A Proposal for Imposing Fiscal Restraint on Law Schools

Brian Tamanaha

Law school tuition has increased at an unrestrained rate in recent years, with a handful of schools now above $50,000 per year, and more poised to follow. As long as students are willing and able to pay what law schools charge, it appears that little can stop this.

Setting aside the question of willingness to pay, in this post I will focus on ability to pay. Ninety percent of law students borrow to finance their legal education. Thus an increase in tuition is directly correlated with an increase in debt. The primary source of loans is the federal government (Stafford and Graduate Plus loans). Previously, the government guaranteed student loans made by private lenders, but now it loans the money directly to students.

When lending the money, the government makes no evaluation of whether the borrower is likely to repay the loan. A private lender would soon go out of business if it operated this way, but in the student loan context this policy is justified as providing "access to the poor." Thus a student who borrows to attend Cooley or Thomas Jefferson gets the same treatment as a student who borrows to attend Harvard Law School, notwithstanding the fact that a far greater proportion of the former will not repay the loan.

It is not obvious that this policy is actually beneficial to the people it purports to help, since many of them end up burdened with massive debt and scant economic opportunities (average law school debt is nearly $100,000). Linking eligibility for loans to likelihood of repayment would close the money spigot to schools that produce questionable results for their students. But it's hard to argue against providing access, especially since law school is increasingly the preserve of the wealthy. (Access could be retained while dealing with the most problematic schools by applying loan eligibility requirements to law schools that the DOE now applies to for-profit vocational schools.)

We must ask whether it makes sense at any level that, for example, the 2010 graduating class of Cooley had a total combined debt of $91.4 million, with the federal government on the hook for nearly all of it. That is only one school (with branches). The total debt of 2010 law graduates was $3.6 billion. And that is just one year. A substantial chunk of this money will not be paid back (I will discuss the implications of Income Based Repayment in a future post.)

One possible way to deal with the situation is to set a cap on how much a given student can borrow from the federal government. That would slow tuition increases. But to get additional revenue law schools can take in more students--as they have already been doing--which would add to the difficulty graduates have of finding jobs, and would increase the aggregate total supplied by the government.

Another possible solution is to set an across-the-board per school cap for federal loans: say $45 million per class for all law schools. That's a generous amount of public money to go into the coffers of law schools. A cap imposes the greatest restraint on large law schools (Georgetown, 678 graduating students, had $71 million total debt for the class of 2010.) Schools above or near the limit will be forced to control enrollment as well as tuition. The smaller schools will not be squeezed by the cap but they cannot charge higher tuition than schools above them in the hierarchy (students wouldn't go), so they will indirectly be restrained, although the best schools might be able to size up without lowering the quality of their class.

Along with the cap, there must be no federal guarantee of private loans to attend law school, and any such private loans must be eligible for discharge in bankruptcy (at least going forward). This would put the risk on lenders, which would not loan money to students who are unlikely to repay (at least not without charging prohibitive interest rates).

The main downside of the cap is that schools will place a premium on letting in rich folks who don't need to borrow, and the rich already have too many advantages in the current system. That aside, a hard cap would seem to be viable way to control tuition and enrollment, while still providing access.
Posted 12:05 AM by Brian Tamanaha [link]