Recently, The Wall Street Journal and other news outlets reported that the Antitrust Division of the U.S. Department of Justice issued letters to certain elite colleges and universities asking them to preserve documents detailing formal or informal agreements to share the identities of accepted students with other colleges, communications with other schools sharing the identities of accepted students, and records of action taken based at least in part on information received through those communications with other schools. The letters indicate that the DOJ is investigating a “potential agreement between colleges relating to their early decision practices.”
Antitrust case law involving colleges and universities is sparse, and higher education historically has not been a major target of antitrust enforcement — though it is coming under increased scrutiny by the Trump administration. This article discusses the legal theories that might be behind the government’s investigation, and whether early-decision programs are anti-competitive.
College Early-Decision Programs
Many competitive colleges and universities offer early-decision admissions programs, where applicants can find out their acceptance status early if they commit in advance that they will attend if accepted. It is generally believed that students who apply early have a better chance of being accepted than those who apply during the regular admissions period, although most schools do not explicitly promise early applicants an admissions advantage. Schools inform the students, prior to applying, that they may only apply to one school through an early decision program; they also inform students that if they are accepted, they must commit to attend and must withdraw any pending applications to other schools. Typically, the student is required to sign a statement acknowledging these rules and agreeing to attend if accepted. Some schools warn students that their acceptance could be withdrawn if they violate these rules. Although students applying through earlydecision may have to commit to a school before receiving a financial aid offer, schools will release a student from her early-decision commitment if the school is unable to offer her the amount of financial aid her family needs.
Early-decision programs benefit schools because they allow them to quickly fill a portion of their incoming class with quality candidates and allow them to more accurately predict how many students they will need to accept during the regular admissions process. Additionally, because yield — i.e., the percentage of admitted students who enroll — is a factor in some national college rankings, schools value having a pool of applicants who have committed to attend if accepted. Although the number of early-decision applicants is growing, most students elect to apply to college during the regular admissions process, and not through early decision.
The highly competitive nature of elite college admissions — and the perception that students who apply early are more likely to get accepted — creates incentives for students to game the early-decision process. Although there are no publicly available records of how often this occurs, schools are likely concerned about students applying for early decision at multiple schools, then reneging on all but their true first choice. The more prevalent gaming becomes, the less schools can rely on early applicants’ signed commitments to attend. This diminishes the value of the programs for schools. It also harms honest students who may be rejected from their first-choice schools during early decision in favor of students who will not attend if accepted.
Potential Antitrust Theories Relating to Early-Decision Programs
The Justice Department letters to colleges raise some obvious questions: Are early-decision programs anti-competitive? If they are, what is the legal theory? If the programs themselves are not a problem, would it raise antitrust concerns for schools to share information about accepted students? We discuss these issues below.
Are Early-Decision Programs Anti-Competitive?
This is not the first time early-decision programs have come under antitrust scrutiny. In the early 2000s, there was a flurry of progressive scholarship criticizing early-decision because they allegedly benefited affluent students at the expense of financial disadvantaged and minority students. Some went even further and alleged that early-decision programs amounted to illegal horizontal conspiracies between competitors that violated antitrust law. These theories were fatally flawed, but they warrant a look because it is possible that they may be behind the government’s investigation.
Early-Decision Programs as Price-Fixing or a Ban on Competitive Bidding
One previously raised theory is that early-decision programs amount to “a sort of price fixing at abovemarket levels” because the schools offering these programs require applicants to commit to attending if accepted, without being able to compare financial aid offers. This theory is based on the U.S. Supreme Court case National Society of Professional Engineers v. United States, in which a group of engineers agreed to refuse to discuss prices with potential clients until a client had committed to an engineer. The justification was that competitive bidding forces prices down to the point where the safety of the projects would be compromised. The Supreme Court held that the engineers’ ban on competitive bidding was unreasonably anti-competitive because it deprived customers of the ability to compare prices when selecting an engineer and imposed the society’s view of the costs and benefits of competition on the entire marketplace.
Early-decision programs do not fit within the framework of National Society of Engineers. Although advocates of this theory contend that early-decision programs force students to commit to a school without knowing the price, that is simply not accurate. Colleges do not hide their prices. Information about college pricing is publicly available and it differs by institution, so prospective students can comparison shop before they apply. Further, comprehensive information about the financial aid available at different colleges — including average financial aid packages, the percentage of demonstrated need that the institution meets, the average net price paid by the student population students, and more — is readily available online. Most colleges even offer online financial aid calculators that allow prospective applicants to fill in their family’s financial data and receive an estimate of the financial aid they will receive.
In addition, students receive a benefit in consideration for foregoing the option of comparing financialaid offers and committing to attend if accepted: early peace of mind in the admissions process and a chance to increase their odds at being admitted. If students choose not to apply early, they can wait and apply through the regular admissions process and compare financial aid packages before selecting a school. By contrast, in National Society of Professional Engineers, there was no alternative to the restrictions on dealing imposed by the engineers, because the engineers “unlawfully agreed to refuse to negotiate or even to discuss the question of fees until after a prospective client ha[d] selected the engineer.”
Early-Decision Programs as an Agreement to Allocate Customers
Another theory that has been proposed is that early-decision programs are a form of customer allocation — essentially an agreement to divide potential students among themselves and not compete for other school’s early-decision applicants. But this theory doesn’t map onto the facts either. There is robust competition in the market for potential students. The choice of which college to apply to, and whether to apply early or during the regular application period, is the student’s exclusively. To be sure, once a student commits to a college, the competition ends — but that is because the student has made a choice and is now off the market.
Is Information Sharing Anti-Competitive?
If early-decision programs are not in and of themselves anti-competitive, can it be a violation for schools to share information about accepted students in order to ensure that applicants are honoring their commitment to apply to only one school and to attend that school if accepted? The short answer seems to be no. Presumably, if information is being shared, it is because schools want to ensure that they do not waste acceptances on students who are gaming the system. This position seems unobjectionable, especially in light of settled case law holding that businesses may share information about a potential customer and may use that information to make independent decisions about whether to do business with that customer.
So one might ask: What if, instead of using the information to make individual decisions about each student, the colleges and universities agreed in advance to reject any applicant who applied to more than one early-decision program? We observe preliminarily that there does not appear to be evidence of any such agreement. If students who game the system are rejected by all schools once the schools compare notes, that is most likely not due a pre-existing agreement among schools. More likely, it is because schools prefer to award early-decision spots to honest applicants who will honor their promise to attend, and do not want to grant early decision to applicants who will probably just go somewhere else anyway.
In any event, it is highly unlikely that courts would find such an agreement anti-competitive. There are substantial noneconomic justifications for ensuring that early-decision spots are reserved for students acting in good faith. If bad-faith applicants are removed from the early-decision process, more honest students will be accepted by their first-choice schools. Schools, in turn, will know they can rely on applicants’ early-decision commitments. Rejecting students who apply to multiple early-decision programs will also disincentivize gaming — which is important because if gaming becomes widespread, schools may cease offering early-decision programs altogether, removing an important and popular option from the marketplace.
Moreover, courts recognize that higher education has a different purpose, and different priorities, than for-profit businesses. Concerns about access, fairness, integrity, diversity and the educational mission are front and center. Rules developed to prevent conspiracies and the exploitation of market power in the for-profit world are not a good fit in the education context. A well-known example of this is the Ivy League price-fixing litigation from the early 1990s. That case involved an agreement between Ivy League colleges to offer the same amount of financial aid to any student admitted to more than one Ivy League school. In other words, the schools agreed not to compete on price. Even though the Third Circuit agreed that the schools engaged in horizontal price fixing — which is normally a per se violation — it nonetheless held that the district court erred by failing to consider the policy justifications proffered by the schools, and for failing to recognize that antitrust principles should be applied differently in the higher-education context. Against this backdrop, it is difficult to imagine courts condemning colleges for taking steps, whether coordinated or not, to ensure integrity in the early-decision process.