Seto: The Problem of Law School Tuition

TaxProf Blog op-ed:  The Problem of Law School Tuition, by Theodore P. Seto (Loyola-L.A.):

In a recent op-ed in the New York Law Journal, Dean Jeremy Paul of Northeastern writes about the future of legal education. Although he makes many good points, he avoids the single hardest question facing law schools going forward: what to do about tuition? Most schools have dealt with this temporarily by holding net tuition constant. (Net tuition is nominal tuition less scholarships.) But in the long run, the parade of horribles at the bottom of each law school's class will get worse if nominal tuition rises faster than the rate of average lawyer compensation, because the bottom of each class will absorb the brunt of any such disproportionate increase.

The BLS reports that average lawyer compensation has risen at a fairly steady rate of roughly 3% per year for many decades. In my view, law schools should begin formulating long-term plans that assume increases in nominal tuition of no more than 3% -- matching the long-term increase in the cost of becoming a lawyer to the long-term increase in lawyer compensation. This will not be easy. Unfortunately, the US News rankings reward increasing both nominal tuition and scholarships by more than 3% annually. (Doing so allows schools to boost reported LSATs, UGPAs, and non-educational costs per FTE.) This, in turn, exacerbates financial pressures at the bottom of each law school's class. Such pressures will be sustainable only if Congress remains willing to subsidize the bottom of each such class in larger and larger amounts. (Such subsidies are currently given primarily in the form of income based repayment rules.)

Eventually, I would expect pre-law advisors to begin to advise students not to attend any law school that does not make a scholarship offer -- that is, to advise students to become much more sensitive to net tuition. If significant numbers of students follow this advice, the nominal/net tuition arbitrage game will become less profitable and law schools will be forced to hold nominal tuition down as well. (Or more painfully, may be forced to lower nominal tuition, as some schools are already doing.) This process will accelerate -- and perhaps become acutely painful -- if Congress places a cap on educational subsidies.