The Economics of Law School Tuition: Lessons from Undergraduate Education

Henry Riggs, president emeritus of Harvey Mudd College, did a terrific piece in this Sunday’s Education Life section of The New York Times, entitled “The Price of Perception.”  The subtitle: “Cost Has Nothing to do with Tuition.  It’s Economics, Stupid.”

Riggs’ article reprises many themes I’ve discussed on the blog for many months.  First, that schools (in Riggs’ case, undergraduate institutions; in my case, law schools) charge whatever tuition they think the market will bear.  They are businesses.  A not-for-profit business is still a business.  For applying law school students, that means, among other things, that you should approach your decision to accept admission as a business decision, feel free to press for the information you need and to negotiate with law schools, just as you might with any business, paying careful attention to your leverage.  Law schools aren’t doing you a favor by taking you, they’re making a business calculation, and you should think of law school as, in large part, an investment decision.

Riggs runs through a lot of helpful data, concluding that costs explain neither tuition differences nor why some schools’ tuitions are tightly clumped.  Endowments, while a factor, also can’t account for tuition grouping or separation.

Riggs’ belief—with some support in the data he presents and, more, his experience in the market—is that reputation accounts for a high proportion of what might otherwise be considered anomalies in pricing.  That shouldn’t come as a surprise—Prada charges a premium because of perceived quality, and no one should expect schools to act differently.  It’s a shame to think of education as a luxury or downmarket “good,” and there’s certainly a lot more to education than many consumer products (namely, the potential for significantly different returns on your law school investment) but that’s how schools are acting, at least judging by their tuition and fee decisions, and you should do the same.

Riggs also notes that schools will sometimes artificially raise their tuition in order to be perceived as being of a higher quality, so for example, a mediocre undergraduate institution will charge a premium price in the hopes of being perceived as “worth it.”  This, too, is a common strategy in consumer goods pricing.  Does the $20 barber give you as good a haircut as the $90 stylist?  You’re inclined to think, no, and if you have $90 for a cut, you’ll probably want to be “styled.”

The strategy of pricing at an artificial premium only works on the inexperienced buyer.  But that’s exactly what most law school applicants are (even more than buyers of undergraduate education)—they’ll enter the admissions market once and never again.  Consequently, they’re particularly vulnerable to artificial marketing strategies.

Those vulnerabilities are frequently exploited.  As we’ve pointed out many times, tuition for a lower-tier (or even unranked) law school isn’t appreciably less than it is for a top 5 school.  And as an investment in future salary and flexibility, the marginally higher price the average top 5 or top 10 school charges is quickly made up for by the considerably greater income and flexibility those schools deliver.

The problem is made worse by the opacity of the data law schools are currently required to report by the ABA.  While there has been a little flutter recently about making employment data more transparent, even those proposed changes are minimal.  At least if you buy a Prada bag, the salesperson will tell you how it’s made and you can easily obtain comparative information from other brands.  Not so with law schools, which are asking for a lot more of your money, debt and time than Prada does.  To compensate for the steep market information advantage that law schools have, applicants simply must have and implement a strategy to pry out of schools the information that applicants need to make a wise decision.

The tight guarding of meaningful employment data by law schools, of course, increases the vulnerability of law school applicants to marketing strategies, including tuition manipulation and perceptions of prestige.  The pre-law market isn’t only vulnerable to manipulation by law schools, of course.  The same issue applies to the LSAT prep market and other advisory markets.  For example, the vast majority of LSAT test prep companies disclose only success stories, which encourages people to think that these are “typical” (in contrast, Advise-In discloses average increases, in both points and percentile terms, simply because I think that’s more meaningful and truthful data—and I’m proud of those very high average increases).

Law schools, without meaningful strictures from the ABA or elsewhere, can market how they please.  In the absence of meaningful disclosure obligations, law schools cherry-pick data, manipulate tuition, and do pretty much whatever else they like.  They’re pretty confident that there are no experienced buyers, and that only very diligent prospective students—or ones with excellent law school admissions and application advisors—will even request more detailed, well-rounded information from them, much less know what to do with it once obtained.

~ by Kyle Pasewark at Advise-in Solutions on April 20, 2011.

One Response to “The Economics of Law School Tuition: Lessons from Undergraduate Education”

  1. […] you may recall my discussion prompted by Henry Rigg’s article in 2011, when schools were raising tuition in the face of record […]

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