Could Collaboration Shift Colleges' Aid Policies?

June 13, 2008

Talk to private college leaders in confidence these days, and many (at least outside the most competitive and wealthy institutions) are unhappy with their financial aid policies. President after president (not to mention admissions or financial aid directors) will say that they are spending too much on merit aid (grants given to those who don't really need them) and not enough on need-based aid.

Ask them why they don't cut back, and they cite the college down the road: If my college curbs merit aid, but my competitor doesn't, the theory goes, I'll lose my best students, my SAT averages will drop, my rankings will tank, etc., etc.

With colleges reporting that they are unwilling to act alone, a proposal released Thursday aims to make it possible for them to act together. The plan -- by the Institute for College Access and Success -- urges Congress to create temporary new exemptions to antitrust law that would permit colleges to collaborate on aid policy shifts that were clearly designed to promote greater access to higher education. While it is unclear whether Congress will adopt the idea, some college officials said that the approach was a promising one -- and could be a way to shift more funds to the students who most need the help. And the stakes could be significant: According to the institute, colleges awarded at least $3 billion in grant aid beyond economic need in 2005-6 -- even as many needy students reported not having enough support.

Many colleges used to regularly consult one another on aid policies -- and credited those consultations with helping them adopt common policies and a focus on needy students. The U.S. Justice Department, however, saw an antitrust violation in the way groups of elite private colleges not only agreed on common policies but also examined the aid packages awarded to individual applicants who were admitted to multiple institutions, in an attempt to make them comparable.

Such collaboration, the department said, amounted to an illegal attempt to limit the size of aid packages. While many private colleges objected to the Justice Department's interpretation -- which became public in 1989 -- there's nothing like an antitrust probe to change entities' behavior, and colleges stopped collaborating in this way.

That is the situation today -- with many college presidents and other experts voicing the view that if they could meet together, they could shift aid policies in a way that would benefit needy students, but they are banned from doing so.

The proposal released Thursday proposes a path that would allow such meetings and such collaboration, by building on an exemption that already exists. After various legal agreements and court rulings effectively made the Justice Department interpretation law, Congress carved out a narrow exemption that permits colleges that do not consider the financial need of applicants in the admissions process to meet to discuss certain policy questions, but not to discuss the aid packages of individual students.

The 568 Group -- the name comes from the section of the tax code that created the exception -- has 27 members, most of them among the wealthier and more competitive private colleges in terms of admissions. While there are colleges that are eligible that have not joined, many private colleges are not need-blind in admissions or don't want to commit to being need blind, effectively leaving them out of the discussions.

Since many colleges will not qualify for an exemption requiring them to commit to being need-blind, the institute plan would shift the test for the exemption to the outcome of the collaborations. Congress could devise one or more criteria that would have to be met for collaboration on policy to be permitted. For example, colleges might pledge to reduce the debt levels of their students or to increase the share of their students from low-income families. The criteria would have to be related to promoting the use of need-based aid.

In such a scenario, a group of colleges that are in the same geographic area or with similar missions might mutually agree to scale back the use of merit aid so that it only covered some upper limit in their classes, and to shift the funds to need-based aid. As long as they could point to positive results consistent with any criteria set by Congress, they could continue to meet and set additional goals.

Robert Shireman, president of the institute, said that the proposal came out of talking to many college leaders. "We've heard enough college representatives saying that the bidding wars have made it hard to do what they want to do," he said.

Shireman added that discussions among colleges that are similar can also lead to positive changes just through the exchange of some information, such as the share of the aid budget going to merit awards. The "embarrassment factor" can prompt some colleges to shift their policies, he said.

Richard A. Detweiler is president of the Great Lakes Colleges Association, a group of 12 liberal arts colleges located in Indiana, Michigan and Ohio. In an interview Thursday, he said he hadn't seen the new proposal, but liked the concept.

"I think it could potentially be really important," he said. "I would describe it as agony right now for our college presidents, and certainly true for most private colleges. These are all people who are so committed to doing good through education. We work together openly and collaboratively on all kinds of issues, having to do with pedagogy and strategy, and even though they are competitors, they share openly. But as soon as you get to money for students, that's forbidden."

Detweiler continued that there is great interest among his members and similar colleges elsewhere in finding a way to shift funds from merit to need-based aid. "We're all struggling with the issue of discounting, wanting to preserve the ability of students to attend," he said. "But no one college alone feels it can address this issue. This idea could open up the potential for some really healthy and valuable change in the way aid is administered."

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