Price Discrimination Will Ultimately Bite Law Schools

Did you know that law schools charge higher prices to those who are more likely to struggle?

Our investigation into law school admissions practices and trends has sent shockwaves through the legal profession. Some law school deans remain in denial, but more (at least privately) want a minority of law schools to stop damaging legal education’s reputation. With no united front among law schools, influential members of Congress waiting to pounce, and the ABA primed to act, it seems the bets some schools made on regulatory inaction were misplaced.

One reason these bets may prove lethal is that law schools charge higher prices to those who are more likely to struggle.

This is one particularly egregious artifact of the U.S. News rankings methodology, which affects how law schools allocate scholarship money. Scholarships are predominately provided in exchange for relatively higher LSAT scores and, to a lesser extent, GPAs. While these resources decisions have always been questionable, they become even more ethically dubious as price discrimination shifts even more dramatically towards discounting tuition for those most likely to complete school, pass the bar, and obtain a legal job.

That many of these scholarships are conditional adds an additional layer of moral complexity. A conditional scholarship is one that depends on law school performance, which the LSAT is designed to predict.

For the purposes of our investigation, we split schools into risk groups based on 25th percentile LSAT score because the LSAT is the best predictor available to law schools when they make admissions decisions. Using these categories (image to the right) we look at conditional scholarships by category (image below).

Even if a student at a high risk or very high risk or extreme risk (collectively “serious risk”) school receives a scholarship, that scholarship is more likely to be conditional. Frequently, more of these scholarships are provided to incoming students than can possibly keep them. Over 80% of serious risk schools offer conditional scholarships, with 30.1% of those scholarships being eliminated. Less than half of the other schools offered these scholarships, which were more likely to be renewed.

Despite many law schools trumpeting their increased generosity through scholarships, almost half of students at serious risk schools pay full price. The percentage paying full price at extreme risk schools (45.5%) is higher than students at every other risk band. Surprisingly, sticker tuition is just $1750 less on average at the serious risk schools. Even comparing the difference in net tuition only increases the price difference by $155.

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The combined effect of similar prices and more students paying full price at serious risk schools is higher average borrowing. Average borrowing follows a strange pattern (image to the right). The minimal risk schools have higher averages than low risk and modest risk schools, in part because they offer better job prospects. But the average amount borrowed at the high risk schools is higher than the average amount at even minimal risk schools, with the amount increasing at very high risk and extreme risk schools too. So not only are students at these schools less likely to get legal jobs, they’re more likely to accumulate tons of debt, despite facing the longest odds of ultimately obtaining a law license.

Naturally, this impacts loan repayment prospects.

By the time the first payment was due six months after graduation, at which time any accumulated interest capitalizes, the average 2014 graduate at a serious risk school owed $141k, which translates to about $1600 per month for 10 years. At some schools, the average debt nears $200k and a $2300 monthly payment. At the lower end, some serious risk schools average around $80k debt and a $900 monthly payment.

The mean and median salaries at serious risk schools cause somewhere between economic difficulty and catastrophe. One common-sense rule in student lending stipulates that students should not borrow more than they expect to earn after their first year. Law schools of all types make observing that rule difficult. The following table uses the above monthly payment and generous income estimates to see what percentage of discretionary income (income above 150% of the federal poverty rate for a single person with no dependents) covers a student’s full loan payment.

For now, all of these graduates qualify for the Pay As Your Earn (“PAYE”) federal hardship program, which allows the borrower to limit loan payments to 10% of discretionary income. After 10 years of public service, the remaining balance will be forgiven. After 20 years in the program, everybody else has the remaining balance wiped clean, although they are responsible for paying income tax on the forgiven principal. The hardship programs help these graduates get by, but interest will continue to accumulate and there are several snags that can cause the interest to capitalize and increase the tax bomb.

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The risks schools are taking are bad enough, but they’re worse when you account for conditional scholarships, the percentage paying full freight, job prospects, salary prospects, and debt. These factors drive a wedge between reality and claims that serious risk schools are motivated by opportunity rather than survival. It’s not a stretch to see how they make it easier for the ABA and government to act.


Kyle McEntee is the executive director of Law School Transparency, a 501(c)(3) nonprofit with a mission to make entry to the legal profession more transparent, affordable, and fair. LST publishes the LST Reports and produces I Am The Law, a podcast about law jobs. You can follow him on Twitter @kpmcentee and @LSTupdates.