Gershon Distenfeld’s provocative proposal ( “Putting our money where our mouths are,” October 25) for creating a “new central body” to “centralize the financial aid process and ensure consistency among our schools” raises serious antitrust concerns that must be confronted before the schools give it any further consideration.
As part of this proposal, Mr. Distenfeld directs “all yeshiva day schools [to] announce that within the next three years, they will reduce tuition to the average cost per student and get out of the scholarship business entirely.” There is precedent concerning the propriety of and conditions circumscribing schools coordinating their financial assistance policies and decision-making that directly address Mr. Distenfeld’s proposal, calling into question his desire that all our schools agree not to provide financial assistance scholarships.
In the late 1980s and the early 1990s, the antitrust division of the United States Department of Justice sued the eight Ivy League schools and M.I.T., alleging that joint financial aid practices among these institutions violated Section 1 of the Sherman Act, which proscribes coordinated action or agreements in restraint of trade. Sherman Act violations are not only felonies but any civil damages can be tripled. Agreements among horizontal competitors that affect price are the most sensitive and scrutinized the most closely.
While the Ivy League schools settled with the DOJ by entering into consent decrees, M.I.T. decided to litigate, arguing primarily that it was exempt from the antitrust laws as a not-for-profit educational institution. Ultimately, the case reached the Third Circuit Court of Appeals – the federal region that includes New Jersey. That court determined that there is no automatic not-for-profit exception under the antitrust laws and specifically held that coordinated efforts by schools as to financial aid is subject to the antitrust laws because “financial assistance to students is part and parcel of the process of setting tuition and thus a commercial transaction.” Eventually, M.I.T. also settled with the DOJ and agreed to adhere to specific “standards of conduct.”
The DOJ “standards of conduct,” as well as a “temporary exemption” Congress accorded in 2001 to “institutions of higher education” in Section 568 of the “Improving America’s Schools Act” demonstrated the circumstances by which to construct any valid coordinated financial assistance endeavors. For example, the Section 568 temporary exemption allowed schools to agree to “common principles of analysis for determining the need of such students for financial aid.” But the statute also provided that any such agreement cannot “restrict financial aid officers of such institutions in their exercising independent professional judgment with respect to individual applicants for such financial aid.” Likewise, pursuant to the Section 568 temporary exemption, the schools could agree to use a common application but any joint form they conceived could not restrict the individual institutions from asking for more data.
Moreover, the Section 568 temporary exemption allowed schools to agree to exchange individual information about assets, income, and expenses, but only if the exchange were to be carefully executed through an “independent third party,” limiting each school’s opportunity to retrieve information to one occurrence per individual student. In general, an independent third party or “joint venture” meant to shield constituent entities from antitrust strictures would have to be constructed in a way that the entity operated as a genuinely independent economic actor that has taken measures to prevent it from being used as a vehicle for sharing individualized prospective pricing and cost information. Indeed, Section 568 made explicitly clear that the temporary exemption did not apply to an agreement among schools “with respect to the amount or terms of any prospective financial aid award to a specific individual,” meaning that such individualized financial aid decisions could not be made on a coordinated basis under the antitrust laws.
Of course, maintaining quality Jewish schools accessible to all should be a paramount priority for the Jewish community – perhaps even the most paramount. As Mr. Distenfeld suggests, there probably should be more en0hanced community-wide efforts to raise funds from everybody, including those who do not send or have children in the schools. We might even go a step further and advocate for mandatory contributions to our schools through synagogue dues or JCC membership, as was historically common in European Jewish communities.
But recognizing that school funding is a communal obligation – and a very critical one at that – is something very different than demanding that all schools unconditionally abide by one central entity’s determinations about individualized financial aid and scholarship determinations. Such restrictions could amount to anti-competitive price fixing, the very essence of what the antitrust laws are designed to protect, and it is only a matter of time before price collaboration will extend to setting uniform teacher salaries and imposing across-the-board cost restrictions affecting curriculum and services. Those measures most certainly would erode the quality of our schools.
While our schools should never be viewed as competitive enterprises in the mode of profit-maximizing businesses, and while we should develop and strengthen joint community endeavors such as NNJKIDS to assist all of the schools through difficult economic times and the funding crisis, it is important that we do so responsibly and act in way that is carefully consistent with the law and with the desire to maintain the quality education that our schools continue to provide.