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Friday, November 30, 2012

Tuition, Debt, and U.S. News

In the midst of the "Law School Finances" series of posts, I received an email from a "highly-placed source" in legal academia.  This person was concerned that law schools weren't doing enough about our students' levels of debt:

I’m struck by how dismissive folks are of the notion that tuition is too high.  The continued belief in a pool of “tuition-insensitive” applicants is striking.  We’re not talking about tuition insensitivity as a function of financial ability to pay the sticker price, as only a few of the top schools make meaningful efforts at need-based discounting, in my understanding.  99% of the discounting going on has nothing to do with financial need.  By “tuition-insensitive,” we’re talking about applicants who fail to appreciate the long-term ramifications of agreeing to pay sticker price.  Shrinking class size may help on USNWR factors (a lot) and grads’ employment prospects (a bit), but it doesn’t do anything – and likely exacerbates – the financial struggles of those students who are asked to pay sticker.  The fewer students available to shoulder the burden, the larger the burden grows.  Shrinking the class size, which virtually everyone is doing by necessity, does next to nothing to alleviate the long-term problem of student debt.  The current approach is simply not sustainable in the long term, but everyone is afraid to make a move given the potential USNWR implications.

These sentiments have been echoed by Brian Tamanaha, among others, who just posted yesterday about how the changes to IBR provide even greater disincentives for law schools to reduce tuition.

I think there's a fairly straightforward way to get schools looking at their tuition: make it part of the U.S. News calculus.  Right now, the U.S. News rankings provide a strong incentive for schools to maintain or raise tuition.  About nine percent of a law school's score is based solely on the amount of money spent per student -- a direct incentive to spend more.  Significant weight is placed on entering student g.p.a. and LSAT scores, which a school can improve by offering merit scholarships.  So if a school is going to cut tuition, it makes much more U.S. News sense to "cut" by boosting merit scholarships, rather than cutting the sticker.  (See more here.)  Similarly, it makes more sense to cut the number of students than it does to cut tuition, for a host of U.S. News reasons.  And improving a school's U.S. News ranking is not simply a vanity contest; it improves the applicant pool, makes it easier for current students and alums to find jobs (particularly outside of the school's reputational heartland), and provides tangible evidence of achievement in a world that often lacks such markers.

Schools could decide just to bail out of U.S. News en masse, but it would be extremely difficult to be the first school to do this, and U.S. News could still rank even if schools did not cooperate.  An easier and better solution would be for U.S. News to take cost of attendance into account.  Malcolm Gladwell made this point in his 2011 New Yorker article on college rankings:

There’s something missing from that list of variables, of course: it doesn’t include price. That is one of the most distinctive features of the U.S. News methodology. Both its college rankings and its law-school rankings reward schools for devoting lots of financial resources to educating their students, but not for being affordable. Why? Morse admitted that there was no formal reason for that position. It was just a feeling. “We’re not saying that we’re measuring educational outcomes,” he explained. “We’re not saying we’re social scientists, or we’re subjecting our rankings to some peer-review process. We’re just saying we’ve made this judgment. We’re saying we’ve interviewed a lot of experts, we’ve developed these academic indicators, and we think these measures measure quality schools.”

As answers go, that’s up there with the parental “Because I said so.” But Morse is simply being honest. If we don’t understand what the right proxies for college quality are, let alone how to represent those proxies in a comprehensive, heterogeneous grading system, then our rankings are inherently arbitrary. All Morse was saying was that, on the question of price, he comes down on the Car and Driver side of things, not on the Consumer Reports side. U.S. News thinks that schools that spend a lot of money on their students are nicer than those that don’t, and that this niceness ought to be factored into the equation of desirability.

Given the real concerns on rising tuition in higher education, I would not be surprised if U.S. News started taking costs of attendance into account.  But I haven't heard any buzz about this possibility.  I'm surprised that reformers have not focused more on this potential change as a tool for encouraging tuition reform.

Posted by Matt Bodie on November 30, 2012 at 09:59 AM in Life of Law Schools | Permalink

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Matt, thanks for this interesting post.

I might tend to suggest an alternative reform, one not quite as likely to fall prey to the path dependency that currently keeps tuition high. Instead of focusing solely on price, USN&WR might instead create a metric of "value." This metric would be some combination of price and likelihood of FT legal employment.

For instance, HYS might still charge $50k a year but receive high "value" ratings due to their very strong employment results. By contrast, fourth tier schools charging $43k/ year but graduating only 30% of students into employment would suffer a lower rating, while strong local/ regional fourth tier schools charging that same tuition might earn a stronger rating on account of a 60% employment rate.

I think a metric accurately gauging the intersection of price and employment outcomes is what consumers would value most. It would also drive reform on the two most crucial factors.

Posted by: AnonProf | Nov 30, 2012 10:57:01 AM

U.S. News already takes employment into account, both at graduation and (much more heavily) at nine months out. I think a factor taking tuition into account in and of itself would not be a problem. Sure, it would hurt those schools that charge the most. But it would only be one factor among many. And part of Tamanaha's argument is that tuition increases at the top have driven the tuition increases throughout the system. I don't see why tuition shouldn't be a factor across the board.

Posted by: Matt Bodie | Nov 30, 2012 11:12:05 AM

Matt, I doubt I articulated my point well. Your comment saying "Sure, it would hurt those schools that charge the most" is my point (knowing that employment is already part of USN&WR). I think uncoupling price from employment is detrimental because it inherently assumes that a lower price makes a better school. To me, it's somewhat problematic to ding a school just because its price is higher or to raise a school's rating solely because its price is lower. Would we really want a methodology that suggests that People's College of Law at $4,000/ year is better than Harvard at $50k/ year? That's why I think "value" is a better metric, although I strongly agree with your general thesis that high tuition is a crucial problem.

Posted by: AnonProf | Nov 30, 2012 12:00:23 PM

AnonProf -- thanks for the follow-up. I don't think U.S. News would ever have a ranking that dropped the top schools significantly because of their tuition. But I think "cost" alone can be a factor, even if only a small one. Suppose Law School X and Law School Y deliver the same employment outcomes, but X is $10,000 cheaper than Y. Shouldn't that factor in to the rankings somehow?

I also think you may want to broaden your "value" ranking to include not only employment rates, but also income. Harvard may deliver more value not only because the employment rate is higher, but also because the average income is higher. But getting substantial and reliable data on incomes has been tough, and that's why I think U.S. News hasn't incorporated it explicitly into the formula (as far as I know).

Posted by: Matt Bodie | Nov 30, 2012 1:40:33 PM

"the changes to IBR provide even greater disincentives for law schools to reduce tuition"

Not for long:

"The bill would also eliminate income-based programs that forgive loans entirely after 20 or 25 years -- and, after 10 years, for those who enter public-service careers, such as teaching or law enforcement."

http://www.bloomberg.com/news/2012-12-04/student-loan-collection-targeted-for-overhaul-in-congress.html

Posted by: John | Dec 4, 2012 5:33:00 PM

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