Thursday, April 24, 2014

The law school student loan mess

The government has done it again.  It all began innocently enough when the government got into the student loan business.  But the educational industrial complex knew a sucker when it saw one, so schools started raising tuition to get more of that guaranteed government cheese.  And law schools were the worst offenders.  Even though the study of law requires only a casebook (or an internet connection), a pencil, and a notepad -- the Socratic method hasn’t changed much since the days of Socrates -- law schools still raised tuition quite dramatically each year.  In fact, they raised it faster than inflation, faster than college-level tuition, and even faster than medical school tuition -- even though colleges and medical schools require expensive equipment and other facilities that law schools do not.  But the government asked no questions.  It could have asked, for example, “Why, law school, do you need a double-digit annual tuition increase when technology is driving costs down and your professors are already being paid triple of what college professors earn, even though they teach fewer classes?” 

Had it asked this question, it would have capped the amount of loans it gives to each law student, and this would have forced law schools to keep tuition in check.  In other words, law schools would have had an incentive to compete on price.  Instead, with the government being price insensitive, the competition among schools was actually focused on spending.  The more a school could raise tuition and the faster it could spend that money, the higher it would rise in the influential U.S. News & World Report rankings, which rewarded a school for increasing the amount it spends per student, regardless of whether the expenditure improved the quality of the studentseducation.  (Today, however, with law school applications plummeting, many schools have now cut their tuition -- some by as much as one-half!  Point being, tuition never should have risen to today’s astronomical heights to begin with.) 

But instead, the government blindly wrote the checks regardless of the sticker price law schools placed on their product.  The result: today there are far too many new lawyers with staggering debt loads who are unable to get jobs to repay their loans.  The government’s solution to this mess: simply forgive the loans. 

The problem, of course, is that someone has to pickup the tab for the government’s latest bailout.  I have written that the “someone” is the taxpayers, but that’s only partially true.  Since Bill Clinton left office, Presidents Bush Jr. and Obama have been feeding both the rich and the poor all sorts of government cheese without raising enough tax revenue to pay for it.  In the process, the two have combined to ring up a currently $17 trillion dollar debt for future generations to worry about.  So I suppose the more accurate answer is that future taxpayers will eventually have to pay for the government’s newest loan forgiveness programs.  Meanwhile, the law schools got paid, and students got their J.D.s – although the J.D. degree isn’t worth anywhere near what it used to be.

For further reading, check out my original post from 2012, The Next Bailout, and Steven J. Harper’s very recent post, Who Really Pays for Law Student Debt? 

The “next” bailout is upon us. 

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