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2015: Full-Time Law Students Paying Full Tuition Fell ~5 Percentage Points (Again)

As with 2014, the proportion of full-time law students paying full freight fell substantially at the average law school not in Puerto Rico. In 2015, the last year for which data are available, the average was 28.1 percent, down from 32.9 percent. In 2011, the average was 20 points higher.

percent-full-time-law-students-paying-full-tuition

A decade ago, more than half of law students paid full tuition; now, not even one in three does.

At the average private law school, nearly as many students who received half-to-full tuition grants paid nothing at all. Those numbers might have converged this year, but the crunch in students has decelerated, so they may have leveled off. Nevertheless, law schools must be losing a lot of money.

no-full-time-private-law-school-students-per-school-by-grant-received

Indeed, in 2015, revenue from full-time students paying full tuition is now half its peak in 2011. At freestanding private law schools, including the for-profits, it’s fallen to one third. In 2001 the median private law school made $9.0 million on these students. In 2015, it took in $4.3 million.

aggregate-revenue-from-full-time-private-law-school-students-paying-full-tuition

So how substantially are law schools discounting? Here’s what tuition discounted by the median grant looks like at private law schools by the mean of their full tuition quintiles. It’s a mouthful, but the idea here is to set full tuition as the independent variable and let the discounted tuition float.

full-time-private-law-school-tuition-and-median-discounted-tuition-by-tuition-quintile-mean

We find that law schools charging in the fourth quintile of full tuition (~$49,000) discount so much that they’re cheaper than the median discounted tuition of the third full-tuition quintile (~$45,000). Meanwhile, the gap between private law schools in the fifth quintile (~$56,500) and the rest is widening. What’s also obvious is how much more law schools are willing to charge students paying full freight.

Information on this topic from previous years:

Full-Time Law-School Application Inequality Up in 2016

In 2016 full-time law-school applicants showed more interest in fewer law schools, according to my modified Lorenz curve. The overall Gini coefficient is up as well.

A Lorenz curve measures the cumulative distribution of a quantity in order from the smallest recipient to the largest. Usually researchers use the distribution of income among households. I’ve modified the Lorenz curve according to the U.S. News and World Report rankings for the previous year because the rankings are an independent measurement of law-school eliteness as seen by LSAT takers and applicants roughly at the time that they apply. Here is what we see.

full-time-law-school-applications-adjusted-lorenz-curve

Compared to previous years, we can see that the curve has barely nudged to the right, indicating increased inequality among full-time law-school applications. This is predictable because we already know that more the 70 percent of the rise in applications can be attributed to U.S. News‘ static top 14 law schools.

A Lorenz curve can also be used to calculate a Gini coefficient, which is the area under the Lorenz curve divided by the total area of the right triangle representing a totally equal distribution of the quantity among the recipients. In 2015, the full-time applications Gini coefficient was .431, but this year it rose to .441, up 1 point. (These figures are irrespective of the U.S. News rankings.) I’ve written on calculating Gini coefficients recently here.

Last year I was surprised that application inequality was flat because I was convinced that everyone believed there was a shortage of applicants at elite law schools. This year, applicants trended back in that direction. Maybe it will accelerate into the future.

Information on this topic from previous years:

It’s 2017. Where’s My ‘Hyperinflationary Great Depression’?

[The following post first appeared on the LSTB on January 1, 2012. What it said then still applies today, mutatis mutandis. Thanks for reading the blog and have a prosperous 2017!]

Behold, the curse of a long memory. Last January [2011], Google Alerts sent me an e-mail informing me that the National Inflation Association (“Preparing Americans for Hyperinflation”) issued a press release predicting that the higher ed bubble was “set to burst beginning in mid-2011. This bursting bubble will have effects that are even more far-reaching than the bursting of the Real Estate bubble in 2006.” The NIA press release then digressed into legal education (I’m guessing they’d just read David Segal’s first NYT piece a few days earlier), how evil lawyers are, how they produce nothing for society, and how 60 percent of the Senate and 37 percent of the House are lawyers who rig the economy to make jobs for lawyers. It editorializes:

“While everybody went to school to become a lawyer [really?], nobody went to school to become a farmer because Americans didn’t see any money in farming. With prices of nearly all agricultural commodities soaring through the roof in 2010 and with NIA expecting this trend to continue throughout 2011, the few new farmers out there are going to become rich while lawyers are standing at street corners with cups begging for money.”

The NIA would’ve been more helpful if it explained how lawyers could be a drain on society yet remain vulnerable to market forces. Also, one would think unemployed lawyers would try to find non-lawyer jobs instead of begging, but I think it’s important to note that agricultural prices weren’t “soaring through the roof” in 2010. They were growing, yes, but although the NIA was right that they continued to do so in 2011, (a) it’s stalled recently, and (b) they’re no worse than they were in the 1980s and early 1990s.

Oh well. The NIA sternly concluded:

“We must work hard to educate America to the truth if our country is going to have the wherewithal to survive the upcoming bursting college bubble and Hyperinflationary Great Depression.”

Whoa.

I can’t say I’m quite as disappointed as the NIA undoubtedly is that we’re not seeing much inflation these days, and in mid-2011 I didn’t see many colleges cutting their tuition, laying off faculty, closing programs, or trying to retrench themselves. I also remain unconvinced that $1 trillion in student debt can be worse than $8 trillion in mortgage debt. True, student debt is not dischargeable (unlike mortgage deficiencies) absent a showing of an undue hardship, and it’s hampering the recovery and ruining lives, but it’s not worse in quantity than the housing bubble. As for the NIA’s paranoid ranting about lawyers, all economic evidence I’ve seen indicates that legal services have all but stagnated for much of the last two decades. Apparently, those 60 percent of lawyer-senators aren’t very good at creating work for themselves. I suppose the NIA should express appreciation.

Anyway, if anything, inflation would be a boon to underwater homeowners and student debtors because it erodes the real value of their debts, which grew significantly in the 2000s. Here’s household debt to GDP:

Importantly, I’m no macroeconomist but I’ve never heard of a “hyperinflationary depression.” The terms contradict each other. Depressions occur when people take on excessive debt and begin paying it down simultaneously instead of spending money on other things. This is deflationary because new credit isn’t being created, even by the government. By contrast, hyperinflation has only occurred in unusual circumstances, like when a government owes debts to foreigners in a different currency. Weimar Germany, for example, owed gold-dominated war reparations to the Allied powers, and to purchase the gold, it printed money, causing hyperinflation. Zimbabwe isn’t a good comparison either because it’s a small, HIV-ridden landlocked state with an undiversified, oligopolistic agrarian economy while the U.S. is a wealthy, continent-spanning super-state.

As for inflation fears generally, maybe it’s the fact that I have no memory of high inflation, but why isn’t there a “National Personal Income Association” (NPIA) that regularly celebrates increases in Americans’ per capita personal income?

“Per capita personal income has quadrupled since 1980! Prices didn’t even triple! Hooray! We’re rich! Fiat currency forever and ever! ‘You shall not crucify mankind upon a cross of gold!'”

I’m sure the NPIA wouldn’t’ve been too thrilled with 2008-09, but personal income is increasing again. The problem has just been that over the decades those gains haven’t been distributed equally. This isn’t a problem of inflation but one of wages and taxation.

Intuition tells me the NIA won’t spend early 2012 carefully discussing why the higher ed bubble didn’t burst in mid-2011 as it predicted, nor will it take the time to explain why Americans—many of whom are net debtors—should be concerned about inflation. Instead it will prophecy even more hyperinflation later. But here’s hoping the National Inflation Association won’t provide me entertainment come January 1, 2013. Such is the curse of a long memory.

2016: Full-Time Private Law School Tuition Up 2.7 Percent

Full-time tuition costs at private law schools rose an average 2.7 percent before adjusting for inflation. The rate is about 1 percent higher than the last two years’ increases, but it’s still below the typical 5 percent rate before the Great Recession. I focus on private law-school tuition because public law schools receive varying degrees of state subsidies, so they do not reflect the already distorted legal market’s prices.

Here’s what the dispersion of full-time private and full-time public (residential) tuition looks like going back to 1996:

full-time-law-school-tuition-dispersion-excl-p-r-constant

I don’t have much to say about this that I haven’t before, but it appears that the 25th percentile public law school will soon charge more than the Stafford loan limit, which has been set at $20,500 for several years now. The limit is important because it indicates when students will need to rely on other funds to pay for their legal educations, including Grad PLUS loans, which can also go to students’ living expenses. Since 1996, Stafford loans have lost about a third of their value to inflation.

Notably costs are still widening, so after chopping up the law schools into quintiles, here’s the increases for the mean of each quintile.

full-time-private-law-school-tuition-increases-by-tuition-quintile-mean-current

The chart depicts at least three straight years of top-heavy tuition increases: The more expensive law schools are becoming more expensive—4 percent more among the top 20 percent of law schools. Two years ago, Columbia Law School became the first to charge more than $60,000, and it now costs more than $65,000. This year six other law schools joined the 60k club: NYU, Cornell, Penn, Chicago, Harvard, and USC. These seven schools raised their full-time costs by 3.8 percent on average, but theirs weren’t the largest increases. The following nine law schools raised their full-time tuition by more than 5 percent: Loyola (Calif.) (+5.4%), Michigan State (+5.5%), WMU Cooley (+6.1%), Faulkner (+6.6%), Lincoln Memorial (+6.8%), Tulsa (+7.0%), Charlotte (+7.1%), Willamette (+9.6%), and Howard (+10.9%).

It would be unfair of me not to acknowledge the handful of private law schools that cut their full-time charges: Campbell (-0.4%), Capital (-5.2%), Dayton (-6.4%), and Indiana Tech (-31.1%). Fourteen private law schools held their costs flat: New York Law School, Chicago-Kent, Brooklyn, Suffolk, Loyola (La.), Western State, Ave Maria, Western New England, Detroit, Valparaiso, Barry, Oklahoma City, Mississippi College, and Elon.

Yes, I notice that two failing law schools, Indiana Tech and Charlotte, both dealt with their incipient problems by slashing and hiking costs, respectively. For Indiana Tech, it didn’t translate into more matriculants.

Finally, 19 public law schools cut or held their residential tuition with the two most notable ones being Texas A&M (-15.4%) and UC Hastings (-9.1%). Akron, Cincinnati, and Toledo also didn’t raise their tuition, so along with Capital and Dayton that makes five of nine Ohio law schools that stand out in tuition control.

Full-time tuition costs don’t necessarily indicate what students are actually charged, but they do show how much rent law schools can extract from the government’s loan programs. For many law schools that ability is fading.

Information on this topic from prior years:

Does Charlotte Law School Offer a Test of the Bennett Hypothesis?

The Charlotte Observer tells us that the Department of Education believes Charlotte Law School has engaged in “‘dishonest’ practices,” and as a result it is yanking CLS’s access to federal student aid by the end of the year. ED blindsided CLS—at least that’s the school’s story—but apparently its low bar-passage rates, the ABA’s probation of it, and its alleged misrepresentations to applicants and students are the culprits. Maybe CLS will successfully appeal the decision, but if it doesn’t then we’ll get the opportunity to test whether law schools absorb federal student loans and pass them back on to students, aka the Bennett hypothesis.

Okay, maybe the shock is so sudden that the school would need to scramble to balance its budget anyway (and I think the “90/10” rule applies, but I won’t go into that). However, we do know some things about how CLS’s revenue and spending.

For one, in the 2015-16 academic year a mere 31.3 percent of its full-time students paid full tuition ($41,348). Altogether, it made $8.5 million from these students. Thanks to the article and ED data, we know that last year the school was a conduit for $48.4 million: $19.1 million in direct unsubsidized Stafford loans and $29.3 million in Grad PLUS loans. Because CLS is relatively new and freestanding, it probably has no significant endowment or gift income.

Here’s how much federal loan money CLS has disbursed each year since it was founded and its revenue from full-time students paying full tuition.

cls-student-loan-disbursements-and-revenue

Note: CLS’s numbers of full-time students paying full tuition appear erratic for unknown reasons, probably misreporting by the law school, but that’s CLS’s problem, not mine.

And here’s how much it disbursed per student (including non-recipients), along with the weighted-average full tuition between full-time and part-time students. Not everyone borrows each type of loan, but the chart gives a sense of how much students are paying for both their educations and living expenses on top of that.

federal-loans-disbursed-per-cls-student

CLS is an unusual case because it was founded around the time odious Grad PLUS loans came into being. Its budget is undoubtedly acclimated to them and probably can’t be balanced without them. Moreover, I think I’ve underemphasized how crucial it is that they pay for law students’ living expenses. Without that, students would not be able to go to law school. Nevertheless, the Bennett hypothesis tells us that if this school is to remain in business as an ABA-accredited school but without access to federal loans, then we should expect it to charge much, much less than it currently does. Although, it may offset costs by encouraging students to borrow from private lenders, whose loans will not be dischargeable and probably require co-signers.

I doubt CLS is as bloated as an elite law school is, but it will soon cost a lot less to attend if it wants to stay in business. Unfortunately, I suspect liberals will see CLS’s downfall as a victory over predatory for-profit colleges rather than evidence that federal loans help law schools more than students. Still, it’s a victory. Maybe Infilaw will get the message that many nonprofit law schools should’ve years ago.

Finally, in passing I notice that CLS’s enrollment is quite lopsided: 452 women to 260 men. The mainstream discussion on law school enrollment in 2016 is emphasizing how women now outnumber men. Without CLS, the margin falls to a sliver. It’s a notable finding, but I’d like it if the coverage drew more attention to the fact that men attend more prestigious law schools (some articles do). I don’t see it as a milestone for the profession because it’s pretty clear that schools like CLS enroll a larger proportion of women—and schools like CLS don’t offer much of a path to a professional career.

Week 49: 53,100 Applicants Projected for 2017

And the LSAC’s three-year applicant volume comparison is out of the starting gate! It finds 14,892 law-school applicants as of week 49 of this year, a 5.1 percent drop from last year, when 28 percent of all applicants had applied at least once. As of now, it appears that there will be 53,186 applicants by the fall; there were 56,126 in August 2016.

The first reported week of applicant activity can be volatile. Last year at week 48, the projected number of final applicants was 55,524, which was about 1 percent off. I would not make any serious bets on where it will go, but perhaps there will be another applicant decline this year. The New York Times published another withering article on legal education in 2016, but the number of LSAT takers ticked up in September/October. Early in the cycle last year, applicant counts were up from the prior year.

Applications have fallen 1.7 percent compared to week 49 of 2015, so applications per applicant are higher now, 5.49 versus 5.3. This measure tends to rise during the year.

Last year I focused on two issues that are still relevant: One, the distribution of applications to law schools, and two, the extent to which applicants backload their applications later in the cycle. The distribution question will have to wait until the ABA releases its Standard 509 data, but many law schools could still be living in a law-school crunch despite the flat number of applicants. The second point is not something I can evaluate this year because the LSAC started reporting all applicants rather than just fall applicants as of 2016.

That’s all. Peace.

Past reporting on this topic:

 

WSJ’s Editorial Page Blames Obama for Preventing Student Loan Defaults

I wrote that the WSJ’s reporting on student loans had improved slightly. Its editorial responding to the GAO report on the Department of Education’s cost estimate of income-driven repayment plans, on the other hand, backslides. It’s really more of a rant than an editorial, but here’s a digest of what I think it was arguing:

  • Cutting out banks as middle-men for federal student loans costs taxpayers money, even though it didn’t, and that change had nothing to do with IDR plans.
  • Democrats knew that student loans would never be repaid when it federalized student lending. Again, even if true, this claim has nothing to do with IDR plans, which were authorized by prior administrations.
  • IDR plans keep default rates “artificially low,” which while technically accurate doesn’t explain how debtors are supposed to pay loans they can’t repay. What would the WSJ propose if all these people default instead?
  • The Obama administration allowed borrowers to retroactively sign on to IDR plans, which is true but doesn’t explain how debtors would repay the loans otherwise since they probably would not be able to discharge them in bankruptcy.
  • IDR is an “entitlement” that can be “exploited,” even though there’s no evidence student debtors could repay their loans without it. Assuming the GAO’s report is correct, IDR plans are doing exactly what they are supposed to do. The problem is that too many people have too much debt.
  • The Obama administration is responsible for the shoddy accounting of student loans’ ultimate costs—which I’ll accept—but it doesn’t blame lending programs passed by the Bush II administration that created these unpayable debts to begin with. Seriously, the WSJ threw the 2000s down the memory hole.
  • The Obama administration used costly IDR plans to buy votes. No evidence is given, and didn’t younger voters bail on the Democrats in this election? Nice bribe, Obama.
  • Implicitly, the Republican-controlled Congress bears no responsibility for failing to create more jobs or raise incomes, even though it was more concerned with slashing the budget, shutting down the government, and threatening to default on the national debt despite trifling interest rates.

I feel bad for the reporter who carefully tried to explain the GAO’s report and was just upstaged by an incompetent, partisan editorial. (I hope it’s not the same author.)

There’s much blame to place at Obama’s feet regarding the value of college education and student loans. One of these days I’d like to summarize my coverage of him to gauge my fairness towards the outgoing administration. Hopefully, I’ve been consistently non-partisan in my analysis, but perhaps not. However, if the best the WSJ can do is blame Obama for preventing defaults on loans that could not be repaid given the Congresses he had to work with, I’m confident my final assessment will smell like roses by comparison.