Consumer Law

: CL&P Blog

How High Can Tuition Go?

By Jeff Sovern (index)

Each year, colleges and universities hike tuition, typically by more than the rate of inflation.  Competition among schools undoubtedly constrains the hikes to some extent, but are there any other limits?  An economist might say that it makes sense to pay tuition as long as the tuition is less than the present value of the expected lifetime benefits of the education, minus the opportunity costs.  Put another way, if the amount you receive in the form of increased salary over your lifetime after going to college is higher than the amount you would earn without a degree, which is what has consistently been reported, it makes sense to pay tuition as long as the tuition is less than the present value of that increase. That formulation overlooks the nonpecuniary benefits of education, which are substantial, but if you could quantify those benefits, you would add them to the expected benefits as well.  In any event, it suggests that when the costs of education exceed the benefits, people should stop paying tuition.

That should work the same way for law schools as well, except that we?re comparing incomes as lawyers with incomes as non-lawyers for college grads.  We?ve already seen some signs that law school tuition has risen high enough to price some people who formerly went to law schools out of the market.  In my early years as a law teacher, our school had a substantial number of students who saw becoming a lawyer as a second long-term career; many were retiring after twenty years or so as teachers or police officers, for example.  Most of them were enrolled in our part time night program, but some went full-time during the day.  The number of such students has dropped dramatically with a correspondingly dramatic shift in the character of the night program.  I can?t be certain, but I suspect that a contributing factor is that they can no longer expect to earn enough in the years between beginning their second career and retirement to justify spending money on the much higher tuitions we and other law schools charge.  I haven?t researched the matter, but friends at other law schools with night programs have told me that their programs too have many fewer students who see law school as a doorway to such a second long term career.  Those students used to enrich our classes by bringing in relevant experiences, and we?ve lost that (though in return we?ve gained greater financial resources to do other things), plus society has lost whatever benefits accrue from having lawyers with substantial experience in other careers.

Will law school tuition eventually rise to the point where it doesn?t make economic sense to go to law school even if you have forty years as a lawyer to make the money needed to cover tuition?  It seems unlikely: presumably law schools at which tuition exceeded that point would stop attracting students and either find a way to lower tuition or shut down.  A problem is that it?s hard to know what that point is.  It varies from school to school and even within individual classes.  Students with access to top firms with their higher salaries?which includes most students at elite schools and top students at non-elite schools?should find it in their interest to pay higher tuition than those who cannot command high salaries.  But even that is misleading because many students at non-elite schools who do not make substantial sums right out of law school may do so later in their careers after they establish a reputation.  It?s also difficult for applicants to predict where they will rank in a law school class before they get their first-semester grades, much less when they are applying.  But at some point, law school applicants should take into account the possibility that they may not make the amount needed to cover large loans.  Some media reports suggest that some law school graduates regret having incurred those loans, though it?s not clear how many feel that way.

All this fails to take into account the desire of some students for public service careers, where loan forgiveness programs may to some extent compensate for diminished earnings.  Nor does it consider the desire some people have to become lawyers no matter what the financial obstacles.  The market for law school applicants is really at least two markets: first, those who very much want to be lawyers, and second, those who aren?t sure they want to be lawyers but to whom law school seems like the least bad option.  We tend to attract the first group consistently, and probably would unless tuition became completely unaffordable.  The second group is probably more price-sensitive.  They tend to come to law schools when good jobs for newly-minted college graduates are scarce, but not otherwise, which is one reason legal education sometimes does well when the economy sours, and vice-versa.  Those students seem more likely to go elsewhere as tuition rises.  I wonder if that accounts for the fact that even though the economy has not done well recently, law school applications are also not doing well.  If I?m right about my speculations, and I have too little information to say that I am, then that suggests that non-elite law schools which continue to raise tuition as much as past increases will see drops in applications. [And just to make clear my own stake in this matter: as a professor, I of course benefit from the increased revenue received by my institution, both directly, in that it enables the school to pay higher salaries, and indirectly, because it permits the school to provide more resources for teaching and scholarship, among other things.  But tuition increases may also harm institutions to the extent, for example, that they price some people out of the market for education who might otherwise have enhanced the classroom experience. They may also damage society at large for the same reason, and they harm me personally when I get the tuition bill for my children, one of whom is about to start at a college which says the combined bill for tuition, room, and board (never mind books and other expenses) will exceed $54,000 in the first year alone.] 

Full post as published by CL&P Blog on June 14, 2008 (boomark / email).