College prices are soaring.
Since the early ‘90s, the average cost of one year at a private nonprofit college has nearly doubled from $25,070 to $45,370 (and yes, that’s adjusting for inflation).
In that same period, median student loan debt has increased by nearly 164 percent.
Something has to change. And according to some colleges, it would … if they were free from antitrust laws.
What do antitrust laws have to do with college costs?
It all goes back to 1991, the year Nirvana released “Smells Like Teen Spirit” — and the year the Justice Department accused a group of elite colleges and universities of violating antitrust laws.
For years, this group had been discussing students who’d been admitted to more than one of their schools, with the goal of offering those students similar amounts of aid.
This process prevented the schools from competing for top students with bigger aid packages — a strategy that allowed them to save aid for those who needed it most, they said.
But the Justice Department saw it as something different: price fixing.
“Students and their families are entitled to the full benefits of price competition when they choose a college,” said then-Attorney General Dick Thornburgh, according to the New York Times. “This collegiate cartel has denied them the right to compare prices and discounts among schools, just as they would in shopping for any other service or commodity.”
Although the schools maintained they didn’t do anything wrong, they agreed to stop — except the Massachusetts Institute of Technology (MIT), which continued fighting until it reached a settlement in 1993.
The following year, Congress enacted Section 568, which extended some of the provisions of MIT’s settlement to other schools. For example, it allowed schools to use common principles to determine need but prohibited sharing the amount or terms of any individual aid award.
It also applied to need-blind institutions only.
To be “need-blind,” a school must not review an applicant’s financial status until after they’ve been admitted. There are approximately 100 such institutions in the U.S.
For the more than 1,500 private nonprofit institutions that aren’t need-blind, however, antitrust laws remain a shackle.
Why colleges want to be exempt from antitrust laws
Because these universities can’t communicate with one another, they say they’re trapped in a tuition arms race.
“They vie for students by offering bigger and bigger discounts they can’t afford — including to families that may not need them,” explained Jon Marcus in a piece for The Hechinger Report. “This pushes up the sticker price for everybody else, shifts money away from students who need it most, and threatens the very survival of some schools.”
That’s why some people argue colleges should be exempt from antitrust legislation.
“Colleges are highly motivated to reduce the cost of college, and they all have smart people who would like to work with others to develop new approaches,” explained Richard Detweiler, president of the Great Lakes College Association, in an email to Student Loan Hero. “Private nonprofit colleges should be allowed to openly discuss strategies to control the cost of college.”
The National Association of Independent Colleges and Universities (NAICU), a network of more than 1,000 private nonprofit colleges, agrees.
In a proposal to Congress, it asked for relief from antitrust laws for a five-year period — an exemption that would be extended only if it made college cheaper.
“For more than 20 years, antitrust restrictions have prevented private nonprofit colleges from engaging in full discussions of new business models,” NAICU explained. “These restrictions severely limit the sector’s ability to explore issues thoroughly and develop innovative solutions in areas such as financial aid, price, net price, discount rates, and myriad related topics.”
The other side of the argument
It might sound like a smart idea, but critics are concerned schools won’t do what they promise.
“I, frankly, am skeptical,” F. M. Scherer, a Harvard professor who focuses on antitrust policies, told The Hechinger Report.
He said collusion between the schools could actually increase the cost of college.
Supporting his position is a 2006 report from the Government Accountability Office, which examined 28 schools that were exempt from antitrust laws (thanks to Section 568) and had “developed a common methodology for assessing financial need.”
It concluded the collaboration didn’t achieve the desired results.
Although need-based (as opposed to merit-based) aid increased, it didn’t decrease the amount families paid, nor did it increase the number of low-income or minority students who enrolled. And tuition and fees rose at a faster rate at the exempted schools than at others.
So is exempting colleges from antitrust laws a good idea?
That’s a great question. And no one knows the answer.
But with student loan debt defining a generation, it’s obvious the current system isn’t working.
“There is no guarantee that having the opportunity for colleges to talk openly will reduce costs — perhaps there will not be a breakthrough in approach — but one thing that is clear is that the current policy which bans such conversations corresponds to a time when college prices have gone up more than ever before,” explained Detweiler.
If you support the idea of freeing colleges from antitrust legislation, call or email your representatives and let them know.
Maybe Detweiler is right. What do we have to lose?
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1 Important Disclosures for College Ave.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Information advertised valid as of 4/22/2021. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.
2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.22% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.12% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.29% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.22% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 4/1/2021. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org)..
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).
Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).
Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).
Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).
Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).
Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).
Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
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Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Discover.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.