Sorry, I badly edited the last comment--what I left out is that I think a student at an expensive school but unranked school is unlikely to be price sensitive once total debt is greater than ~150K, as payments under the current IBR program would remain capped. So such schools can likely continue to increase tuition to offset the lower number of applicants, and I wouldn't expect to see them close.

Taking the hypothetical as stated--that there is no change in the federal student loan program--I would not expect any law schools to close. A relatively expensive school (~40K annual tuition, ~20K living expenses) with a relatively low LSAT median (<150) can likely continue raising tuition to cover a shrinking applicant pool. Someone who is already borrowing the full cost of attendance at such a school would not likely be price sensitive to further tuition increases--as long as income-based repayment remains, the student's future loan payments will be no different whether they borrow $200K or 400K. (You can explore various scenarios on Georgetown's website at http://www.law.georgetown.edu/admissions-financial-aid/office-of-financial-aid/loader.cfm?csModule=security/getfile&pageid=61621 --it lets you select various tuition levels and expected salaries, and shows what loan payments would look like with and without IBR. It only shows the ten-year IBR program for public service, but it is not hard to extrapolate from there). I believe the current situation (combining unlimited federal lending with income-limited repayment) is unsustainable, but as long as it exists, I don't see schools closing.

I've been following BZT's work in this area on Balkiniztion, and I am looking forward to reading the book. I think he is right to advocate for loan limits, but I don't think it is strictly a matter of choice: I think loan limits are coming one way or another, and law schools need to be prepared. For many schools, I think that loan limits will be a significant economic shock. I would recommend reading the presentation by UC-Hasting's CFO, available here: http://www.uchastings.edu/budget/docs/SPI8%20Presentation%204-20-2012.pdf Among other interesting facts, it shows that of Hastings' $63 million in annual revenue, $43 million comes from student loans ($23 million from Stafford, $20 million from GradPlus). As I read it, only $3 million comes in from "cash money" tuition payments. ($46 million in tuition revenue, of which $43 million was paid in the form of student loans, presumably meaning that about $3 million was actually transferred directly from student to school). $13.1 million was reallocated as student aid, leaving the school with a net $33 million in tuition revenue. Only $8.5 million comes from the state (I love the term PINO, and think it fits quite well here). But unlike Michael Livingston, I am less worried about a two-tier system--I believe that loan limits will go a long way toward making prospective students much more price conscious, and I think this will benefit those schools that have managed to keep tuition at a lower level. (I made the argument at greater length here: http://www.legalethicsforum.com/blog/2012/02/after-the-student-loan-arms-race-the-disruption-of-hierarchy.html )