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What could law schools have done in 2006?

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Steve Diamond is at it again, this time with a 5,500 word rambling defense of law schools. He kicks off his blog post by first asserting that before the financial collapse, there was nothing law schools could or should have been doing differently.

The law school is a “scam” argument depends, in my view, on some tendentious ideas. A “scam” implies that law schools take people’s money and leave them with nothing. It is a serious charge. It is in my view unsustainable. It appears to depend on the idea that law schools bore some responsibility for the sudden and unpredictable collapse in the job market in post-08 period. But there is no disclosure language or data I am aware of that could have been provided to law students in, let’s say, 2006 that would have allowed students to plan for the waterfall towards which they were headed.

The scam argument is actually that law schools take students' money and leave them with something of much less value than advertised, not that they leave them with nothing. But, that's a side issue. What we want to take up is the question of what schools should have been doing back in 2006. Further down the post he hits this point again:

There was nothing I can think of that law schools could have done in 2006 to warn aspiring lawyers about the crash of 2008. An argument that law schools “should have known” the good times would not last forever reminds me of the old saying that a broken clock is right, twice a day. There is zero chance that a large complicated bureaucracy, which the modern university has become, can turn on a dime in response to vague fears of a future calamity.

This is a professor who is supposedly some sort of expert on corporate governance and finance, and he can't figure out what law schools could have done differently. It's not really that difficult to figure out. Three little words, really:




For the 2004-05 school year, Santa Clara (Diamond's home turf) charged $30,750 in tuition. By the 2007-08 school year, tuition had increased to $35,250. That's a 14.6% increase in just three years.

Over that same period of time however, Santa Clara did increase the percentage of students receiving scholarships. In 2004-05, 26.9% of students received scholarships, while in 2007-08 the number was 39% [data is for full time students]. That single number doesn't tell the whole story though. Most of the additional aid went towards scholarships that were less than half of tuition. Of the 12.1% more students receiving scholarships, 8.8% went to scholarships of less than half tuition, while only 2.3% went to half or more. The median scholarship amount fell from $12,000 to $10,000 over this period.

For the 2004-05 school year, a student receiving the median award would pay $18,750. By 2007-08, that amount had increased to $25,250. So, for students receiving the median award, tuition increased by 34.7% in three years. And don't forget the 61% of the class receiving no award, for whom tuition rose 14.6%.

So what could law schools have done before the crash? Peg tuition increases to inflation to keep them from getting out of control. It wouldn't have prevented the crash, but it would man students finding themselves struggling in the market have $15,000-20,000 less of debt to worry about.

More importantly though, they could have cut class sizes. Steve thinks this is ludicrous though:

Any member of a board of trustees who heard a proposal from a law school dean in 2006 to reduce admissions likely would have asked for that dean’s resignation!

That's not necessarily the case. There are many schools of all sorts of sizes, and it's not likely that the dean of Yale regularly sees his head on the chopping block for not increasing their size up to that of Harvard. And since LSATs, GPAs, and selectivity go into a school's US News rank, a dean ought to be able to convincingly argue that by cutting class sizes the school can increase its rank and become a more elite, prestigious institution.

That's the self-serving political argument though. What the dean, if he's concerned about minimizing risk exposure to his students should have been arguing is that even in 2006 law schools nationwide were producing at least 10,000 too many graduates, and that tuition growth was unsustainable.

You don’t need to see the cliff to know to step on the brakes. All you need to know is that with this much fog it’s probably not a great idea to push the car from 90 to 100mph.


That’s what Santa Clara and other law schools should have done before the crash. Now let’s look at what they’ve done sense then, counting the 2008-09 school year as when schools could reasonable have begun responding.

In 2008-09, tuition was $36,750, and by 2011-12 it had risen to $41,790, a 13.7% increase. That’s just a little bit lower than the 14.6% increase in the three years before the crash. Doesn’t look like SCU really responded in terms of sticker price.

Since the crash, Santa Clara has greatly increased the number of students receiving scholarships. In 2008-09, 40.5% of full-time students received some award, and by 2011-12 that number had increased to 47.4%. But, just like with the pre-crash increase in scholarships, Santa Clara has focused on lower end awards. Students receiving an award of less than half tuition has increased from 31% to 43%, while students receiving awards of half or greater has shrunk from 9.5% to 4.4%. The median grant in 2008-09 had gone up to $12,000, but by 2011-12 it was back down to $10,000. Since a full ride at SCU is now 4x the median award, the added low-end scholarships probably don't make up for the lost high-end ones. Ouch.

A student with a median award in 2008-09 was paying $24,750. A student with a median award in 2011-12 was paying $31,790. That's $1000 more than a student receiving no scholarship in 2004-05. And of course, for the majority of current students receiving no scholarships, the situation is much worse.

While Steve Diamond can argue about hindsight bias and how it wasn’t reasonable to rein in tuition back in 2006, it’s clear that even knowing we were going over a cliff Santa Clara (just like pretty much every school) chose not to respond.

Before the crash, schools should have been working to minimize risk to students. After the crash, they should have been working on damage control. They did neither. And there’s a cynical, but likely true, reason why. Professors didn’t get laid off when the market crashed, and they didn’t see their salaries slashed by 15% over the next 3 years. They didn’t minimize risk exposure because for professors there was none. They’re not too worried about minimizing harm because they’re not being harmed.

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