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Cassandra Robertson
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Stephen, I think the federal loan repayment program is broader than your comment suggests--under the current PAYE rules, graduates with qualifying federal debt (both undergrad and law school debt) need to pay only 10% of their income (regardless of how much they earn--they can still qualify at $160K salaries) for 10 years in the public sector or 20 years in the private sector. The program may not be sustainable, but it does largely reduce the debt burden on new graduates. But I certainly agree on the substance of your post, and I have argued elsewhere that failing to allow (and regulate) such practice within the US only pushes such services offshore--the Economic Times had a nice article today about Indian attorneys providing assistance to pro se litigants in the US, for as little as $5 an hour, which I have also written about. See http://articles.economictimes.indiatimes.com/2013-10-05/news/42745257_1_legal-help-legal-petitions-indian-lawyers
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 )
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Jun 2, 2012