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Tuesday, July 09, 2013

Expenditures, Tuition, and U.S. News

Back in November I argued that reformers should be working to get one of the big drivers of tuition increases -- the U.S. News rankings -- to include tuition as a factor.  If folks want tuition to go down, it helps if there's a reputational incentive, and right now the U.S. News rankings incentivize higher and higher tuition rates.  Now comes word from Brian Leiter that the ABA will no longer ask schools (on an annual basis) for information about their expenditures per student.  I agree with Paul Caron that this is a very big deal.  But it may not have any real effect if U.S. News does not take the cue and stop using expenditures as a factor.

And I think there are good reasons for Robert Morse to pause and consider a moment before eliminating expenditures from the formula.  Expeditures per student reflect the amount of money that the institution is actually spending towards the education it provides.  Yes, it provides a perverse incentive to spend, spend, spend.  But on some level, as a consumer I want a law school to spend its money on my education.  The expenditures-per-student factor is a type of consumer protection mechanism -- it makes sure that law schools use the monies they take in on legal education, rather than diverting them to other uses.  In non-profit schools, that money could be diverted to other schools or programs; in for-profit schools, it could go back to the shareholders.

So if U.S. News simply eliminated expenditures as a factor, that would only mean that schools would no longer be incentivized to spend money on students.  Would tuition automatically go down? 

Not necessarily -- it depends on the price sensitivity of the consumers.  It could, in fact, lead to a worse result for students -- tuition levels remain steady, but spending on students goes down.  A worse education at the same price!

[As a sidenote, I have the same response to those who think a two-year J.D. would be a great way to help students.  Law school tuition has climbed rapidly over the last decade without any real changes in legal education.  This is based in part on historically weak price discrimination by students.  Why would law schools charge less for two years than for three, if they could charge the same rate?  Sure, tuition might drop initially, but over time it could and likely would rise to the same level as it was before.  That's a great deal for students -- a third less education at the same price!] 

If U.S. News follows the ABA's lead and takes out expenditures, it needs to add in a factor for tuition.  It could choose either list price or "real" tuition (as discounted by scholarships); both have their pros and cons.  But adding in tuition is necessary to keep the rankings's consumer-protection focus.  If U.S. News wants to encourage schools to trim back or even eviscerate their educational spending, then eliminating expenditures would be sufficient.  But I don't see how that alone would help students.

Posted by Matt Bodie on July 9, 2013 at 10:52 AM in Life of Law Schools | Permalink


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"The expenditures-per-student factor is a type of consumer protection mechanism -- it makes sure that law schools use the monies they take in on legal education, rather than diverting them to other uses."

If law schools have done anything in the last ten years that served to protect the consumer, it was only because there was a pecuniary incentive to do it as a matter of coincidence.

That money is spent either (a) on something residing in a law school or (b) on someone working for the law school is as useful an insight into the value of that school's education as - oh, I don't know - a median starting salary based on <50% of a school's previous graduates responding to a NALP survey or a career services office making market estimates when those surveys are not returned or left blank. I'm not sure why it made so much difference to Bob Morse back when people took U.S. News rankings and law schools in general more seriously, but the downward pressure on tuition will continue regardless of this metric's elimination because the employment picture for JDs continues to suck.

Posted by: Morse Code for J | Jul 9, 2013 11:29:21 AM

Respectfully, that's a bizarre analysis. The existing expenditures ranking encourages schools to spend as much as possible to improve their standing on this metric and/or simply to lie about how much they're spending. It's true that eliminating this factor from the ranking wouldn't guarantee that tuition decreases. But suggesting that retaining a metric that encourages tuition and spending *increases* is some sort of "consumer protection mechanism" seems to me way off base.

Also, it's not true that "Expeditures per student reflect the amount of money that the institution is actually spending towards the education it provides" for at least two reasons:

First, that assumes that schools are actually accurately reporting what they're spending. And now that the ABA has eliminated this requirement, the incentive to manipulate reporting is much stronger -- it's one thing to game the ABA; it's quite another to game a for-profit rankings organization.

Second, the heavily-weighted direct expenditures factor assuredly does not reflect "the amount of money that the institution" is spending: it reflects (or should reflect) the amount that the law school reports as direct expenditures to the ABA. Law schools that are part of universities also receive substantial support from the university. These forms of support are (or should be) reported under the low-weighted "indirect expenditures" category. For a "consumer" to get an accurate picture of "the amount of money that the institution" is actually spending on legal education, you would want both to be weighted equally and reported consistently and accurately across law schools. None of that is true under US News' methodology.

Posted by: anon | Jul 9, 2013 11:30:08 AM

My comment above was with regard to the original post.

Posted by: anon | Jul 9, 2013 11:33:51 AM

The current expenditure metric does not only measure money spent on student's legal education. It also includes large sums that go to, for example, the production of legal scholarship.

Posted by: brad | Jul 9, 2013 11:35:24 AM

Student expenditures are overrated -- they increasingly fund an army of administrators and vice deans, many of whom provide no practical value to students. It's well known university administration has become bloated in recent years. Why? Because you don't actually need to spend much money to teach something like law (which merely requires a professor and textbooks). Thus law school deans waste money on bureaucrats to increase per-student spending.

Posted by: Litigator | Jul 9, 2013 1:15:32 PM

Note that while a 2-year JD might not come with a lower tuition, providing the students with the ability to attend school for one less year decreases living expenses. Depending on where the student goes to school, saving on room and board for an entire year is not an insignificant number.

Posted by: kdi | Jul 9, 2013 1:46:51 PM

I do not think there is any point in ranking based on tuition. Prospective students will see the tuition and balance it against the school's ranking anyway. The rankings are supposed to be a measure of quality; you do not want to count the cost twice -- once when ranking the quality, and again when balancing the quality against the price.. An individual student will see how much that student will have to pay for that school and better balance the cost/quality.

Posted by: Blahblah | Jul 9, 2013 1:49:08 PM

I think some of the expenditures that you assume are benefiting students really aren't. It's the same idea with the third-year of education. Why is a third-year of legal education even worth one-year's living expenses plus opportunity cost?

I'm with you on the idea that student behavior is going to be the only way to bring tuition down, aside from affirmative action by the law professors and deans which is about as likely as Congress forgiving my student loans. Currently, students seem to be actively pressing schools to bring down real tuition prices. What might facilitate this would be the ABA pushing for full disclosure of salary information to give students an accurate picture of what salaries they need to pay back their loans.

Posted by: BoredJD | Jul 9, 2013 1:51:00 PM

Expenditures might be a useful component -- if it measured things that students, employers, and clients valued.

Posted by: John Steele | Jul 9, 2013 2:34:00 PM


Interesting post. Do you have evidence that schools might divert money to "other uses?" What "other uses" are you suggesting? My understanding is that pretty much any money a school spends counts as an "expenditure" for the formula. So I'm confused how, if U.S. News did not count this factor, schools might spend the money elsewhere. Put differently, does counting expenditures per student actually mean that the money now is spent on educational activities, as opposed to "other" activities? Including the factor increases the incentive to spend, spend, spend, but not necessarily on educational activities.


Posted by: Josh Douglas | Jul 9, 2013 3:43:46 PM


very small amounts of money go for research directly. you get that mostly for free. teaching and admin work eat up the bulk of the salary paid faculty, assuming you think faculty should be paid about $75 per hour. of course,

of course, you probably don't.

but I think Steele might be on the right track - the problem is not that expenditures is a factor that is tracked it is that it is not well policed so we can't easily correlate spending with outcomes for students over a career.

Posted by: anon | Jul 9, 2013 3:45:36 PM

Using tuition as a factor makes rankings meaningless for the vast majority of students. Of course, I think US News is already meaningless, but assuming the rest of their methodology were sound, tuition would still be a bad factor.

Whether you pick the sticker price, average tuition, or median tuition, the rankings will become irrelevant to the very large (possibly majority) of students paying some other price.

The 0Ls I've talked to are rarely comparing two schools at the same price point. It's more often a highly ranked school with a big price tag versus a lower ranked school with a big discount.

Posted by: Derek Tokaz | Jul 9, 2013 3:51:17 PM

Matt, I think share of tuition dollars allocated to instruction-related services might capture what you're looking for. (Schools with large endowments might exceed one). But someone (e.g., me) who thinks that law schools have other important outputs as well may not be so enamored of the proposal.

Posted by: BDG | Jul 9, 2013 4:51:28 PM

anon @ 3:45 --

Very few people work for free. Certainly no law schools get into bidding wars over star teachers or star faculty committee members.

Posted by: brad | Jul 9, 2013 5:16:56 PM

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