More on tuition discounting

In a post last week, Dean Yellen acutely raises the important issue of tuition discounting in law schools.  It is an extraordinarily important issue in the modern law school world, even as it flies somewhat under the radar screen in the current debates about law school economics, student debt, and educational strategy. 

Let's first be clear about what we don't know:  Law schools are not required to distribute exact discount rates nor scholarship distribution across credential levels (or, for that matter, other student profile data).  So, while we have, through ABA reporting requirements and such, data about student debt levels and (more or less) overall financial aid, we do not have readily available the kind of information that would truly enable to get to the heart of the issues Yellen raises: what is the impact of tuition discounting on student debt?  How is it distributed across students, across schools, across time?  And what does it tell us about the prospects and progress of law schools in tackling the "cost" issue.

That all said, my intuition is much the same as Yellen's and that is that tuition discounting has skyrocketed in recent years.  Law schools have put significant resources into aid for students at the high LSAT/GPA levels -- "merit" aid versus "need" -- this in an effort to protect their LSAT/GPA medians in a period of applicant decline.  No compulsion underlies these choices; these are deliberate choices made by deans & admissions officers at the margin.  Yet, from the perspective of the law schools writ large (or, perhaps more accurately, law schools in particular competitive cohorts), there is a rather sharp collective action problem at the heart of the strategy.  It would very much be in the interest of competitor law schools to limit such aid, but hardly anyone has the incentive to unilaterally disarm.

I want to explore this important topic in future posts, but, for now, just three quick observations:

First, as Dean Yellen notes, it is obvious that this expanded tuition discounting benefits students by reducing aggregate student debt.  From this perspective, the tension is between the economic well-being of the law school qua law school and the interest of the students in paying less than the sticker price -- and, in some cases, much less so.

Second, less clear is the distributional impact of this discounting across the student profile spectrum.  Tuition discounting in the modern law school world is mostly, I might say almost entirely, about merit aid.  Merit aid goes to the high-end applicants; the strategy of law schools who can and will significantly discount tuition is to pull these applicants from higher stature law schools with the promise of money.  The best available evidence suggests that these students will do well in these schools and will thereby have comparatively better job opportunities.  All told, we are using merit aid to assist students who are less in need of aid than the the students who are paying sticker price.  The rich get richer, as the saying goes.  So, there is a distributional issue at the heart of this phenomenon and one that raises some difficult ethical issues.  (In this regard, tuition discounting in law schools raises some rather different issues than the move toward need-blind or need-aware admissions in well-resourced undergraduate students, a key part of the driver toward high rates of discounting in that space).

Third, tuition discounting will be more fruitful and durable as an economic strategy for those law schools who can look in large part to non-tuition sources of revenue to foot this bill.  Alum giving that is targeted to such spending strategies is at least a stopgap; depending upon the magnitude, it is a terrific fix.  But it is, of course, less "terrific" for those law schools whose fundraising portfolio is more modest or, in any event, is being deployed in directions (clinics? need-based scholarship? space enhancements? public interest fellowships?) other than the hand-to-hand combat over high-end students. 

I simply highlight these issues to show that the phenomenon of tuition discounting, accelerating and ubiquitous, raises important issues as we think hard about law school economics and educational outcomes.