There's been some argument in several threads about the extent to which taxpayer-guaranteed loans (which until two years ago included private loans) have fueled tuition increases in higher education generally and law school in particular. An otherwise perceptive commenter who has made lots of valuable critical remarks about neo-liberal orthodoxies regarding rational markets and the like makes what in my opinion is an extremely implausible claim that law school tuition hikes are a product of cuts in public subsidies to universities rather than of access to subsidized loans.
This seems to me to be obviously wrong, for the simple reason that there's been a massive tuition run-up at private law schools, which have never had their tuition subsidized by public money. Consider that, in 1995, it cost $29,700 per year in tuition to go to Cornell's law school in 2011 dollars, while in 2011 it cost $53,500. I bought a new Honda Accord in 1995 for $26,000 in 2011 dollars. The same trim line of the car today would cost me about $24,000 -- and I would be getting a markedly superior car to the one I bought in 1995. Are Cornell law students today getting a far superior education to the one their predecessors were receiving 15 years ago?
It's true that cuts in public funding for higher education have had an effect on tuition at public law schools, although not nearly to the extent that tuition has risen at those schools. At my law school in 1995 resident tuition was $6,485 in 2011 dollars, while it's $31,110 today. Out of state (unsubsidized) tuition was $21,538, again in 2011 dollars, while today it's $37,582. In other words, in-state tuition today is 50% higher in real terms than out of state (quasi-private) tuition was in the mid-1990s.
In fact the whole notion that unlimited federal (or prior to 2010 unlimited federally-guaranteed) loan money doesn't have a deeply distorting effect on the price of higher education is belied by a simple thought experiment. Today, anyone who is admitted to any ABA-accredited law school can, no questions asked, borrow more than $200,000 to go to that school, if, like many such schools, that represents the cost of three years of attendance. Now imagine that the typical new graduate of the typical ABA-accredited law school approaches the federal government or a private lender and asks not for $200,000, or for $100,000, or for $50,000, but for $20,000, in the form of a business loan, in order to capitalize a new law practice. Obviously without collateral this loan application will be rejected out of hand. In other words, our national lending system will not lend 10% of the cost of getting a law degree to someone who has already successfully gotten a law degree and passed the bar for the purpose of allowing that person to start extracting the supposed value of that degree, while that system will lend, under present regulations, literally any amount of money any ABA accredited law school chooses to charge, to someone who is merely attempting to get into the position of the "successful" new law graduate.
Anyone who doesn't think this truly preposterous situation isn't a if not the primary driver of the cost of legal education needs to think about it some more.
None of which is to deny that many other factors also distort the price higher education in general and legal education in particular. There's a lot of evidence that higher education is to some extent a Veblen good -- that is, it's a form of conspicuous consumption with an inverted demand curve, in which people pay higher prices because they're higher. Furthermore, the "rational consumption" model of education is beset by extremely powerful information problems. How does one judge the quality of what one is buying in this context? You can't take a university or law school education for a test drive, and making purchasing decisions on the basis of outputs is, as we've seen, fraught with difficulties as well, some of which are a product of intentional misrepresentation, but many of which would exist even in the absence of it.
Loan reform must also take into account the extent to which higher education and (to a much lesser extent) legal education are public goods, that ought to be subsidized for the benefit of society as a whole, as well as issues of economic justice, in a society that features increasingly vast disparities in wealth, and everything wealth can buy.
No one, in other words, should consider loan reform either a magic bullet or something that will be easy to bring about. But that it's absolutely crucial is clear.