The RealPage Suit and Higher Education
The RealPage Suit and Higher Education
Antitrust and the FAFSA
CTAS Higher Ed Business is now being sponsored by Creative Financial Designs, an SEC-registered investment advisor. Creative Financial Designs offers a full suite of investment services but, this being a blog about higher ed, we wanted to spotlight helping families fully utilize 529 plans, which we believe are underused and underappreciated. 529s can offer a host of benefits, including net after-tax savings on college for residents of many states. Today, we will highlight the benefits available to Maryland residents. Maryland has exceptionally generous tax provisions which can meaningfully lower a student’s college costs by reducing state income taxes for years to come. If you are a Maryland parent or student, we urge you to contact us so we can collaborate and make getting your degree, either undergraduate or graduate, more affordable by systematically using your state’s rules.
Make an appointment here for a free introductory session. We think you will like what you hear.
RealPage
In March 2024, two attorneys at the Federal Trade Commission, Hannah Garden-Monheit and Ken Merber, released an important piece titled “Price fixing by algorithm is still price fixing”. The authors make a number of points but one that stands out is: “Price deviations don’t immunize conspirators”. They snappily write that:
“Some things in life might require perfection, but price-fixing arrangements aren’t one of them. Just because a software recommends rather than determines a price doesn’t mean it’s legal. Setting initial starting prices or recommending initial starting prices can be illegal, even if conspirators deviate from recommended prices.”
This piece was a conceptual precursor to the Department of Justice (DoJ) launching a suit against RealPage, which gathered and disseminated rental housing pricing across the country, in August. Let’s quote Attorney General Merrick Garland directly:
"Americans should not have to pay more in rent because a company has found a new way to scheme with landlords to break the law. We allege that RealPage's pricing algorithm enables landlords to share confidential, competitively sensitive information and align their rents. Using software as the sharing mechanism does not immunize this scheme from Sherman Act liability, and the Justice Department will continue to aggressively enforce the antitrust laws and protect the American people from those who violate them." (Source is here.) The DoJ claims the RealPage software violated two statutes in the Sherman Act, a key antitrust law.
What does RealPage do? The segment of RealPage that has attracted the most criticism is YieldStar, which grants visibility into rents nationwide across all major markets, allows many property owners to know what is being charged in competing properties and recommends rent increases in line with the data. Real estate attorneys reviewing a class action suit against RealPage found that a large majority of RealPage’s recommendations were accepted by landlords and that it in practice set prices for many clients:
“RealPage’s clients allow RealPage to use their commercially sensitive pricing and supply data in its algorithms to set their own rent prices and help set the rent prices of their competitors. The clients also outsource their daily pricing and ongoing revenue oversight to RealPage by accepting RealPage’s price recommendations 80-90% of the time and allowing RealPage to set prices for their properties.“
YieldStar practices seem to have extended past informing and influencing to indirect setting of rents. And even if it only guided rents, the authors of the Federal Trade Commission piece mentioned above were clear in asserting that deviations among prices among users of pricing software did not provide immunity from antitrust rules.
For further background, a 2022 ProPublica story about RealPage led to law firms initiating multiple private class action suits, to government investigations and now litigation. One tracker lists 34 different suits launched against RealPage alone since last October, most or all of which appear to have been consolidated in the federal US District Court in Tennessee. And the RealPage activity is only one among a welter of lawsuits against rent setting software. In the wake of the ProPublica piece, plaintiffs filed private suits against a number of firms, including RealPage competitors. This is not a story of a single company crossing an antitrust line, but an entire business model which may have increased inflation in rents across the country.
Is this relevant to Higher Education?
Does higher education use anything remotely like RealPage, gathering private information, disseminating it to competing price-setting private entities and in this way influencing the pricing of a major and expensive service? You can guess the answer: Yes, that’s what the FAFSA does. Before we look at higher education’s antitrust situation, let’s be careful and draw some distinctions between FAFSA and the RealPage process:
The FAFSA is collected by the federal government, not by a private entity. But note that the antitrust arguments made against RealPage don’t revolve around how the firm is incorporated. It is the use of the data to allegedly fix prices that is the problem. However, public bodies are infrequently targets of antitrust litigation. But they are of course subject to legislative and regulatory changes.
RealPage appears to have been unusually aggressive in recommending price changes to landlords. It didn’t just distribute information, it promoted using it for price setting.
FAFSA collects private financial information including Internal Revenue Service inputs and distributes it. RealPage is actually less intrusive, only gathering rental prices.
Students can and do opt out of FAFSA for privacy reasons. Tenants living in properties covered by RealPage had no such freedom. That said, a FAFSA filing is required by many institutions, even for those seeking to receive merit aid.
Let’s be clear: there’s no issue with the Department of Education collecting the information in FAFSA. Using such data to set means-tested benefits is widespread across the federal government. The question is why it distributes this information to private institutions like universities and whether this practice is even legal.
Antitrust Exemptions and Higher Education
Our Federal government exempts certain entities from antitrust laws, something usually executed by congressional legislation. The best-known exemptions are granted the pro football and baseball leagues but many other important systems and organizations possess this privilege, including the state-regulated insurance industry, ocean shipping (selective exemption), organized labor and agricultural cooperatives. Is higher education one of them? No.
In fact, this view that antitrust laws apply to higher education appears to be a bipartisan consensus, as Catherine Hill admits upfront in an Inside Higher Ed article criticizing the recent suit successfully pursued against the 568 Group member schools. Hill readily admits that the current financial aid rules allow colleges to charge higher-earning families more, but justifies this as a way to reduce college costs for lower income students. (This may be desirable -- but is distributing private information to achieve this legal?) Moreover, Hill’s argument applies at most to a narrow group of selective schools in the now dissolved 568 Group, limited to institutions that apply need-blind aid practices, which is a very small minority of schools in the US.
The fact that a narrowly tailored antitrust exemption, established in 1994 as an outcome of an older more narrowly focused price fixing investigation, has now been discarded establishes clearly that higher education as a whole is subject to antitrust laws.
What’s next?
The distribution of FAFSA information could be throttled at either the distributing end, the Department of Education, or the receiving end, educational institutions. Is litigation targeted at the FAFSA system likely to succeed? Activity in Washington by Federal enforcers is not required to initiate antitrust litigation. The RealPage antitrust lawsuit by the Department of Justice was preceded by several private class action suits launched in federal courts beginning in 2022 as well as state legislative actions in California. Several state attorney generals, including that of California, joined in the DoJ suit, and state AGs have traditionally been very involved in antitrust actions.
If both private and state actors can initiate antitrust litigation, who would be the defendant? Suits could conceivably be directed at the Department of Education, to block future FAFSA information distributions, but the implicit endorsement of the system in the Higher Education Act makes such litigation difficult. Suits could conceivably be directed at the colleges themselves, accusing them of price-fixing and collusion, causing damages to millions of families. However, they can make the defense that this activity was effectively sponsored by the Department of Education.
A more likely alternative would be for Congress to act and force change. The way forward looks to be political. With the growing antagonism towards higher education that numerous Republican legislators have shown and many Democrats actively promoting antitrust enforcement, there is a confluence that would permit bipartisan support for halting the distribution of FAFSA information. Bipartisan congressional moves in antitrust have already occurred. For example, Minnesota Democrat Amy Klobuchar and Utah Republican Mike Lee (both attorneys) co-sponsored 2021 legislation on antitrust venues. Klobuchar has been particularly active in this area and has sponsored several pieces of relevant legislation, including the “Preventing Algorithmic Collusion” Act earlier this year.
This has the potential to shake up the financial aid world if it advances as an issue.
Postscript: The CSS Profile
While the College Board, the manager of the CSS Profile, needs to be very careful in this environment, it’s important to note that the CSS is a quite different type of tool from the FAFSA. The CSS is not a formula or an algorithm, but compiles raw data used by colleges in proprietary financial aid methodologies. Consequently, the CSS doesn’t generate a bottom-line number like the Student Aid Index or the Expected Family Contribution. (In fact, the “Institutional Methodology” still found in some calculators out there doesn’t exist any longer.) The fact sets of the FAFSA and CSS Profile as it pertains to antitrust are different.
