The Talent

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.

01 CPI IndexReaders will note that tuition is increasing even faster than health care and prescription drug costs. Here's the five-year growth rate to show when these increases have broadly occurred.

02 CPI Growth Rates
In truth the CPI is mashing public and private tuition together, which I'll discuss below.

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.

03 CCAP ChartThe 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:

04 Public School Tuition Annualized Rates05 Private School Tuition Annualized Rates06 Public School Tuition Growth Rates07 Private School Tuition Growth Rates08 Real Public School Degree Cost09 Real Private School Degree Cost(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:

10 No. Professional Schools11 Annual Professional Degrees Conferred12 Professional Degrees Per School(Source: Digest Table 290, Table 291)

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.

13 Annual Professional Degrees Conferred(Digest Table 290, Table 312)

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.

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That's odd, when I read the headline I just assumed the answer was "Because they can."

This is far more in depth than I was expecting.

I'm in no way an expert on this, and I do not imagine for a moment that C-E analysis is a sufficient moral guide for medical decision making. My concern is that these days we are thinking ONLY about cost, and not about the tremendous value that medicine also delivers.

A premise of Healthy Survivorship is that each individual adopts and develops the language that works well for him or her.

For me, "normal" in this context has connotations of regular, usual, natural. For years I dealt with big and little crises and discomforts (pain) that made "normal" an elusive goal.

For me, the notion of developing a "new normal" that integrated the changes and losses that accompanied my illness enabled me to regain that comforting sense of normalcy that would otherwise have been impossible. For me, the notion of a "new normal" helped me get good care and live as fully as possible.

Since the phrase doesn't work for you, I hope you can find other language that does. I'd also appreciate your sharing, if you don't mind, because it could help me understand you and others who don't find comfort in the notion of a new normal.

Lawyers themselves should long ago have taken control of their own numbers, as did physicians. It benefits no one to overcrowd and water down the profession. So long as law schools make money and confer status on colleges and universities, they'll continue to proliferate to the point where a law degree/license is both ruinously expensive and worthless -- to the holder and to the society.

The above report misses one key factor in the rise of law school tuitions, as well as tuitions in general: The absurd increase in senior administrative staff at the schools and the obscene increase in their salaries. While instructor salaries at colleges and universities have risen about 70-80% since the 1980's, and family incomes have risen roughly the same amount, administrator salaries at colleges and universities have risen 300-1000%. At the same time, more administrative positions in the form of multiple assistant deans and vice chancellor-ships and associate chairs have been created that did not exist prior to the mid 80's. Colleges and universities, mostly not-for-profit organizations, have mimicked the top heavy staffing and salary structure of publicly traded for profit corporations and this has resulted in the obscenely burgeoning tuition costs and inflated fees that these, supposed not-for-profit, institutions levy on their students.

Chris, you're confusing cause and effect. High salaries and new administrators don't cause tuition hikes; rather, tuition hikes are spent on higher salaries and new administrators. This is exactly what the CCAP paper predicts and finds.

Does this article measure tuition or tuition and fees? My law school just instituted an "excellence fee" to do an end run around raising tuition. Of course the net result to students is higher debt either way.

The subsidization of anything guarantees the increased demand for said asset. Tuition is no different than any product in the market place. The legal market is over saturated with with intended youth who will soon find the supply among their peers has unwittingly had the effect of suppressing the price they can charge clients. A classic 'race to the bottom'.

I think the author slightly misses the mark here. The government IS to blame for the rise in tuitions, due to 11 USC 523. Student loans were dischargeable in bankruptcy prior to 1976. With the introduction of the US Bankruptcy Code (11 USC 101 et seq) in 1978, the ability to discharge education loans was limited (pretty much non-existent). When the banks are covered to float more liquidity to borrowers, borrowers (e.g. STUDENTS) borrow more to pay for thier education. The schools understand this and can then raise their tuitions because they are covered financially. After all, they are paid FIRST. In the end, the government protects the big banks, and by corrolary, the educational institutions all the while saddling the students, who have invested in themselves, with the undischargeable financial burden not encumbered by the banks/universities. "Protect the big guys while preventing the small fish from protecting themselves from exactly what bankruptcy law was established to permit". Where is the equity?

What a slanted article.

Anything is a bad investment compared to medical school or dental school.

Most people--including most people who attend law school--don't have the science or math aptitude for careers in medicine.

But lawyers do far better than just about everyone outside the medical field, especially once you exclude engineers or financiers (i.e., people who can do math).

The reason why law school has become more expensive is simple--the wage premium for lawyers and the profits per partner at top law firms have increased dramatically over the last several decades. Opportunities in most other fields have flatlined.

A law degree remains an excellent investment for most, and the government makes a profit lending to law students.

Getting the government out of education lending would just drive up costs for students and drive up profits for banks.

So how about the shadowy "Center for College Affordability and Productivity (CCAP)" disclose whose funding their campaign against higher education?

This article is correct that high student demand drives prices, not the high costs of providing education that others claim is the culprit. Firms don't enter markets where demand increases slower than costs, but we see new law schools every few years.

On the other hand, you can't cut the legs out from under funding unless you also address the underlying reason why students borrow $200k. "Terminating federal involvement in the student loan market" would pop the tuition bubble for most law schools, but it won't pop the prestige bubble.

New law school grads fall into three major groups: Rich lawyers making $160k/year, other lawyers making $35k-$65k/year, and non-lawyers. Once sorted into one of these three buckets, it is very difficult to move up, and choice of law school has a massive impact on how students are sorted. Applicants only need to compare the number of NALP firms interviewing on campus to see the drastic differences in employment outcomes between schools. How much more would you pay for access to more $160k jobs when you graduate? What about to double or triple your chances? Does anyone honestly believe that hiring differences between schools are due entirely to differences in student quality? Please. Schools with LSAT medians that differ by less than the margin of error, and with equal bar passage rates, can have drastically different hiring outcomes when one school hosts hundreds of legal employers during interviews while the other hosts dozens.

The only way to undercut the prestige bubble would be to convince applicants that choice of school does not have a complete and immediate impact on lifetime earnings that cannot be overcome by student quality. We'd be better served by federally subsidizing an annual legal hiring clearinghouse to provide fair access to the $160k class of jobs than by federally subsidizing loans for 3 years of tuition just so students can get a few more interviews in OCI. If students earned access to law firm interviews with their grades instead of paying for them with federally subsidized loan dollars, there would be no reason for all but a very few law schools to cost so much.

current law actually provides an exception for forgiven student loan debt as not taxable income even though other forgiven debt usually is taxable income

26 USC (f)

despite this, news media keep saying its taxable and will create a huge headache when it happens. very annoying.

Bob, that depends on the occupation or if the debt is in an LRAP. People who go onto Income-Contingent Repayment, which is 10 years for public service jobs, pay no income tax on the forgiveness. People on IBR, which is 20 years, will.

people in the 20 year program for non public service may not qualify-not clear yet.

This link may provide readers with guidance on the issue. ( It's not black-letter law, but it's credible and I don't have time to do more research.

Lawyers still make more than just about everyone other than doctors, and their unemployment rates are still much lower than most other professions.

You can see the data here:

There's been a lot of griping and complaining by young lawyers--it's what they're trained to do, and it's in their interest to thin out the competition by spreading tales of misery.

But the truth is, lawyers remain exceptionally well compensated and exceptionally secure compared to the rest of us.

Unless you can get into medical school or dental school, if you want to make good money, go to law school.

"A law degree remains an excellent investment for most, and the government makes a profit lending to law students."

What are you talking about, nearly half of new law graduates can't find a paying job. We have people working in my office for free --- including graduates of Georgetown, Columbia, etc. (and yes, more mid-level schools too) and they weren't horrible students either.

anon - you really don't have a clue what it is like for recent law graduates from non-top schools in this economy. sure, the incoming class at skadden is doing fine, but that class may be half the size it was 7 years ago. and it might be a permanent situation as the market has changed a lot. sure, established folks earn a decent living and all that, but better not get laid off. enjoy your $150K in student deby while making $20 an hour reviewing documents as a temp with no insurance or vacation days (if you can even get one of those jobs that hasn't been shipped to india). unless you are going to a top school or have a family "in", I would say stay away from the debt of law school.

i have been practicing law for 17 years and i know my plumber and electrician make more than I do.

"Unless you can get into medical school or dental school, if you want to make good money, go to law school."

possibly the worst advise ever given, unless by law school you mean "a top 10 law school" because given the number of georgetown grads i have seen with no jobs, top 15 may not cut it anymore.

justin - agreed. that mid and lower tier private law schools cost almost as much as harvard is absurd. yes, there are grads of st. johns, cardozo, brooklyn (to name some local to me) who land good jobs, but a huge chunk of each class is hurting too (throw fordham on the list too).

Here's the BIG difference for those who may not understand...

You are virtually guaranteed a job as a medical or dental graduate. In fact, we need to import doctors and dentists from other countries to fill our needs. You can go to a crappy foreign medical school and still be gainfully employed in the USA when you get back. There are lousy doctors out there who can still keep on getting jobs. Plus, you have flexibility to make extra money. let's say you're a prison doctor making six figures (a good place for doctors with mediocre credentials to work) can still have a practice for patients during your non-inmate hours and make more money. take enough crappy insurance/medicare/medicaid and you will have patients. yes, the "guaranteed" jobs out there may only be of the $100K variety, but it's a living.

not so for a law grad. you can hang a shingle, but good luck finding paying clients. you can chase ambulances, but insurance companies don't like to settle anymore and litigating those cases can be expensive if you're a kid out of law school trying to pay $150K in debt. fact is, there is no room in the market for 25-50% of recent law grads.

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