Why do tuition rates continue to climb even in this economy? Forum

[Stringer Bell]

Graphs

I'll sort of recant the outside market forces have "no impact" mainly because I don't like talking in absolutes. It's possible that some of the decisions some law schools have made regarding with their tuition have been related to legal hiring. The graphs have alot of holes to try to posit that tuition hikes have been a direct response to legal salaries. The two big missing components are how long the blank check lending practices have been around and the impact of US News (since 1987, right around the time tuition started it's precipitous rise). As to the latter, students and admissions offices make decisions based on a ranking system that rewards a school for spending more money. In terms of blank check lending, I'm not 100% sure how long that's been around. Grad Plus loans have only existed since the mid 2000's and I'm not totally sure how the PLUS loans before them worked. One thing I am certain of is that in the 70's you didn't get a blank check from the govt., or if you did alot of people were unaware that it was available.

The bottom line is that if you will lend someone money without underwriting it, someone out there is going to take it pretty much regardless of what the product they're spending it on is.

[XxSpyKEx]

Graphs

I'll sort of recant the outside market forces have "no impact" mainly because I don't like talking in absolutes. It's possible that some of the decisions some law schools have made regarding with their tuition have been related to legal hiring. The graphs have alot of holes to try to posit that tuition hikes have been a direct response to legal salaries. The two big missing components are how long the blank check lending practices have been around and the impact of US News (since 1987, right around the time tuition started it's precipitous rise). As to the latter, students and admissions offices make decisions based on a ranking system that rewards a school for spending more money. In terms of blank check lending, I'm not 100% sure how long that's been around. Grad Plus loans have only existed since the mid 2000's and I'm not totally sure how the PLUS loans before them worked. One thing I am certain of is that in the 70's you didn't get a blank check from the govt., or if you did alot of people were unaware that it was available.

The bottom line is that if you will lend someone money without underwriting it, someone out there is going to take it pretty much regardless of what the product they're spending it on is.

Lending practices definitely have something to do with it. But I think biglaw salaries also played a big role in law school tuition hikes. If you look at other graduate degree programs, a lot of them barely cost anything relative to law school. Even top masters in engineering programs aren't that highly priced. But law school, MBA, medical school, etc are. I think this makes sense because it suggests people are willing to pay high prices for tuition because they believe, at a minimum, that there is a possibility that they will make a good amount of money leaving law school, making the impact of the debt seem less burdensome. If you look at something like a M.A. in family and consumer sciences (or whatever stupid masters degree), it costs very little relative to law school. This makes sense because virtually no one leaves those programs making a boatload of cash (this applies to even masters of engineering programs), so no one would be willing to pay $200k for one of those degrees.

I think information asymmetry also plays a large role because there have to be a lot of people thinking that there is a good possibility that they will make near what the school says their median is (i.e. $160k at practically every law school, according to the information they provide). I mean what kind of an idiot would honestly decide that it’s a good idea to drop $200k on a 1% chance of getting a job that pays well, and a 99% chance of not being able to repay their debt? For there to be as many applications as law schools are getting, people have to think that there is a good possibility that they will make a decent money leaving law school for them to be willing to spend that kind of money. TLS is a bit different in that a lot of people on here are educated about the facts, but it’s probably not representative of the entire law student population (just think about all the people still attending t3/t4 law schools at sticker prices – I don’t think they would be willing to do that if they knew for a fact that there is a 99% chance they will not be able to even repay their student loans and will struggle financially for the next 25-30 years).

[Stringer Bell]

The issue with comparing a JD and MBA to a BS masters is that you actually have to have a degree in that field of study, so the pool of potential applicants is much smaller. If MS programs took literally anyone, they could probably start raising tuition and find someone out there (maybe they have to start cold calling) to take Uncle Sam's money by hyping up study abroad programs, etc.

I agree that the perceived ability to make alot of money does give LS and MBA programs a much larger pool of potential applicants than they would otherwise (as does not being able to find a job). I don't think biglaw firms bumping the salaries up to 160k has that much to do with it though. Alot of schools just before ITE still listed median starting salaries in the 60-70k range and were charging 30-40k for tuition. It's more the "Attorney's make alot of money" mentality which will not die easily. External market forces can weaken the talent level of people applying for law school and at some point there is a saturation level (i.e you couldn't have 10,000 law schools).

So essentially I'm saying that actually underwriting loans would have an impact on law school tuition many orders of magnitude quicker and greater than anything that occurs regarding legal hiring.

[bigben]

Because the government makes unlimited loans available regardless of whether the education is a good investment.

Others note that the price is high because people are "willing to pay." This is actually false. There are not hordes of people with 200k in their pocket willing to PAY for this. Rather, there are people "willing to take out a loan." It is completely impossible for this to ever serve as a real limit on price when anyone can get a loan regardless of the soundness of their investment. There will never be a shortage of people willing to sign on a dotted line. Instead, there should be a shortage of people willing to loan money. Right now the taxpayers are funding anything and everything.

[bigben]

Guaranteed loans, and a healthy sense that "Old Ted will figure that out."

This. When you subsidize the purchase of a product, demand goes up and price goes with it.

But hasn't law school been subsidized for awhile? If so, it seems that subsidization is largely a non-factor in a rephrased version of OP's question: why have tuition rates continued to rise even after the 2008 crash as compared with the years just prior?

Taking a stab at that question, I'd argue that it's because of a few things:
- Overblown fear of the economy --> hiding out in school
- Bottom dropping out on expected earnings in other fields nearly across the board --> gamble for biglaw doesn't look as bad
- Law school was underpriced in the past

Before 2008, subsidization was causing tuition to go up. After 2008, subsidization is still causing tuition to go up. This is not hard to understand.

[bigben]

Graphs

Let's not forget that these graphs are always based on survey responses from about 40-50% of all graduates. So they don't really give you the whole picture.

[MTal]

The correct answer is that the limitless supply of government loans are creating virtually unlimited demand for education. The EVEN MORE correct answer is that judging by the responses in this thread, 90 % of you retards don't understand simple economics and continue to discount the realities and consequences of paying 180k for a JD.

[r6_philly]

The correct answer is that the limitless supply of government loans are creating virtually unlimited demand for education. The EVEN MORE correct answer is that judging by the responses in this thread, 90 % of you retards don't understand simple economics and continue to discount the realities and consequences of paying 180k for a any JD.

That distinction is important.

FWIW, vocational schools way over charge and rely on fed loans too, but it's just not to the magnitude of 180k.

[androstan]

Guaranteed loans, and a healthy sense that "Old Ted will figure that out."

This. When you subsidize the purchase of a product, demand goes up and price goes with it.

But hasn't law school been subsidized for awhile? If so, it seems that subsidization is largely a non-factor in a rephrased version of OP's question: why have tuition rates continued to rise even after the 2008 crash as compared with the years just prior?

Taking a stab at that question, I'd argue that it's because of a few things:
- Overblown fear of the economy --> hiding out in school
- Bottom dropping out on expected earnings in other fields nearly across the board --> gamble for biglaw doesn't look as bad
- Law school was underpriced in the past

Before 2008, subsidization was causing tuition to go up. After 2008, subsidization is still causing tuition to go up. This is not hard to understand.

That's not hard to understand. A better question is, why didn't the 2008 crash put a halt on ballooning LS tuition? Subsidization allowed tuition to rise, why didn't plummeting employment prospects counteract this, at least to some extent?

The answer, I think Bendid is saying, is that individuals unable to find work hopped onto student loans as temporary life-support with the expectation that it would translate into being on solid financial ground afterward. Individuals had any number of options for a student loan, but the LS biglaw gamble seemed attractive. Also, perhaps LS was "underpriced" i.e. LS deans/profs weren't charging students enough for their great wisdom (I have my reservations about this last one).

I would also add in there that JD programs are a bit less restrictive than many others, requiring only a 4 year degree in *anything*.

Notwithstanding, I think the ease of getting 6-figure subsidized loans is a market force that nothing else can even begin to match. "Not even the timeless dictates of supply and demand".

[lolschool2011]

Easy money = bubble formation, people willing to pay inflated prices, etc. Refer to housing market from 2000 to 2007ish coupled with the accessibility to easy money.

The more disturbing realization of all this isn't how the government overtly subsidizes the university system while passing on the risk (debt) to students, but how people with bad grades (or lets say "lower") subsidize those with higher grades.

A person that made it into their "reach" based on thier numbers is frequently compelled to attend said school whilst paying sticker (reliance on rankings only amplify this dynamic) which then allows said school to offer scholarship to students with higher numbers.

And, on a side note, if someone who's received a substantial URM boost helping them get into a school with students who have done substantially better throughout their academic career, guess who will likely end up "subsidizing" the latter students ranking upon graduation? Who then is more likely to get the top jobs?

It's a tough, unforgiving world out there... and the university system isn't much different then the business world in several of these respects.

[Anonymous Loser]

People were making unwise, irrational decisions long before federal educational lending was available. I hate to be the one to break it to you guys--especially the econ majors--but people are likely to continue to make poor financial choices.

[JennBNYC]

Blah Blah Blah Blah, Blah... Blah Blah. This country is headed down the toilet.

Dad?

lol

hahahahaha...that is SO my dad

[MTal]

People were making unwise, irrational decisions long before federal educational lending was available. I hate to be the one to break it to you guys--especially the econ majors--but people are likely to continue to make poor financial choices.

Precisely. Except that now, they can continue to make them on a scale far FAR surpassing previous amounts, to the tune of 180-200k over the span of 3 years.

[r6_philly]

People were making unwise, irrational decisions long before federal educational lending was available. I hate to be the one to break it to you guys--especially the econ majors--but people are likely to continue to make poor financial choices.

Precisely. Except that now, they can continue to make them on a scale far FAR surpassing previous amounts, to the tune of 180-200k over the span of 3 years.

People were signing papers left and right a few years ago with a lot larger amounts with even less realistic expectations (housing). Do you really think they learned anything? It was the banks' fault after all.

[MTal]

People were making unwise, irrational decisions long before federal educational lending was available. I hate to be the one to break it to you guys--especially the econ majors--but people are likely to continue to make poor financial choices.

Precisely. Except that now, they can continue to make them on a scale far FAR surpassing previous amounts, to the tune of 180-200k over the span of 3 years.

People were signing papers left and right a few years ago with a lot larger amounts with even less realistic expectations (housing). Do you really think they learned anything? It was the banks' fault after all.

Except that a house is a tangible asset and mortgages are dischargeable in bankruptcy, neither of which is true for a law degree.

[r6_philly]

Except that a house is a tangible asset and mortgages are dischargeable in bankruptcy, neither of which is true for a law degree.

You expect people who signed their name on interest-only, balloon payment mortgages to understand finer points of bankruptcy law?

[lolschool2011]

People were making unwise, irrational decisions long before federal educational lending was available. I hate to be the one to break it to you guys--especially the econ majors--but people are likely to continue to make poor financial choices.

Precisely. Except that now, they can continue to make them on a scale far FAR surpassing previous amounts, to the tune of 180-200k over the span of 3 years.

People were signing papers left and right a few years ago with a lot larger amounts with even less realistic expectations (housing). Do you really think they learned anything? It was the banks' fault after all.

Except that a house is a tangible asset and mortgages are dischargeable in bankruptcy, neither of which is true for a law degree.

Nor are student loans dischargeable in bankruptcy...

[Bill Cosby]

As far as I know, the availability of student loans hasn't been affected by the crash. If anything, I would assume the government's continued centralization of the industry has made funds easier to get.

Centralization? The venue for financing has changed (direct lending instead of direct lending with the name of a bank slapped on), but there hasn't been any meaningful changes in the actual vehicle.

[lolschool2011]

As far as I know, the availability of student loans hasn't been affected by the crash. If anything, I would assume the government's continued centralization of the industry has made funds easier to get.

Centralization? The venue for financing has changed (direct lending instead of direct lending with the name of a bank slapped on), but there hasn't been any meaningful changes in the actual vehicle.

The "government" or society planners have an obvious interest in subsidizing higher education... we're already terribly behind China, India, Japan, etc, but that's another story.

So the gov wants educated people to drive/sustain our systems, economy, etc. The reason borrowing 200k is easy to go to grad/law school is because you really are stuck with this debt for life, which makes it quite safe from the gov's point of view. You can't discharge it through bankruptcy. If you can't get a decent job after law school and default on your loans - great, but when you do finally get a job and file a tax return, any return will go straight to the gov instead of you. Your credit report will also be crushed which will prevent you from taking any other loans... mortgages, car loans, cc's, etc. In short, yes, the money is easy to get, but they'll get it back from you, one way or another, so it's pretty safe from the gov's pov.

Edit: With Interest.

[r6_philly]

Another angle of this:

People with grad/professional degrees may end up making dismal salary and be trapped in debt, but they will not very likely become public charges. So maybe it will cost the government 180-200k, but it saves, in aggregate, on the transfer payments to people without education. We always argue about government subsidizing education and it will cost, well it may well stop them from subsidizing people directly for 60-70 years.

[lolschool2011]

Another angle of this:

People with grad/professional degrees may end up making dismal salary and be trapped in debt, but they will not very likely become public charges. So maybe it will cost the government 180-200k, but it saves, in aggregate, on the transfer payments to people without education. We always argue about government subsidizing education and it will cost, well it may well stop them from subsidizing people directly for 60-70 years.

Also very valid.

[Bill Cosby]

As far as I know, the availability of student loans hasn't been affected by the crash. If anything, I would assume the government's continued centralization of the industry has made funds easier to get.

Centralization? The venue for financing has changed (direct lending instead of direct lending with the name of a bank slapped on), but there hasn't been any meaningful changes in the actual vehicle.

The "government" or society planners have an obvious interest in subsidizing higher education... we're already terribly behind China, India, Japan, etc, but that's another story.

So the gov wants educated people to drive/sustain our systems, economy, etc. The reason borrowing 200k is easy to go to grad/law school is because you really are stuck with this debt for life, which makes it quite safe from the gov's point of view. You can't discharge it through bankruptcy. If you can't get a decent job after law school and default on your loans - great, but when you do finally get a job and file a tax return, any return will go straight to the gov instead of you. Your credit report will also be crushed which will prevent you from taking any other loans... mortgages, car loans, cc's, etc. In short, yes, the money is easy to get, but they'll get it back from you, one way or another, so it's pretty safe from the gov's pov.

Edit: With Interest.

I don't dispute that. I was commenting more on the idea that the government is "centralizing", or "nationalizing", the student loan industry. It's been this way for decades, the difference is recent changes that stopped letting banks skim money off of loans issued by the government.

[helloperson]

Graphs

I'll sort of recant the outside market forces have "no impact" mainly because I don't like talking in absolutes. It's possible that some of the decisions some law schools have made regarding with their tuition have been related to legal hiring. The graphs have alot of holes to try to posit that tuition hikes have been a direct response to legal salaries. The two big missing components are how long the blank check lending practices have been around and the impact of US News (since 1987, right around the time tuition started it's precipitous rise). As to the latter, students and admissions offices make decisions based on a ranking system that rewards a school for spending more money. In terms of blank check lending, I'm not 100% sure how long that's been around. Grad Plus loans have only existed since the mid 2000's and I'm not totally sure how the PLUS loans before them worked. One thing I am certain of is that in the 70's you didn't get a blank check from the govt., or if you did alot of people were unaware that it was available.

The bottom line is that if you will lend someone money without underwriting it, someone out there is going to take it pretty much regardless of what the product they're spending it on is.

Lending practices definitely have something to do with it. But I think biglaw salaries also played a big role in law school tuition hikes. If you look at other graduate degree programs, a lot of them barely cost anything relative to law school. Even top masters in engineering programs aren't that highly priced. But law school, MBA, medical school, etc are. I think this makes sense because it suggests people are willing to pay high prices for tuition because they believe, at a minimum, that there is a possibility that they will make a good amount of money leaving law school, making the impact of the debt seem less burdensome. If you look at something like a M.A. in family and consumer sciences (or whatever stupid masters degree), it costs very little relative to law school. This makes sense because virtually no one leaves those programs making a boatload of cash (this applies to even masters of engineering programs), so no one would be willing to pay $200k for one of those degrees.

I think information asymmetry also plays a large role because there have to be a lot of people thinking that there is a good possibility that they will make near what the school says their median is (i.e. $160k at practically every law school, according to the information they provide). I mean what kind of an idiot would honestly decide that it’s a good idea to drop $200k on a 1% chance of getting a job that pays well, and a 99% chance of not being able to repay their debt? For there to be as many applications as law schools are getting, people have to think that there is a good possibility that they will make a decent money leaving law school for them to be willing to spend that kind of money. TLS is a bit different in that a lot of people on here are educated about the facts, but it’s probably not representative of the entire law student population (just think about all the people still attending t3/t4 law schools at sticker prices – I don’t think they would be willing to do that if they knew for a fact that there is a 99% chance they will not be able to even repay their student loans and will struggle financially for the next 25-30 years).

For what it's worth, engineers don't pay a dime for their post graduate education. In fact, you get a living stipend to boot, and you're *still* underpaid, since you're essentially doing the work of a paid faculty member.

[EarlCat]

Except that a house is a tangible asset and mortgages are dischargeable in bankruptcy, neither of which is true for a law degree.

But law degrees can't be repossessed.

[r6_philly]

For what it's worth, engineers don't pay a dime for their post graduate education. In fact, you get a living stipend to boot, and you're *still* underpaid, since you're essentially doing the work of a paid faculty member.

MS is not usually funded?