P12.3 SOLUTION
A. The effects of the DOJ overlap group inquiry has become the subject of an
interesting study by the National Bureau of Economic Research, Inc. The
NBER study found no evidence that the overlap colleges were colluding to
raise tuition, raise net tuition revenue, or to save expenditures on grants. Both
the overlap colleges and the control colleges raised tuition about 4 percent a
year both before and after the antitrust action. However, as a result of the suit,
financial aid at the overlap colleges became less progressive with respect to
parents income and more sensitive to the merit of individual students, as
measured by standard aptitude tests. In other words, financial aid became
less sensitive to parents income and more able students obtained more aid.
As a consequence of the DOJ case, the apparent trend in overlap colleges is to
have a student body with proportionately more well-off students and
relatively fewer black and Hispanic students.
Apparently, DOJ found it difficult to apply standard economic analysis
to college education. Although students are consumers of education, they are
also producers in sense that peers affect the student experience. Many students would like colleges to maintain need-based aid for others, but make
exceptions for them if they fail to qualify. (Note: Founded in 1920, NBER
is a private, nonprofit, nonpartisan research organization dedicated to
promoting a greater understanding of how the economy works. NBER
research is conducted by more than 600 university professors around the
country.)