Giving away the first year of law school

Larry Ribstein —  21 May 2010

Christine Hurt suggests:

If Progressive Law School costs $30,000 a year today, then starting next year, the first year is free, and the second year is $45,000 and the third year is $45,000.  Students are admitted the same way, only tuition is deferred until a student registers for the second year of law school.  If after the first year a student thinks this is not for her, then the student walks away with only the lost opportunity cost of nine months.  * * *

Another alternative would be to keep law school tuition on the same schedule, but allow students to exit after the first year with a terminal master’s degree.  This would address the problem of students having to stay in law school who are unhappy, but it would probably result in greater numbers of exiting students.  This would require restructuring of the law school admissions process, if the first year shrank by a certain percentage each year.

Clever idea.  Law school is essentially an option on a future career in law.  As we all know by now, the prize has diminished. One way to deal with that is to reduce the price of the ticket.  Christine’s alternative keeps the price to the three-year student roughly the same (adjusting for interest on the deferred payment) but changes the payoff structure: the student buys a new kind of option for the price of a year of forgone opportunity costs and living expenses but no tuition.  The potential payoff on this ticket is a successful first year and the right to buy the higher-value option resulting from that success.

What’s in it for the school?  It’s important to see that this is a way to discount the cost of a legal education.  Although the tuition from three-year students remains roughly the same, the school essentially eats the price of the losing tickets less transfer students and the benefits of having a higher-quality student body.

Is this a sensible pricing scheme?  The devil is in the details. 

First, what’s to stop the school from inflating first year grades, thereby encouraging students to stay for full freight while using the option to attract the students at the front end?  The school dilutes the signal of its degree, but will the market catch on?  Compare junior colleges, which terminate after two years, leaving it to the market to evaluate the value of the degree.

Second, what’s the value of the proposed master’s degree?  One might better call it a “loser’s degree,” since that’s who would take it.

Third, if the schools don’t change how they value first-years and therefore lose a number of them after the first year, they will have to take more transfers to break even on the plan.  Then you have an even bigger shuffling of students between tiers than already occurs, plus shuffling between schools that do, and do not, offer the plan. 

I have what I think is a better idea.  Rather than lowering the price of law school to fit the current economic environment, raise the value by redesigning law school to fit this environment.  After all, it isn’t that the value of legal knowledge is declining in our increasingly regulatory economy.  Rather, there’s a shift in how that knowledge is sold, beginning with the death of big law. So change the legal education model accordingly.  Here are some thoughts.

I think the winners are more likely to be the first schools to figure out the new formula than those who give their products away.

Larry Ribstein


Professor of Law, University of Illinois College of Law

7 responses to Giving away the first year of law school

    Larry Ribstein 23 May 2010 at 4:11 am

    I agree that students may not evaluate the first year based primarily on grades. However, the proposal I was evaluating was designed to address the decreasing market value of a legal education. The value of the law school option does depend significantly on class rank. If grades aren’t important, then this alone may undercut the first-year-free idea. Finally, you make good points about law schools’ incentives. I still wonder about the transfer student problem.


    (To add to my comment); Whats in “this plan” for law schools?

    It can disclose (maybe to USNews/Vault) that this plan has been in place and that the percentage of students exercising the option is tending to zero. Sufficient signal that the subjective experience of attending law school is suitably enhanced?


    Maybe you were right in the first place Larry; it is not about the product in the sense of grades. Students who take up law may evaluate their first year @ law school a lot more subjectively than you imagine.If the vector product of all those experiences is less than what she would have liked, she will exercise the “put option”.

    So,first year grades are not a great proxy.For the same reason, your concerns that the law schools will inflate first year grades to “hedge” potential outflux after the first year are unfounded. (Besides, there are clear limits to how far they can “jack up” grades). If anything, law schools will have some incentives to provide the infrastructure that will enhance the value of the vector product of subjective experience that we know as
    “attending law school” (and as a natural corollary, that will enhance the chances that he will take up law practice.

    Larry Ribstein 22 May 2010 at 8:40 pm

    Kate: I’m still resisting the analogy. In all your cases it’s about whether the user will like the product, which the buyer can only tell after use. Unconditional money back just means you don’t have to show that it was a defect that caused you not to like it. With the free first year it’s not about the product at all, as I said in my last comment. Or maybe it is the product, but the product is first year grades, not the education. For example, how different is the free first year from adjusting the price of three years according to the students’ grades? Or from selling a minimum grade guarantee up front? The basic question is whether you’re losing a dimension with the product marketing analogy.


    Larry: it’s very common to offer generous return policy not just where the buyer is unsure about the objective value of the asset, but where the buyer is unsure that he personally will make a good use of the asset (i.e., where the buyer is uncertain about his own characteristics). E.g., fancy department stores allow you to return anything you bought there many years after you bought it. It’s not that you didn’t know how good a dress was when you bought it; it’s just you didn’t know whether you’ll find a proper occasion to wear it. Or REI allows you to return hiking equipment even after you’ve used it. It’s not that you couldn’t tell how good the equipment was (most of it is standard and quite straightforward), but some people just can’t tell whether they’ll like this kind of equipment until they try it, or whether they would like to continue with this sort of activity in general.

    Larry Ribstein 22 May 2010 at 5:18 pm

    Kate —
    I wonder about the analogy. A return policy addresses buyer’s lack of information about the good sold. The free first year seems more about the buyer’s lack of information about his own success in law school. Even a student who thinks law school sucks will stick with it if he does well and therefore has good chance for a high-paying job. The goal is to practice law, not use law school to play music or wash cars.


    I bet this issue had been studied to death in the marketing literature — when should the seller offer a generous return policy? I’d guess the relevant considerations are: (a) whether the returned asset can be resold (here, no) and whether the expected resale price is significantly lower than the original price (here, n/a); (b) whether the buyer is likely to opportunistically misuse a generous return policy (here, yes); (c) whether offering a generous return policy sends a credible signal re the quality of the good (here, probably no); (d) whether the quality of the good depends on its use by the given buyer (here, yes); (e) at what point the cross-subsidy collapses (i.e., at what point the presence of return-prone “opportunistic” buyers increases the price of a good for non-returning buyers so much that the latter would not be interested in a good). And so on. Such considerations would turn me against offering the free-first-year option.