It’s the Rent, Not the Regulations

“In 1995 … the Department of Justice in an antitrust suit … charged that A.B.A. standards had artificially inflated faculty salaries. The A.B.A. signed a consent decree, agreeing to a number of strictures intended to pry the process out of the hands of legal academics and end the fixing of salaries.

Since then, the cost of law school tuition has soared, though at the high end, those prices are not the fault of the A.B.A. They are attributable to the prestige race prompted by U.S. News & World Report’s rankings of law schools, along with the wide availability of student loans.”

So writes David Segal in his fifth NYT piece on law schools, this one focusing on the ABA’s accreditation system’s impact on costs. He is wise to hedge himself by alluding to the “wide availability of student loans,” for that’s the far bigger problem here than the ABA’s regulations.

So, is there a connection between the consent decree and the tuition bubble? Here’s what real law school tuition has been since the 1980s according to the ABA and the CPI:

Nope.

As to whether cost increases are caused at the high-end by U.S. News? Sure, it’s big factor as law school administrators confess, but, well, Segal forces my hand as I wanted to save this until after I updated the tuition numbers for 2011-2012, which I haven’t gotten to yet. Allow me to introduce you to the concept of “adjusted private law school tuition.”

  • Take all private law schools’ tuition.
  • Exclude Brigham Young’s LDS tuition.
  • Exclude the two private Puerto Rico ABA schools.
  • Take the mean of these three bullets, and then include all public law schools whose in-state tuition is greater than this mean. This adds Virginia, Michigan, and the California public schools (still ex. Irvine) to the number of private law schools as they are “public” in name only.
  • Take the averages of the new dataset and anything else you want.

Here’s the mean adjusted private law school tuition, U.S. News’ immutable T-14 schools’ mean tuition (excluding Texas, which joined them this year), and this year’s “Rank Not Published” and “Unranked” law schools’ tuition (completely excluding the three Puerto Rico ones). Rank Not-Published and Unranked (RNP/UR) law schools grew from 29 in 2004-2005 to 40 in 2010-2011 (U.S. News doesn’t list Widener-Harrisburg, but I counted it).

And here they are relative to the mean adjusted private law school tuition:

In fact, in the time period above, T-14 schools’ real average tuition grew 23.5 percent; the RNP/UR law schools’ tuition? 22 percent. Here’s a question for you: how do we characterize U.S. News‘ influence if law schools that aren’t bothering to compete in its rankings are still raising their tuition at the same rate as the T-14 ones? Shouldn’t they be left in the dust because their commitment to cheap legal education outweighs their desire to compete in a rankings race they’ve already lost?

Something to think about.

Nevertheless, Segal quotes people claiming brutal accreditation standards lead to high tuition. Accreditation standards have some bearing on tenured faculty, who do require some kind of living wage as they can’t work elsewhere, but the standards don’t require law schools to hire so many of them. Here’s the ABA’s average Student Faculty Ratios by full-time enrollment (FTE):

Here’s the distribution of law schools by FTE according to the latest Official Guide.

I have no good way to smooth this out to account for enrollment shocks, but you see the trend. Admittedly the consent decree may’ve affected this, as the slope starts dropping more quickly in the mid-1990s, and readers are free to inform me of some change to the standards at this time. However, Chapter 4 of the standards allows law schools to operate with faculty student ratios of 30:1, yet the average is obviously 15:1. Clearly, the lower ratio is a choice by the law schools, unmandated by the ABA. I also don’t see how requiring non-law school employees on ABA committees would cause law schools to hire more faculty, nor does it explain why the student faculty ratios at schools of varying sizes have converged. We know higher tuition feeds into faculty size and compensation, but I don’t see how accreditation affects that, especially if the standards haven’t changed much over time.

Here’s another example, the cheapest private RNP/UR law school above is South Texas College of Law, accredited long ago in 1959. In 2004-2005, full-time students at South Texas paid $22,821 in 2010 dollars. In 2010-2011, they paid $26,340, a 15 percent real increase.

If the accreditation standards didn’t change since 2004-2005, how did the ABA force South Texas to raise its tuition? New England School of Law (NESL) dean John O’Brien answers:

“The argument for high salaries has always been that law professors could earn even more money at a law firm. As for tenure, one oft-cited reason for requiring it is that the most sought-after talent demands it, putting a school that doesn’t offer tenure at a disadvantage.

‘I need to get the best teachers out there,’ says Mr. O’Brien, the council chairman, ‘and the fact of the matter is that in order to do that, to compete for top-quality faculty, I have to offer tenure.'”

That’s the reason? The so-called “War for Talent” that human resources departments scourge us with despite high unemployment?

There’s no evidence professors can earn more at firms, and given the drubbing Segal gave the law schools over their poor pedagogy last month, “top-quality” faculty don’t appear that useful in private practice due to their inexperience.

I add that NESL’s inflation-adjusted tuition grew from $25,944 in 2004-2005 to $39,990 in 2010-2011 (52 percent (!)). And with what perch did U.S. News reward NESL for such savage tuition increases?

“Rank Not Published”

There’s no evidence that previous generations of NESL grads were any worse lawyers than today’s grads are, so to say that rock star faculty are necessary to teach them is dubious. One can infer NESL is more interested in making the numbered rankings in the future than Dean O’Brien’s stated reason of finding even better teachers for its students.

Thus, private ABA law schools could try running the “minor-league hustle”: hiring cheaper full-time faculty, adhering to a 30:1 student faculty ratio, hiring more local attorney-adjuncts, skimping on the library books as best as possible, using cheaper facilities, etc. This isn’t to say that the accreditation standards and U.S. News have no effect whatsoever, but law schools, especially those that are independently run like NESL, can be cheaper under the current system.

They just choose not to be.

But why? The only answer I have is universities are outright rentiers. They have easy access to debt-revenue, so they take it. Sure, the ABA’s accreditation standards harken to an elite Industrial-era law school, but until the John O’Briens of America’s legal academy challenge themselves to kick their Direct Loan habits, they’ll simply charge more—and take more—because they can. The only thing left to surprise us is on a moral level: how can university administrator-rentiers sincerely believe their own justifications for economic rents?

4 comments

  1. You nailed it, Matt.

    Law schools raise tuition because they can. This is a prestige market in which the price leaders (Yale, Harvard, Columbia) set the price and everyone else rises with them, priced a level or two below, as your charts show. (I elaborate on it here: http://balkin.blogspot.com/2011/11/responsibility-of-yale-law-school-for.html )

    As long as enough people are willing to pay (poorly informed about the risky economic return on a law degree) and able to pay (federal loans), tuition will keep going up. The ABA standards impose expensive minimum requirement, but tuition levels are far beyond that. This has little to do with the ABA or with US News.

    Excellent fact-based analysis, Matt, as usual. Thanks for the hard number crunching work.

    Brian

  2. “That’s the reason? The so-called “War for Talent” that human resources departments scourge us with despite high unemployment?”

    HR departments never ‘scourge’ anybody with this; they beat wages down quite happily. Now, the elites scourge us with this, claiming that they have to pay a lot to hire the ‘best’, no matter how poorly the ‘best’ do.

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