« Northwestern Law Review Exclusive Submissions - Spring 2018 | Main | Happy Hanukkah, and also: Judging Bodies; Judging Judges »

Monday, December 11, 2017

A Looming Asteroid for Law Schools

My last post focused on proposed aggregate debt caps for federal loans. But as a recent article from Inside Higher Ed points out, a more immediate problem for educational institutions and their students may be the Prosper Act's proposed annual lending limits. The bill would limit federal loans for non-medical graduate and professional students to $28,500 per academic year.

Again, debt caps are not unprecedented--federal loans were capped until the GradPlus program was created in 2006. But so much has changed since 2006 that re-instituting federal lending caps would create chaos in law school finance.

The GradPlus program does one thing really well--it makes graduate school accessible to students regardless of their family wealth. The federal government offers loans up to the full cost of attendance (defined to include both tuition and reasonably living expenses) for graduate and professional programs. Parents do not have to co-sign the loans. Combined with income-driven repayment plans that cap repayments at 10% to 15% percent of a graduate's income, it makes attending graduate school a low-risk proposition. But the GradPlus program also helped create conditions that allowed for institutional exploitation. David Frakt, for example, has done a lot of work analyzing how some law schools have admitted students with a very low chance of ever being able to pass the bar exam. Those students often leave their educational programs saddled with some of the highest average debt rates and limited employment opportunities. 

But one of the less obvious impacts of the GradPlus program is that it frees graduate and professional schools from having to worrying about how their students will pay for school. In the decade between 2006 and 2016 average private-law-school tuition rose from  $30,520 per year up to $45,099 per year. Average public-law-school in-state tuition rose from $14,245 to $26,053. Living expenses add on at least another $20,000 or so per year for students. Even if the availability of federal lending didn't increase prices (though it may have, at least to a small degree), it did make it easier for law schools to rely on tuition increases to compensate for factors such as reduced support from state governments.

The Prosper Act would change all of that immediately, for the 2018-19 school year. If it passes (which it has a decent chance of doing--it is the House's version of the Higher Education Act reauthorization bill) there would be an immediate crisis in funding law school--after all, the federal loans would barely cover the cost of living (and at schools in high-cost areas, wouldn't even be enough to cover the cost of living). There would be little to nothing left over to cover tuition. Certainly, some students could rely on family contributions, and some may be able to lessen living expenses by living at home while attending law schools. But not all families are in a position to help, and the legal profession would suffer greatly if only the very privileged could join. Private loans may step in to fill some of the gap--though again, I suspect that the availability of such loans would be significantly more restricted than the current open-door policy of GradPlus. And in any case, private loans have decreased so much (declining by more than half) in the years after the introduction of GradPlus that I doubt private lenders could ramp up fast enough to avoid massive disruption in the short term. Finally, any such private loans would probably have more onerous terms--it is unlikely that they would qualify for income-driven repayment, and they would likely require a cosigner.

In short, if the Prosper Act passes in its current form,  students will face immediate difficulties in financing their graduate education--and the scale of the problem will create a financial crisis for schools as well.


Posted by Cassandra Burke Robertson on December 11, 2017 at 09:10 PM | Permalink


If it helps you sleep at night, then repeat "No one pays sticker" to yourselves all you want. It doesn't change anything for your students or your graduates.

Per NALP, the overall median and law firm median salaries for new graduates ($65,000 and $104,000) are still well below where they were in 2009 ($72,000 and $130,000), in the middle of the longest economic expansion on record. Meanwhile, the majority of law schools have an average indebtedness associated with them in the mid-$100k range, with an interest rate around 7.5-8%. If that average indebtedness is anything like the "average salary" you used to tout in your recruitment literature before we made you stop, there's a very small group well below that average and a much larger group somewhat above it.

Not that this is the reason for the Prosper Act or similar legislation, but I favor anything which might stop the collateral damage you have no interest in ending.

Posted by: John | Dec 16, 2017 3:13:16 PM

No one pays sticker isn’t something to be proud of; it puts law schools in the same category as shady jewelry stores that always have everything in the store marked on sale. Aren’t these supposed to be corporations chartered for charitable purposes?

Posted by: John | Dec 15, 2017 10:01:30 AM

FYI, there's an interesting comment at TaxProf blog about the likelihood of private lenders stepping into and allowing students to borrow full freight. http://taxprof.typepad.com/taxprof_blog/2017/12/a-looming-asteroid-for-law-schools-proposed-28500-annual-loan-cap.html

Posted by: Matthew Bruckner | Dec 15, 2017 9:18:05 AM

If people can live at home while they're going to high school, they can live at home while they're going to college.

Posted by: Well-spent life | Dec 14, 2017 9:14:20 AM

Thanks, Matthew! I definitely agree it's misleading to just look at sticker when thinking about what revenue comes in to the school, where the discount rate matters much more. And I also sometimes hear faculty claim that "no one really pays sticker" because of the discount rate. But I think you and I are both on the same page re: being troubled by the inequalities of the how the discount rate is applied, as well as being concerned about the sustainability of the current pricing model.

Posted by: CBR | Dec 13, 2017 5:10:17 PM

Sorry to have missed your earlier post, Andra. Will read it. I agree (as I tweeted separately), that these caps leave no room for any tuition, assuming folks borrow the maximum for living expenses. I find the focus on sticker is just generally misleading (e.g. the post about adjunct writing instructors), since net tuition to schools is vastly lower.

John, you raise a valid point about living expenses. And even with current limits, nothing stops students from living in cheaper areas right now. Also bear in mind that these living expense estimates are 9 month estimates, but few law students make any money for almost two years. I know I looked for an apartment that I could afford year-round on my housing allowance. For example, my rent was $700/month when I was at NYU, even though I'm sure my maximum allowance was higher. I don't know if schools release data about how much students actually borrow to fund housing in particular. To the extent they don't generally max out, there is room for some tuition.

But, more to your point, some low-income folks get subsidized housing and/or food or cash assistance. I imagine that NYU won't assume that it's students will get those benefits when creating their budget, but I'm not sure how these numbers are calculated.

Posted by: Matthew Bruckner | Dec 13, 2017 12:47:16 PM

The median household in NYC has income of $55,775 and 2.68 people in it ($20,811 pp). That's median so half live on less. In the Bronx it's only $35,176 with a household size of 2.85 ($12,342 pp). Plenty of people commute from the Bronx to midtown and downtown. That's gross income. Loaned money isn't subject to income or payroll taxes.

Why does NYU law think its students need to live better than most people in NYC?

Posted by: john | Dec 13, 2017 11:33:21 AM

I think that sticker price does matter. As I said in my prior post on aggregate caps, I think some level of capped debt is a good for reducing the current inequities. And re: the political fate of this bill, I think the aggregate caps are much more likely to stay in the final reauthorization bill--but I think even the annual caps have enough of a chance of passing that schools need to plan for how they might handle it.

But re: tution, the NACUBO/AccessLex report shows that 1/3 of JD students currently pay full sticker price--schools rely heavily on those students to make their budgets. And the average private law school numbers ($45,000 in tuition with an average 39% discount rate means an average of $27,450 per student in tuition, plus students need another $20K in living expenses). Even if schools just charged everyone the same $28K with no scholarships, many students couldn't afford to go if they couldn't also borrow living expenses. Plus, of course, schools would not be able to radically change their tuition policies fast enough to meet the 2018-19 school year. I feel very comfortable that if the annual limits pass, schools are indeed in Deep Impact territory.

Posted by: CBR | Dec 13, 2017 10:48:01 AM

Can we put aside the issue of tuition? After all, focusing on sticker price is not very helpful. The average discount rate is very high. see, e.g., http://taxprof.typepad.com/taxprof_blog/2017/10/private-law-school-tuition-discount-rate-rose-to-39-in-2016.html. In any case, it seems entirely plausible that capping borrowing would have salutary effects on law school pricing by ending the current "reverse Robin Hood" pricing they employ. Rather than charging students with the weakest entering credentials full price and discounting tuition for students with above-median LSAT and uGPAs, capping borrowing might eliminate this type of price discrimination. But since average tuition is much lower than sticker price, it's not clear that capping grad borrowing is going to cause Deep Impact-like destruction.

However, I do think that the OP does raise an important point about living expenses. Living in a major metropolitan area is expensive and these caps would burden colleges in large, urban areas more than rural colleges. No amount of law professor salary cuts, more modest facilities, etc. is going to change the market rent for an apartment in NYC, DC, etc.

Posted by: Matthew Bruckner | Dec 13, 2017 9:51:48 AM

Again, this is my opinion;

“It’s long past time for some major fat trimming .”

That’s the correct position, without question. These guys and gals have been living in a government sponsored bubble that has insulated them from the market realities of today’s global economy. Their little canard regarding access and furthering minority interests is approaching an end. It’s about one thing: stuffing their pockets with cash. It doesn’t matter if the profession suffers, the public suffers, the tax payer loses money, and it certainly doesn’t matter if the lower income kids, minority or otherwise, suffer (those are the students who are going to suffer the most after law school).

This is just a tasting of what they have reduced the practice of law to: https://m.youtube.com/watch?v=5KfACTAOPa0

And why are they doing this? To make money and work low stress 25 hour work weeks. Why was it possible for them to do this? Unlimited government money. If this passes, I want to see if these poverty pimps are still going to be able to survive. (I think the answer is a resounding “no”).

Posted by: Anon | Dec 12, 2017 3:00:30 PM

Per that NYU link, first semester of 1L year costs $30,000. It consists of 4 sections of 4-5 hours a week with 100 students in each and 1 writing seminar with an underpaid adjunct.

$30,000 / 5 = $6000

That's $6000 * 100 = $600,000, and for the writing seminar $6000 * 15 = $90,000

NYU prawfs do well, but not that well. And the writing adjuncts don't do well at all. Okay there's the costs of keeping the lights on and the Lexis-Nexis subscriptions, but come on. The numbers don't add up.

It's long past time for some major fat trimming.

If it's discounting that's the issue, then make like tax reform and broaden the base, while lowering the rate. If that means that NYU loses out on a half African-American/half Eskimo woman with cerebral palsy and a 180 LSAT score, oh well. She'll get a fine education at Harvard and NYU will manage to soldier on without her.

Posted by: john | Dec 12, 2017 2:25:20 PM

@anon 3,

Apologies for the lack of clarity. I intended to state that one should attend law school only if 1) his or her parents are rich, 2) he or she attends Harvard, Yale, or Stanford or 3) he or she receives a full scholarship to a respectable lower tier school.

I was not suggesting that HYS Is a bad move; however, I will note that a person with the ability to get into a school like that should strongly consider other options given the long term viability of the legal market. I know quite a few people without means that attended HYS, and things haven’t worked out well for some of them.

By and large though, I do agree, if a poor kid has a strong desire for law and they get into HYS, it probably makes sense to go.

Posted by: Anon | Dec 12, 2017 2:20:45 PM

Anonymous @ 12:21 PM, "If your family can’t pay, you can’t go to Harvard, Yale, or Stanford."

Harvard, Yale, and Stanford offer generous need-based aid packages. Also, federal student loans and loan forgiveness programs (both federal programs and private programs at the top schools) make law school feasible even for students who don't qualify for need or merit-based scholarships.

Serious issues remain with law school affordability -- especially at lower-ranked institutions and for middle class students -- but the picture you paint is far too simplistic. For a HYS admit without financial means, law school will probably not only be affordable, but will likely be a good investment. (And it's worth noting that affordability and ROI are separate questions.)

Posted by: anon3 | Dec 12, 2017 2:06:41 PM


Obtuse from whose perspective? A rational and public minded educator? Sure. We don’t have that here; we have people who are trying to collect. The only way they can collect is to keep the unlimited supply of federal money in place. If you aren’t for unlimited federal money going into their pockets, well then, you are either to dense to understand the intricacies of higher education, eg the Dean needs a Benz, or you don’t like minorities and the poor?

(Sarcasm on) Barack why don’t you like minorities and the poor? (Sarcasm off).

Posted by: Anon | Dec 12, 2017 12:41:20 PM

A student can't be educated, fed and boarded for 29K per year? Seems obtuse to argue tuition should be higher.

Posted by: Barack | Dec 12, 2017 12:21:10 PM

This is my personal opinion on things:

Law school is already for the rich and privileged. At these prices and given the state of the market, the vast majority of people who succeed come from wealthy families. Law schools and law professors know how to play the con game though: keep using envy and the access argument as a proxy for stealing tax payer money and turning lower income kids into indentured servants. If your family can’t pay, you can’t go to Harvard, Yale, or Stanford, and/or you can’t receive a full scholarship to a respectable school, then law isn’t for you. Are there aberrations? Sure. That applies to anything though, eg. I know a few people that made millions I MLM, but that doesn’t change the overall value proposition.

Cut Professor salaries, cut administrator salaries, and otherwise cut tuition. Law school should cost 10-15k a year. Everyone has been devalued because of market oversaturation and globalization. You guys just feel you should be exempted from it, and you keep using the old envy and access canard to keep the money flowing in.

Posted by: Anonymous | Dec 12, 2017 11:24:01 AM

My dean is very concerned about any new limits on student loans, even if they are not as stringent as the Prosper Act. He was upfront and warned that it would lead to higher teaching loads, larger classes, and probably a reduction in faculty size (either through buyouts or layoffs or untenured faculty).

Posted by: anon | Dec 12, 2017 10:24:48 AM

My dean is very concerned about any new limits on student loans, even if they are not as stringent as the Prosper Act. He was upfront and warned that it would lead to higher teaching loads, larger classes, and probably a reduction in faculty size (either through buyouts or layoffs or untenured faculty).

Posted by: anon | Dec 12, 2017 10:24:46 AM

One note regarding the observation that the bill has a "decent chance" of passing because "it is the House's version of the Higher Education Act reauthorization bill":

I'm pretty sure the bill would need 60 votes in the Senate. There may well be 60 votes for some limits on student loans (the Obama Administration, for example, proposed capping loan forgiveness), but is there any indication that an annual borrowing limit like the one in the House bill would get 60 votes in the Senate? Or that Sens. Alexander and Murray are even interested?

I think Professor Robertson is absolutely right that law schools should be thinking about the changes that may be coming to the student loan program. I'm just not sure the Prosper Act's cap is necessarily the looming asteroid most likely to hit.

Posted by: Jim Oleske | Dec 11, 2017 11:15:14 PM

My daughter is currently evaluating law schools. As the article notes, tuition at private institutions anywhere in the USA ranges from $40 - 50K, not including books and housing. Given the current plethora of recent law school grads trying to find meaningful work in their profession, we're not sure if the investment is worthwhile.
One can envision a fairly significant decline in the number of law schools that will be operating in the next 3-5 years.

Posted by: Paul | Dec 11, 2017 10:14:24 PM

The comments to this entry are closed.