March 1, 2012 7:01 PM
At Last, a Rational Explanation for Why Law School Tuition Keeps Rising
Posted by Matt Leichter
On February 11,the Washington Post published an article about the United States's prospective shortage of primary care physicians. It rightly pointed out that medical students graduate with large amounts of student loan debt, and as a consequence, they tend to specialize early in their careers because they can earn a higher income for the same cost of education.
The article made two important errors: First, it failed to mention that since July 2009 university graduates with federal student loans can put those loans into the Income-Based Repayment (IBR) plan, which today caps monthly payments at 10 percent of the borrower’s discretionary income for 20 years, after which the loan is canceled and the debtor must pay income tax on the forgiven sum. While IBR is a decent idea for encouraging doctors to opt for primary care positions as opposed to higher-paying specialties, it's a savior for law school graduates who are not so fortunate to enter a field where there are more jobs than there are graduates to fill them.
The second, more significant, error the Post article makes is that it accepts high student loan debts for professional degrees as a given, as though tuition increases over the inflation rate are a fact of life, caused by magic. The Bureau of Labor Statistics' (BLS) Consumer Price Index (CPI) and Census Bureau data (Historical Income Tables, Table F-6) illustrate the reality of higher education costs quite dramatically.
Those pondering the high cost of law school, rather than med school, ought to be even more perplexed. The jobs aren't there—and, unlike in medicine or dentistry, won’t be there either—so why is tuition still increasing? I can think of three hypotheses.
• Blame the applicants. There are always more people applying to law school than there are seats for them, so law schools increase their tuition due to high demand and short supply. This answer is true for ABA–accredited law schools but unsatisfactory. Without student loans, people wouldn't be able to buy the degrees, so the answer must discuss that.
• Blame U.S. News. U.S. News & World Report's annual law school rankings reward law schools for profligate spending and therefore for charging more. It's true that weighting law schools by "spending per student" will cause them to increase spending and tuition, but law students have to borrow the money to pay the tuition. This hypothesis suffers from the same flaw as "Blaming the applicants" does.
• Blame the federal government. By interfering in student debt markets, the federal government is unwittingly causing a tuition bubble. It fails to realize that universities can capture the subsidy student loans provide, allowing them to increase tuition indefinitely. This hypothesis is persuasive.
"Blame the federal government" is better known in academic circles as "The Bennett Hypothesis," named for then-Education secretary William J. Bennett after he wrote a New York Times op-ed piece in 1987 warning that universities were absorbing increases in financial aid to students and then demanding Congress raise the lending caps to repeat the process. The problem with the Bennett Hypothesis, though, is that the evidence for it was inconclusive, which is surprising given the CPI charts above.
In February 2012, though, Andrew Gillen, a proponent of the hypothesis who is affiliated with the Center for College Affordability and Productivity (CCAP), looked at the research and revised the hypothesis, calling it, "Bennett Hypothesis 2.0." According to Gillen, the original hypothesis allowed previous researchers to:
• Lump aid that went to poor students (such as Pell Grants) with aid available to all (Unsubsidized Stafford Loans);
• Ignore the effects of tuition caps at public universities and price discrimination in scholarships by others; and
• (Most importantly) fail to note longitudinal effects of competition over prestige among universities.
With the better-specified hypothesis in hand, Gillen recommends ending lending laws that result in university-wide subsidies and for allowing applicants better access to information on educational quality and net price, i.e., transparency, which would force universities to compete over outcomes instead of prestige.
Gillen's argument is persuasive, but interestingly he spends some effort calling out America's law schools, "the poster boy example of Bennett Hypothesis 2.0."
"[Access to unlimited GRAD PLUS loans] allows law schools to all but ignore capacity concerns, focusing instead on revenue and selectivity considerations. Thus compared to undergraduate students, law school students have access to a massive amount of aid and according to Bennett Hypothesis 2.0, law schools will take advantage of this situation by increasing tuition. This is exactly what we see.
[M]any schools are making a ‘profit’ on law school students, using them as cash cows to fund other activities, and yet tuition is still rising faster at law schools. Bennett Hypothesis 2.0 offers one of the few explanations for this phenomenon: more generous financial aid for law school students allows law schools to raise tuition more." (24, PDF 28)
Gillen then provides a chart, taken from the U.S. Department of Education's Digest of Education Statistics: 2010 ("The Digest," presumably Table 348 and Table 345) and the CPI, to show annualized increases in law school tuition.
The two biggest shortcomings with Gillen's characterization of law school tuition: he doesn’t distinguish between public and private institutions, and the unlimited Grad PLUS loans law students are eligible for didn't exist before 2006. However, he could have gone further: A closer look at the Digest's data shows that in fact, tuition is increasing faster at law schools than at other professional schools, particularly dental schools and the medical schools referred to earlier. Behold:
(Source: Digest Table 348, CPI)
Remember the Post’s lament about med school students with six figures of student loan debt? It probably doesn't help that private medical degrees were on average 37 percent more expensive for 2009 graduates than for 1991's grads. It's also likely significantly higher now since the Digest's numbers are prerecession, when universities covered losses on their endowments by charging students more.
The situation worsens when one compares the sizes of the professional programs:
It shouldn't surprise anyone that the BLS projects far rosier employment outcomes for doctors ("very good, particularly in rural and low-income areas.") and dentists ("good, reflecting the need to replace the large number of dentists expected to retire.") than it does for lawyers. ("As in the past, some graduates may have to accept positions outside of their field of interest or for which they feel overqualified.") Thus, singling out law school as Bennett Hypothesis 2.0's "poster boy" doesn't do justice to law school's unusual place in the American higher education system. Law schools' enrollments are vastly higher, accelerating more quickly, and result in poorer job prospects than their peer professional schools do. Whether this is because other professions deliberately deny accreditation to schools to engineer job shortages for their practitioners or because law schools require far lower start-up costs (i.e., no laboratories or cadavers), I can't say. What I can say is that universities' purposes for opening and maintaining law schools are clearly at odds with their students' career objectives, to say nothing of the public's intent behind the Title IV loan program.
It's for these reasons that when law school professors writing on the subject opine, for example:
"What we need today is a cooperative dialogue among stakeholders in the legal market to forge a workable future. What we have is a stalemate, like two galleons firing broadsides in a Nathaniel Philbrick novel." (Gary Munneke, "Race to the Finish Line: Legal Education, Jobs, and the Stuff Dreams Are Made of," New York State Bar Association Journal (11) (PDF))
It prompts the question: Why should we treat law schools as equal stakeholders in this cooperative dialogue when they receive substantial unearned benefits from the public yet provide far less in return?
Indeed, a more productive dialogue, as Gillen's effort suggests, would be among our legislators regarding terminating federal involvement in the student loan market and producing an equitable solution for student debtors who have no hope of paying down their loans.
Oh, and if you think I'm hard on law schools, run, don't walk, from MBA programs.
Matt Leichter is an attorney licensed in Wisconsin and New York, and he holds a masters in International Affairs from Marquette University. He operates The Law School Tuition Bubble, which archives, chronicles, and analyzes the deteriorating American legal education system. It is also a platform for higher education and student debt reform.Make a comment