Now is the time for modest changes in current federal student loan programs to increase the amount that law students may borrow. –Carolyn Lamm, former President of the American Bar Association, “Law School Educational Debt Has a Manageable Solution.”
And modest changes President Lamm received. Many if not most students can now finance a legal education solely by federal loan money and then elect to go on income-based repayment until the loan is forgiven in either 10 or 25 years, though I’m not an expert on the program nor should its existence embolden prospective law students from discounting law schools’ high costs. The consequences of the oversaturated legal profession and obscenely high tuition levels fall on taxpayers.
Don’t misread me. IBR is a boon to law students who would’ve faced pitiless collectors and poverty. The problem, though, worsens: no force, aside from law students, prevents law schools from raising tuition indefinitely. In the 2010-2011 school year, private law school tuition is on average $37,273.86, with a median of $37,630. In five years, the mean will increase by 23.27% to $49,946.79, and in ten years, mean private law school tuition will reach $54,807.59, which is 45.65% more than students pay today. Only hyper-inflation justifies this kind of expense, and due to state funding cuts to legal education, public law schools will likely rapidly grow to match private law schools’ costs.
The only sincere justification for current law school prices is access and diversity. Lamm states in “Statement of Carolyn B. Lamm, President, American Bar Association
Re: Government Accountability Office Report on Issues Related To Law School Cost and Access”:
The ABA is committed to ensuring that the cost of attending law school does not become an increasingly insurmountable barrier for many individuals. We are mindful of the importance of making legal education as accessible to as broad and diverse a community of students as possible. In that respect, the ABA urges Congress and the Administration to lift the cap on federal loans to finance law and other professional schools so that all students with talent and desire can attend law school—not only those of economic means.
If accessibility were the problem, why not modernize the ABA’s accreditation requirements? For example, distance learning would obviate the need for expensive teacher-scholars cold-calling students. Or, why not relax the library requirements? These measures would greatly reduce law schools’ costs.
Frankly, I don’t buy legal educators’ claims that we just need to allow students to borrow more and pay back less. It’s time for the ABA and law school faculty to accept the truth that law schools must internalize the risk of their graduates’ failure if the profession is to retain any dignity.
Allow me step back for a moment to discuss my beliefs, as I think they’re relevant. I don’t think law school administrators are con artists who cackle to themselves and twirl their moustaches when the bursar’s office reports that the loans came in. Law school deans would be thrilled to report (and are in the handful of lucky cases) that their graduates landed jobs so prestigious and lucrative that the ROI isn’t in doubt. I should also add that I cherish many of my instructors, I don’t blame them for any of my problems, and I don’t delight in knowing that many will suffer professional setbacks when the bubble bursts. I enjoyed learning from them.
For poly sci junkies out there, I’m an institutionalist, so I think we can separate the institutions’ behaviors from their constituents’. Thus my beliefs take inspiration from practitioner Chuck Newton: law schools are federal debt addicts. And like hard drug addicts they promise the moon to prospective students just to get their next fix. Their governing sin isn’t greed, but a weird combination of gluttony and vanity, and as a result I look on them with mixed feelings of disappointment and pity. What I want to feel, though, is resolve. Resolve to push the law schools into rehab. We must force them off the drug cold turkey.
I can think of three alternatives to the debt financing system we have that will resolve the problem:
Michael C. Macchiarola and Arun Abraham, “Options for Student Borrowers: A Derivatives-Based Proposal to Protect Students and Control Debt-Fueled Inflation in the Higher Education Market,” Cornell Journal of Law and Public Policy, Vol. 20, 67-138 (2010).
The idea here is, after 10 years if graduates have earned less than they and their law school predicted, the graduates can exercise put options and the law school will forgive a portion of the graduates’ debts. The article is a worthwhile read, and I looted it for some sources. I freely confess I haven’t read it in detail, but I’ll give some thoughts as this is a novel idea to me.
I have three problems: First, the put option assumes the law school will exist to forgive the tuition in the future. I predict many law schools will close or drastically contract in the next several years. Similarly, unless the law school hedges itself (either with its own option with another party or insurance) an economic downturn could cause a “bank run” on the law school after 10 years. Second, I think legal education should be more closely tied to a legal career because the judiciary’s legal education requirements have made legal services an un-free market in most states. Some students have no hope of law careers, and the put option assumes that the juris doctor had some positive impact on the graduate’s earning power at all. Moreover, it doesn’t account for the opportunity cost of attending law school. Third, this may have to do with what Macchiarola and Abraham define as “creaming,” but it’s possible that a law school could internally hedge itself by predicting that the students who do well will have compensated for the ones who have not. Again, law is not a free market; therefore, its guardians must ensure that students have a fair chance at gainful employment that puts their education to productive use. I don’t want legal education to be more financialized.
(2) Human Capital Contracts
I’ve written on the pros and cons of these before. Essentially, we switch from debt to equity. Benefiting private law schools in particular, graduates pay nothing up front, but then pay 10% of their incomes for 10 years back to the law school. I’m somewhat fond of this option, though it has its drawbacks. Read the link for more.
(3) Vouchers, Free Education, PayGo, or No More Law Schools
This solution does away with the financing and simply concedes that human capital is either a free lunch to be repaid with increased economic productivity and higher taxable incomes, or it’s something people must pay for on their own. Law could become an exclusive domain of the wealthy, but then again I’m unsure the student lending system ever democratized it. Vouchers could be given to prospective students who demonstrate clear talents. Everyone else would have to save money and pay as they went.
The outside benefit of doing away with the law schools is that it looks at legal education as a product, and like all products, improvements in productivity make them cheaper over time. Reducing the barriers to legal labor market entry may make obtaining a law license a simpler affair—closer to becoming a notary than a physician—but along with specializing the profession along practice lines (more a credential system rather than a licensing one), this may be the best solution. Dovetailing with a modernized accreditation system, distance learning, shorter education, etc., the fact that passing a bar exam doesn’t require nearly as much effort as law school does suggests that this solution’s time may have come.
Regardless of the route the profession takes to reform, it’s important for the ABA to do two more things that I believe it will resist. First, even though it’s a political issue, the ABA must advocate for student debt reform, especially because its carelessness has allowed too many of its own constituents to fall into permanent poverty. Second, and I suspect it really doesn’t want to do this: the American Bar Association must apologize to the legally educated and to the public for failing to prevent these problems from arising.