Corporate & Securities Law

Giving away the first year of law school

Christine Hurt suggests:

If Progressive Law School costs $30,000 a year today, then starting next year, the first year is free, and the second year is $45,000 and the third year is $45,000.  Students are admitted the same way, only tuition is deferred until a student registers for the second year of law school.  If after the first year a student thinks this is not for her, then the student walks away with only the lost opportunity cost of nine months.  * * *

Another alternative would be to keep law school tuition on the same schedule, but allow students to exit after the first year with a terminal master’s degree.  This would address the problem of students having to stay in law school who are unhappy, but it would probably result in greater numbers of exiting students.  This would require restructuring of the law school admissions process, if the first year shrank by a certain percentage each year.

Clever idea.  Law school is essentially an option on a future career in law.  As we all know by now, the prize has diminished. One way to deal with that is to reduce the price of the ticket.  Christine?s alternative keeps the price to the three-year student roughly the same (adjusting for interest on the deferred payment) but changes the payoff structure: the student buys a new kind of option for the price of a year of forgone opportunity costs and living expenses but no tuition.  The potential payoff on this ticket is a successful first year and the right to buy the higher-value option resulting from that success.

What?s in it for the school?  It?s important to see that this is a way to discount the cost of a legal education.  Although the tuition from three-year students remains roughly the same, the school essentially eats the price of the losing tickets less transfer students and the benefits of having a higher-quality student body.

Is this a sensible pricing scheme?  The devil is in the details. 

First, what?s to stop the school from inflating first year grades, thereby encouraging students to stay for full freight while using the option to attract the students at the front end?  The school dilutes the signal of its degree, but will the market catch on?  Compare junior colleges, which terminate after two years, leaving it to the market to evaluate the value of the degree.

Second, what?s the value of the proposed master?s degree?  One might better call it a ?loser?s degree,? since that?s who would take it.

Third, if the schools don?t change how they value first-years and therefore lose a number of them after the first year, they will have to take more transfers to break even on the plan.  Then you have an even bigger shuffling of students between tiers than already occurs, plus shuffling between schools that do, and do not, offer the plan. 

I have what I think is a better idea.  Rather than lowering the price of law school to fit the current economic environment, raise the value by redesigning law school to fit this environment.  After all, it isn?t that the value of legal knowledge is declining in our increasingly regulatory economy.  Rather, there?s a shift in how that knowledge is sold, beginning with the death of big law. So change the legal education model accordingly.  Here are some thoughts.

I think the winners are more likely to be the first schools to figure out the new formula than those who give their products away.

Full post as published by Truth on the Market on May 21, 2010 (boomark / email).