Friday, December 2, 2022

Should student loan balances be included in law school rankings?  (Michael Simkovic)

One of the most contentious areas of disagreement between U.S. News and law schools boycotting its rankings turns on whether student loan balances should be included in the rankings.   Currently, a higher student loan balance counts against a law school in the rankings.

Student loan balances are apparently meant so serve as a crude proxy for the cost of law school.  All else being equal, the more a law school costs, the higher the debt balance of graduating students.  Thus, the rankings arguably incorporate both measures of quality and measures of cost.

There are two problems with this.  First, all else is not equal.  Students from wealthier families, or with more supportive parents or relatives, will graduate with lower student debt levels.  Law schools can climb the rankings by admitting these students over students from less wealthy or less supportive families who are likely to incur more debt.  If law schools do this, then law school will become less effective as an engine of economic mobility. 

Even controlling for differences in household income, people from different cultural backgrounds have different patterns of saving and spending.  To give a concrete example, one of my classmates returned from his summer working at a corporate law firm driving a shiny new BMW.  I returned with lower student debt levels but no wheels. Our incomes and our familys' income and wealth levels were similar, but I came from a culture that placed a higher value on thrift, while he came from a culture that placed a higher value on luxury consumption as a method of displaying status.  We lived together as roommates after graduation, and he chose the larger and more expensive bedroom in our two-bedroom apartment, while I chose the smaller and less expensive bedroom, consistent with our different value systems.

Law schools can adapt to the inclusion of student loans in the rankings by admitting more students from cultural backgrounds that prioritize thrift over those that prioritize luxury consumption.  This emphasis on thrift would hurt ethnic, geographic, and class diversity.

Moreover, this means that student loan balances are a bad measure of the cost of law school.

If a law school ranking wanted to include the cost of law school, a better measure would be net tuition (i.e., tuition minus average scholarships).  If a law school ranking wanted law schools to prevent students from incurring too much debt, a better measure would be student loan default rates rather than student loan balances or net-tuition.  A law school that costs more, but that provides a higher quality education that leads to higher or more stable incomes or greater probability of qualifying for public service loan forgiveness, would leave its students with higher levels of debt but lower default rates than a lower quality, lower cost institution.

Second, there is a strong argument that cost should not be included in the rankings at all. Students already know what each law school would cost them.  They can see tuition levels up front and scholarships in their offer letters.  Employers do not care what law school costs.  They only care about hiring the best workers.  Those who are willing to invest more in improving their abilities are likely to outperform those who will not invest in themselves.

It might therefore make more sense for the rankings to focus purely on measures of quality without regard to cost.  Students can then decide whether they want to spend more on a higher quality (typically) private education, or less on a lower quality but less expensive option. 

Those who grew up in a capitalist country, especially the United States, understand that in most areas of life—food, housing, transportation, healthcare, and education—you generally get the quality of goods and services that you pay for. 

A hybrid approach that might offer the best of both worlds would be to create three or four categories of law schools--i.e., high-end, mid-tier, and economy--and only rank law schools at similar price points against each other.  This is similar to the approach that IIHS uses to rank vehicle safety, even though virtually every luxury SUV is objectively safer than even the safest compact economy car.

Guest Blogger: Michael Simkovic | Permalink