Friday, July 29, 2011

Deans Have Limits, Too

I wanted to draw attention to this article on ATL about the outgoing Dean of the University of Baltimore Law School.  Here's a guy who took a law school from 170 (out of about 200) to 117 and seems to be getting the boot because he is daring to complain when the University "re-appropriates" 45% of the of the tuition paid by law students and diverts it to other University programs.  It's also surprising that the Dean provided actual, precise numbers - and that they are stunning.  As stated by the Dean, the most recent "tuition increase generated $1,455,650 in additional revenue. Of that amount, the School of Law budget increased by only $80,774."  That is, in addition to diverting 45% overall, of the recent increase in tuition, the University diverted about 96% of it.

I want to draw attention to this because lots of angry recent law grads complain about their tuition going up so drastically over the last few years.  However, they usually point to the Dean's salary or the salary of the professors as responsible for the increase.  Now, there is certainly an element of truth there, but a very significant (and often overlooked) driver of increased tuition is that the law school tuition dollars are "stolen" by the University.

If I were paying law school tuition right now, I would be very pissed to learn that 45% of what I am paying does not even go to the law school.  I would really question the value of the tuition that I was paying.  I would be even more pissed when I learned that 96% of the most recent tuition increase did not even go to the law school.

Similarly, I think that this raises some real concerns for lenders (especially the federal government).  When you stop and think about it, the government is lending a student say $20,000/year for law school - but the University is diverting $9,000 to other purposes.  If this were a government contract (which a school loan effectively is) having a government contractor divert 45% of the contract price to pay for something other than the contract can be known by a very clear term - "Contract fraud".


  1. The "education" business is like the old wild west. Anything goes, and there is absolutely no regulation whatsoever.

  2. You beat me to posting this article!

    This isn't a surprise. The school I went to redirected a sizable (yet unknown) portion of the money brought in by the law school to the other programs.

    As far as I'm concerned, they don't need to ask me for any donations. I've already donated tens of thousands.

  3. The value of an education is not determined by the cost of educating the student. It is determined by what the student is willing to pay for the education, which include the knowledge gained as well as the prestige gained etc.

    If Law students want to pay less for law school they should simply start refusing to go to schools where they deem the tuition is to high. Currently, it appears, the students think the future benefits of these tuition cost will be overcome.

  4. Hi That Guy -
    So - you're a laissez faire "rational markets", thinker with regard to law school. That's where I also usually start when analyzing a transaction. Most rational markets people (including myself) really only feel comfortable when there is a reasonably fair market - no fraud, goods can be re-sold, and bankruptcy provides a way to keep commerce moving.

    However, here are some things to consider:
    1) Let's differentiate between value and cost. Cost is what the market will bear. Let's say value is the actual future income provided by the degree. You have the law schools making statements about their future results that are plainly deceptive. If you were to think of law schools like a publically traded corporation (and I think that they should be held to an even higher standard), then their misleading and deceptive statements about the expected future earnings (how the product that they are selling will perform) would most likely be enough to initiate a shareholder derivative suit against them. We don't let corporations deceive their potential purchasers - especially in a rational market.
    2) In other markets, we have the ability for people to complain when they have been sold shoddy goods - and to get some compensation. We don't have that for law schools. Additionally, unlike just about everything else that could be bought, student loans are not dischargable in bankruptcy. Nor is the degree re-sellable like most goods. Consequently, the degree-granting process really does not work like a rational market.
    3) Question - During the housing bubble, did you just sit back and say "I guess that is what houses are selling for!" Most likely not - you recognized that when cost becomes decoupled from value, eventually there will be a painful re-alignment sometime in the future. (Boom and bust). You would recognize that it is better for the US economy that such things NOT happen and may have advocated some government action (such as raising rates) in order to reduce the damage. This is a similar, but even worse, situation. There are hundreds of thousands of dollars going into this bubble and no real asset is even being created. You can see the bust coming. We should do something to ameliorate it. Raising rates would not be enough in this situation, but there are other things to try.
    4) Not all of them, but about 90% of the law students are pretty darn young - but they are being sold a lifetime od non-dischargable debt by salesmen who masquerade as "having the best interests of the students" at heart. It's just feeding kids into the woodchipper for the profit of the law school - bright, talented, kids who can really help our society if we can get them into a job where they can make a contribution - rather than crushing them under debt and unemployment. Frankly, America's greatest national resource is being damaged and discarded. That's not right.