology. The Ivy League schools quickly settled, and the practice largely ended. (Many public universities within states continue to set tuition collectively.)

Forbidden to talk to each other about financial topics, private colleges have since then found themselves in an intensifying competition, giving bigger and bigger discounts to fill seats. Small private, nonprofit colleges this year discounted student costs, in the form of financial aid, by an average of 51 cents of every dollar, according to the National Association of College and University Business Officers. And more of that aid went to students who could afford to pay without it.

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Students from families earning $155,000 or more a year got an annual average of $5,800 more than a federal formula said they needed, the College Board reports. Those figures are from 2011-12, the last period for which they are available, and experts say such discounts have continued to go up since then.

The colleges say this forces them to raise tuition — which the College Board reports has grown 13 percent above inflation since 2011 — while still failing to keep pace with costs.

“It seems trite to talk about the arms race, but that’s what this is,” said John McCardell Jr., vice chancellor of Sewanee: The University of the South, with about 1,800 students, in Tennessee. “What we need is a summit meeting. What we need is an arms control meeting. The alternative is mutually assured destruction.”

Critics point out that the colleges could unilaterally disarm. But none wants to go first.

“They can make a policy that says we’re not going to give money to students who don’t need it,” said David Bergeron, a senior fellow at the Center for American Progress. “Any of them could decide to do that today.”

That would leave them at a competitive disadvantage, the colleges say. But Bergeron and others said letting them consult about financial aid and prices could hurt the interests of students who under the present system are able to shop for tuition-chopping deals often known as “merit aid.”

“It’s a harder case for schools to say they want to cut discounts to avoid the bidding war if there are people who are benefiting from it,” said Jennifer Dowdell Armstrong, an attorney at the firm McDonald Hopkins in Cleveland, who specializes in antitrust law.

Twenty-three top private colleges and universities already have an exemption from Congress to the antitrust restrictions. To qualify, institutions have to admit students regardless of their ability to pay, something only a tiny fraction can afford to do. Most of those with the exemption have significant endowments and financial stability, including Dartmouth College, Cornell, Duke and Georgetown universities and the universities of Notre Dame and Pennsylvania.

These schools are allowed to discuss a common methodology for calculating how much financial aid to offer applicants.

But their tuition, room and board didn’t go down during a five-year period studied by the Government Accountability Office; they went up almost twice as fast as at other colleges, and the amount of financial aid given out grew more slowly.

“I struggle to understand why we would insulate one industry without any safeguards because we believe they would go ahead and do good things with all the money they save,” said Barmak Nassirian, a longtime specialist in student aid and director of federal relations and policy analysis for the American Association of State Colleges and Universities — though he emphasized that his opinions were his own.

“I understand the plight of the sector, and I empathize with it,” Nassirian said. “They have gotten into an untenable situation. I’m just not sure that an antitrust exemption is going to fix anything.”

So sensitive is this topic that many higher education organizations wouldn’t discuss it, including the Council for Independent Colleges, or CIC. And there’s another quandary: Even a conversation about having these kinds of conversations can invite an antitrust investigation, as happened after the idea came up at a CIC conference in 2013. The investigation was dropped two months later but largely ended such discussions.

Most presidents think the current system of discounts for higher-income families runs counter to the goals and values of higher education, but fear they would face litigation if they discussed solutions, according to a survey by the Education Conservancy, which focuses on admissions practices.

“College presidents have really good intentions. And they feel handcuffed,” said Lloyd Thacker, the conservancy’s director and author of “College Unranked: Ending the College Admissions Frenzy.”

The government says that “on the one hand that you have to serve the public interest,” Thacker said, “and on the other that you can’t get together to serve the public interest.”

This story was produced by the Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.