Student Loan 'Forgiveness' Gives Law Schools A Massive Tax Subsidy

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Why should $50,000 per year law school tuition be enabled by taxpayer subsidies?

This is the real question that legal academic defenders of IBR [income-based repayment for student loans], such as Philip Schrag and Lisa Lerman, need to answer.  It’s no real answer to respond, as Schrag does to Brian Tamanaha’s criticisms, that lots of goods and services in our economy are subsidized by public money in one way or another.

So what?  I don’t suppose Schrag (a self-described “conservative”) would consider that observation an adequate defence for farm subsidies to Archer Daniels Midland, or tax breaks which encourage people to buy more giant SUVs than they otherwise would, or which enable building bridges to nowhere. 

So why should IBR function as a massive taxpayer subsidy to law school budgets, which it certainly will if it begins to “solve” the problem of skyrocketing law school costs in the way Schrag envisions it will?

I have difficulty imagining what the answer to that question might be. Is legal education somehow a public good, i.e., something that will be under-supplied by an unsubsidized market? Under current conditions, which of course the availability of IBR has not even begun to affect (no one ever enrolled in law school prior to 2009 because of IBR) this seems like a remarkably implausible claim. The United States has a massive oversupply of people with law degrees, if we define the correct supply as roughly equivalent to a number not much larger than the number of people who can make a living via the practice of law.

Now Schrag et, al. might reply that there is actually an under-supply of lawyers in America, given that a huge amount of the potential demand for legal services among middle class and poor people goes unmet.  But this is a demand-side problem: it has nothing at all to do with how many people have law degrees, and everything to do with the fact that the large majority of Americans don’t have enough discretionary income to pay for more that the most occasional and basic legal services, if that.

And before you get to that, the cost of legal education has almost nothing to do with the ability of poor and middle class people to pay for legal services. Whether a lawyer has a lot of educational debt, or a little, or none, has no relevance to what that lawyer can charge successfully for legal services. There are hundreds of thousands of people with law degrees who have little or no educational debt, and as a group they don’t charge any less for their legal services than more recent, heavily indebted graduates. Why would they? The last thing a client cares about is how much debt his or her potential lawyer is carrying, any more than a potential patron of a restaurant cares whether the establishment’s owner is heavily leveraged when the customer considers the prices on the menu.

In other words, if you want to make legal services more affordable for people without money, give those people money for legal services.  Giving money to law schools makes being a law professor “more affordable” (otherwise we might not forgo those BigLaw partnership offers). It does nothing to lower the price of legal services.

A second defence of even greater subsidization for law school budgets is that it makes law school “accessible” to people who otherwise wouldn’t go.  It’s true that the combination of unlimited federal loan money and IBR leads people who otherwise wouldn’t go to law school because of immediate economic constraints to go.  I think on net this is a bad thing for such people as a group, for reasons I’ll lay out in another post.  Here I’ll just note that people who defend IBR on this basis need to explain why it wouldn’t be both far more efficient and just for law schools to stop raising tuition faster than inflation, as they collectively have literally every year for at least 30 years, if law schools are concerned about access to legal education. It seems implausible to defend a program whose effect is make the cost of legal education far higher than it would otherwise be on the ground that the program actually makes legal education more accessible to people without money.

The only other defence I can think of for subsidizing law school budgets via IBR even more heavily than they’re already subsidized via the availability of unlimited federal loans subject to no actuarial controls is that this improves the quality of legal services, because paying law professors three times more than English professors improves the quality of legal education (This of course is just another variation on the “pay us or we’ll never leave Cravath” argument).

Now the problem with this argument is that it’s not nearly enough to claim that, for example, a private law school education is better in 2012, when it costs $41,000 per year, than it was 30 years ago, when it cost $13,000 per year (in constant dollars). It probably is better. For one thing, it would be hard to avoid improving the quality of a product after more than tripling its real price even if you were trying to avoid doing so.   The real question is: does whatever improvement in quality that’s been achieved justify that price increase?  Are law graduates today so much better prepared to provide quality legal services that it makes sense to even more heavily subsidise a budget that charges students $123,000 rather than $39,000 for a law degree?

I personally think that to ask that question is almost to answer it.  Those who feel differently ought to make the effort to defend the proposition.

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