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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, December 14, 2017

A Looming Asteroid For Law Schools: Proposed $28,500 Annual Federal Loan Cap

Asteroid 2Cassandra Burke Robertson (Case Western), 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. ...

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.

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Or students can attend state schools and graduate with less debt. This is only a crisis for the privately owned diploma mills.

Posted by: Chris | Dec 14, 2017 3:57:03 PM

This would be a big change. One positive effect, I suspect, would be more transparent pricing at many private law schools, which already offer very steep average discounts on face tuition. My private 2nd tier law school discounts about 50%, so we'd probably be fine, all other things equal, as it wouldn't change our bottom line. It would have the effect that students with lower "objective" indicators would no longer subsidize as heavily students with higher "objective" indicators. Students with higher "objective" indicators wouldn't receive as much (relative "merit") financial aid.

Posted by: Anon | Dec 14, 2017 4:00:11 PM

While I agree that there would be immediate chaos in law school financing, and students partway through law school would be utterly, completely hosed, I think we should take a trip in the time machine to the 2005-06 academic year, courtesy of Matt Leichter’s historical tuition data at Law School Tuition Bubble, and see what the lay of the land was just before GradPLUS, since it seems many have forgotten (or chose never to learn). As 2005-06 was the last academic year before GradPLUS came about, the federal graduate Stafford cap at the time was $20,500/year.

Selected non-selective private law school tuition, excluding living expenses, 2005-2006 academic year:
- Santa Clara Law, $31,980. 67% paid sticker.
- Thomas Jefferson Law, $28,550. 44.5% paid sticker.
- Whittier, $29,230. 53.7% paid sticker.
- DePaul, $28,810. 44% paid sticker.
- Suffolk, $31,814. 50.1% paid sticker.
- Cooley, $22,160. 13.3% paid sticker.
- Seton Hall, $32,620. 55.1% paid sticker.
- New York Law School, $38,600. 61.6% paid sticker.
- Pace, $33,782. 44% paid sticker.
- St. John’s, $32,700. 56.4% paid sticker.

All figures EXCLUDE living expenses. So even Cooley was charging over the federal lending ceiling. NYLS, one of the least selective law schools in New York, was charging 6 in 10 students nearly double the federal lending ceiling. And living expenses in a Boston or NYC or San Francisco at that time were likely at least $15k, so even with tuition discounting the normative student at these schools was availing themselves pretty heavily of private loans.

Yet these law schools – all law schools - had full classes and tuition was increasing each year. This is pretty conclusive evidence as to how eager private student lenders – and not just the one controlled by the accredited law schools!* – are to toss five figures per year at rising 1Ls at Touro and Suffolk and wherever. Incidentally, elite law schools were closing in on $40,000 in tuition alone by 2005-06.

As private student loans are still both nondischargeable and securitized, the private student lending market has been growing since 2013 or so, and capital and lending is so cheap these days, I don’t see any concrete reason why Sallie and Nelnet and Access and all the rest of them won’t eagerly market their NINJA-esque private student loans at the 2.9 / 142 holding 0L looking at Open Enrollment Law School. The real question is how comfortable law schools will be in walking these students down the plank, since of course private student loans are not eligible for federal IBR programs and Congress seems to want to make those IBR plans less generous for those with federal loans.

* AccessLex, formerly Access Group, formerly formerly Law Access.

Posted by: Unemployed Northeastern | Dec 14, 2017 11:30:42 PM

Why should the Government subsidize people to become lawyers?

Posted by: mike livingston | Dec 15, 2017 4:22:06 AM

See what you did, liberal brainwashers??

Posted by: Anon | Dec 15, 2017 8:39:47 AM