Debt Limits, Tuition Discounting, and Legal Education

Almost six years ago, I participated in an online symposium on the future of legal education at the Legal Ethics Forum. At the time, I examined the possibility of government-instituted caps on lending for graduate education, a proposal earlier put forward by Brian Tamanaha.

A lot has changed in those six years, but the proposed PROSPER Act now recommends a cap of $150,000 for graduate education. On the whole, I think that loan limits are a good idea, though a $150,000 cap would have a significant impact on law school finance. For example, the USNEWS ranking of law schools by average debt shows that the average law-school debt at 23 law schools is already more than $150,000. High-debt schools are found at all levels of the prestige hierarchy, including Thomas Jefferson (with an average law-school debt of $182,411) and Columbia (average debt $159,769). With a hard lending cap from the federal government, I would expect that private lenders would be willing to fill the gap at schools like Columbia. I don't believe they would so at schools like Thomas Jefferson. Private lender SoFi, for example, will refinance some law-school loans, but it also ranks schools by an estimated return on investment, and recommends that students "steer clear of the law school programs on our list with a 0.6 or lower salary-to-debt ratio." It is unlikely that SoFi or other private lenders would willingly provide financing for such programs. It certainly would not do so at the same rates offered by the federal government.

Even schools that have an average law-school debt load lower than $150,000 are still likely to have a significant number of students who take out much more than $150,000. It is true that law-school discount rates are relatively high. A recent report from NACUBO  and AccessLex found that the discount rate "for all JD students rose slightly from 47 percent in Fall 2015 to 48 percent in Fall 2016," and "[o]ver the same time, the average student tuition discount rate for 1Ls across participating institutions fell from 58 percent to 50 percent." However, those discount rates do not reach everyone: only "[a]bout two-thirds of all JD students and three-quarters of 1Ls received institutional grant aid."

Who are the one-third of JD students not receiving discounted tuition? A study from the Law School Survey of Student Engagement, titled “Law School Scholarship Policies: Engines of Inequity,” found that economically disadvantaged and minority students bear a disproportionately high share of those costs, often subsidizing "merit" scholarships awarded to students from wealthier backgrounds. 

Although I believe that lending caps can help reduce the harm from inequitable discounting, the PROSPER Act as a whole is troubling and not good for education. It would eliminate Public Service Loan Forgiveness, which would harm graduates' ability to take low-paying jobs in the nonprofit sector, and it would abolish gainful employment metrics and the 90/10 rule for for-profit institutions of higher education,  allowing greater federal subsidies for for-profit education (changes that, taken together, would move federal funds away from subsidizing graduates who go work for cash-strapped public defender offices in order to increase funding that primarily benefits shareholders of for-profit institutions). I believe a much better position, as I argued six years ago, is to instead expand the gainful-employment rule to cover both the for-profit and non-profit sector, and to prioritize federal funding for the schools who successfully place their graduates in employment related to their graduate education.

Whether the PROSPER Act passes or not, however, it's clear that funding for higher education is going to be on the table going forward. It's long past time for schools to have a hard look at the ethics of tuition discounting.