Penn, Villanova, and 38 other universities formed ‘cartel’ to make students with divorced parents pay more, federal lawsuit says

The University of Pennsylvania and Villanova University are among 40 private schools accused in a federal lawsuit of participating in a price-fixing scheme against student with divorced parents.

The class-action lawsuit, filed Oct. 7 in the Northern District of Illinois by two college graduates with divorced parents, says that the private universities made students with divorced parents pay more by taking into account the income of both parents when determining institutional financial aid, even when only one parent had custody.

The lawsuit also names College Board, the nonprofit that administers college applications, as a participant in the alleged conspiracy to lower the amount of financial aid that universities offer students.

"We believe our antitrust attorneys have uncovered a major influence on the rising cost of higher education," Steve Berman, cofounder of the Seattle-based law firm Hagens Berman, which filed the lawsuit, said in a statement.

In addition to Penn and Villanova, the lawsuit names Pennsylvania's Leigh University and Carnegie Mellon University. No New Jersey universities were named.

Pennsylvania is the state with the third-highest average student debt in the country at over $39,000 , according to financial site WalletHub, a personal finance website. And nearly two-thirds of students in Pennsylvania universities have taken on debt.

None of the four Pennsylvania universities responded to requests for comment.

The College Board said in a statement that it is reviewing the lawsuit.

"But we are confident that we will prevail in this action and we will continue to support our member colleges," the statement said.

Penn also was among 17 private colleges that were sued in 2022 for allegedly adopting a formula to determine financial aid that gave preference to "past or potential future donors." In February a federal judge approved a $284 million settlement with 10 of the schools . Penn hasn't agreed to contribute to the fund yet. Students at the university received an email on Sept. 17 stating they may be eligible for $2,000 as part of the settlement, the Daily Pennsylvanian reported .

» READ MORE: Penn among group of colleges sued for colluding to hold down financial aid packages

'Pricing cartel' Until 2006, colleges had varying approaches for how to use income of divorced parents, according to the lawsuit. Some colleges took into account only the income of the parent who is the custodian, which could lead to a more generous financial aid package.

Colleges that based institutional aid on both parents' income worried that they would be less competitive to accepted applicants because they offered smaller aid packages, the lawsuits states.

The lawsuit accuses College Board, Penn, Villanova, and the other universities of conspiring to undercut this competition by creating a singular strategy to assess income — and choosing the approach that is more likely to lower the amount of aid offered.

College Board began requiring students to provide the financial information of both parents in 2006 for the purposes of institutional aid assessment, the complaint says. The policy allegedly has no exceptions.

"The student then ultimately receives an estimate for the family contribution based on what the two parents can contribute, regardless of whether both parents do actually contribute," the lawsuit states.

At least 75 universities adopted the College Board's "noncustodial pricing strategy" following its announcement in 2006, according to the complaint. The average price of tuition, room, and board after financial aid in the 40 schools that were sued is about $6,200 more than the 10 most prestigious private universities that do not participate in what the complaint calls the "noncustodial pricing cartel."

"Absent this agreement the University Defendants would have competed in offering financial aid in order to enroll their top candidates," the lawsuit says.