Legal Ed's Futures: No. 49 (Frank Pasquale)

Private vs. Public Finance in Higher Education

 This symposium has generated great ideas for improving legal education. They remind me of classic discussions in health law, regarding the “triple aim” of improving quality, expanding access, and reducing cost. While stalwart medical reformers have achieved all three aims in some areas (by, say, reducing medical errors), it is often very hard to achieve that hat trick. If an initiative achieves one or even two of the goals, that is an achievement.

Thus a common theme of this symposium (“cut costs”) is often in tension with, or outright contradicts, our aspirations to improve the quality of legal education, or expand access. Top talent (particularly in technical areas) is not cheap. On an organizational level, an endless horizon of austerity is the perfect way to demotivate staff. Even more worryingly, the “cut costs” narrative plays into some very destructive dynamics in higher education finance now playing out in Washington, as Republicans aim to raise the cost of higher education finance beyond already troubling levels.

I agree with Mike Simkovic that the U.S. is “dramatically underinvesting in and overtaxing higher education,” and the situation is very likely to get worse. Proposals to cap federal loans will encourage a worse form of debt. Many complain that the federal student loan program has been a prime enabler of predatory for-profit law schools. However, incremental privatization of much of student lending over the next few years will likely saddle those going to the most "subprime" schools with even more unmanageable, high interest debt. To be sure, privatization (like private refinancing) may boost those at the elite schools with lower interest rates. But that is a rich-get-richer cross-subsidy scheme, as with credit cards, where "platinum rewards" for a relatively secure population are partly funded by late fees on people with precarious incomes. And it will all be enabled, excused, and accelerated by opaque algorithms of credit risk assessment and online advertising (which tends to steer poorer students to worse schools).

This is an area where legal academics can help policymakers by offering rigorous analyses of the relative merits of private and public lending, and income-based repayment plans. I have canvassed some of that work in an analysis of Obama-era policies. Scholars also need to be aware that, if they are AWOL in these debates, the agenda will be set by think tank researchers supported by a foundation-industrial complex that favors radical restructuring and defunding of traditional institutions of higher education, instead of realistic reform or improvement.

I am sure those researchers will cry “tu quoque,” since the question of financing implicates academics’ pay as well. However, given the very low rate of default among the vast majority of law graduates (despite their paying high interest rates in the federal program), this is probably not a question of whether legal education will be funded, or even the level of funding, but instead revolves around the terms of finance for students.* Federal direct loans have many consumer protections that private loans lack, and they provide a fallback of income-based repayment. That’s something worth promoting, for anyone who cares about the economic security of their students. So, too, are proposals to channel $1.4 trillion to indebted students and graduates, as opposed to the largely wealthy class which will enjoy the bulk of a $1.4 trillion dollar tax cut.

In short: those who care about the future of education in general, and legal education in general, should work to see that both are fairly funded. Complex societies need a sophisticated, expanding education system. Education “pays off,” in social, cultural, and economic dimensions, over a lifetime, so markets (focused on short term exchange and profit) will never optimize its production. The state must get involved. As it does, it must hear about the value of education, research, and clinical contributions. Such advocacy is especially important now, as private lenders’ “investments in lobbying may be about to pay huge dividends…—to the detriment of millions of students, and hundreds of millions of Americans who depend on the long term fiscal health of the United States.” We should be looking to more humane models of higher education finance (at both the state and federal level), rather than doubling down on privatized financialization.

*As Mike Simkovic has explained, “there is little evidence in the peer-reviewed literature that increases in the availability of public student loans drive up tuition net of scholarships and grants at non-profit and public institutions of higher education (there is some evidence that this might be the case at for-profit trade schools).” In an era of expanding private finance, that makes sense—private lenders will fill the gap, albeit at higher prices for funds than those borne by a sovereign currency issuer.

Frank Pasquale (Maryland)