Heat vs. Light IV: On Conditional Law-School Scholarships and Judging Conduct “Good” or “Bad,” Broadway and Hollywood Edition

The texts for today’s homily are from Guys and Dolls and The Little Mermaid.  Our first subject is Big Jule (alternatively pronounced, depending on the production, "jool" or "julie"), the enormous and imposing gangster from Chicago.  Big Jule has come to town, flush, looking for a high-stakes crap game.  Near the end of the musical, that game comes to a climax in the local sewer.  After some unfortunate early losses, Big Jule has removed his coat and, with his revolver gleaming in plain view in his shoulder holster, pulls from his pocket his special “lucky dice.”  These dice appear to everyone else to have blank faces because, Big Jule reveals, they have spots that only he can see.  Miraculously, Big Jule’s luck turns, and he wins several big bets. When some of the other gamblers complain, Harry the Horse helpfully explains that “Big Jule cannot win if he plays with honest dice.”

Later that evening, disarmed and on the losing end of an unconventional bet with Sky Masterson, Big Jule finds himself obligated to attend a revival meeting at the Save A Soul Mission.  Compelled by his bet to participate in the meeting and confess his sins, Big Jule makes a clean breast of it:  “I used to be bad when I was a kid.  But ever since then I gone straight, as I can prove by my record — 33 arrests and no convictions.”  The prayer meeting is, improbably, a success; lovers are united; and everyone lives happily ever after.  Big Jule presumably returns to Chicago to resume his blameless life.   

I hope you’re smiling.  Now I’m going to ruin everything by explaining why this wonderful story is funny.  (A quick editorial aside before we begin:  Guys and Dolls is not timeless in every respect, of course.  It includes gender stereotyping and other cultural assumptions that, from our 21^st-Century vantage, seem not-all-that-quaintly anachronistic.  But the features of the story that I have excerpted above seem sufficiently salient to the matter at hand that I think we can make good use of them here.)  Once again, the heavy lifting begins after the jump.

Let me start by reminding you that, in my last post, I suggested that participants on both sides of the recently resurgent debate about law-school marketing practices were confusing three valid and important but importantly distinct categories of judgment:  (1) whether something is unlawful; (2) whether something is unethical, immoral or otherwise blameworthy; and (3) whether something is good or bad practice in an effort to achieve a particular end.  (The first two posts in this series are here and here.)  Apparently I didn’t do as good a job of it as I flattered myself thinking I had.  Some readers, both publicly in the Comments and privately off-line, criticized me for belaboring the obvious.  But many of the people whose argumentation I was trying to reform kept right on with more of the same.

The confusion among these three categories of judgment has emerged again in recent online discussion of the propriety of conditional law-school scholarships.  For those unfamiliar with the practice, it involves granting a law student financial aid that continues only if the student achieves defined minimum levels of performance greater than academic good standing.  At some law schools, the conditions for scholarship renewal can be quite competitive and demanding--for example, getting grades in the top half, or even top third, of the class.  Some schools have lots of these conditional scholarships with competitive and demanding performance criteria; some have relatively few or none.

In the latest round of discussion on the subject, Mike Simkovic on Brian Leiter’s blog (here, here, and here), and Jeremy Telman of Valparaiso Law on his own blog (here and here) argue that imposing competitive and demanding conditions on law-school financial aid is a good practice.  Deborah Jones Merritt argues on her blog (here and here) that it is (at least in the manner employed at a recognizable subset of law schools) a bad one.  The arguments in favor start out with the observation that colleges condition their financial aid all the time, so why be so critical when law schools do it?  Or as Mike Simkovic puts it, the condemnations “follow the standard playbook of law school critics—take something about law schools that is widespread and common out of context, claim that it is somehow unique to law schools when it is neither unique nor unusual, and then demonize it,” suggesting that conditional scholarships are just “another example of critics applying a double standard to paint law schools in the worst possible light” (rhetorical question mark omitted; links in original). 

Prof. Merritt  and others (including Northwestern Law prof Steve Lubet in comments to Telman’s first post) point out in response that the comparison to college scholarships is not an apt one in many cases because virtually all law schools (especially in the first year) grade on a rigid curve, while most colleges don’t.  The result is that some law schools offer conditional aid on terms that make it highly likely, even mathematically certain, that many students will lose much or all of their financial aid after their first year, while losing financial aid is much less common and rarely so competitive in college.  In fact, Telman forthrightly notes that in 2013, 25 accredited law schools revoked or reduced the financial aid of over 50% of their entering students receiving aid after their first year.  Merritt colorfully refers to such elimination-tournament-style financial aid as “Hunger Games scholarships.”  Maybe those “neither unique nor unusual” “double standard” epithets from the critics' critics were a little hasty?

Undeterred, Telman and Simkovic then argue that the “Hunger Games” features concentrated in law-school as opposed to undergraduate aid don’t matter because law students have always understood, or could have understood, the terms on which the aid was offered.  Except that’s just not true.  Telman’s post relies for this assertion on a single source:  a characteristically thoughtful and thorough 2011 article by Jerry Organ of the University of St. Thomas School of Law on conditional scholarship practice at American law schools.  (Simkovic relies on a single source for the same proposition, which is Telman’s post.)  Telman argues:

Professor Organ was able to find information about how scholarships work at 160 law schools.  That means that the information was out there.  Since Professor Organ was able to gather information about 160 law schools, it should not be difficult for students to gather relevant information about the one law school that they are considering attending. 

Flatly and inexcusably wrong.  As Prof. Organ himself explains on Legal Whiteboard and in his 2011 article, after protracted effort searching multiple sources with the aid of several research assistants, he was unable to discover the rates of scholarship renewal at all but four American law schools.  In short, Prof. Organ was not in fact able to gather the information that mattered, and it was in fact impossible for students to gather “relevant information about the one law school they [were] considering attending” (leaving aside the fact that the students Telman is writing about should want comparative information about multiple schools in order to make an informed choice about which offer they prefer).  Organ’s article concluded with a call for the ABA to require disclosure of this information, a step the ABA took beginning with the 2011-12 academic year (see ABA Standard 509(d)(1)). 

This failure to make renewal rates accessible until forced to do so by regulation is particularly striking in light of the fact that most prospective law students finishing their undergraduate degrees (as well as many of the professional-school advisors they consulted at their colleges) apparently were accustomed to the non-“Hunger Games”-style financial aid prevalent at the undergraduate level, and thus many could be expected to assume that law-school aid would be administered similarly.  As I argued in my last post, when you present information in a context and format that an appreciable portion of its intended audience can be expected to materially misunderstand, in my estimation you are acting badly, whether what you are doing is illegal or not.  Let me hasten to point out that many law schools never engaged in “Hunger Games” financial aid practices, and these concerns don’t apply (as far as I’m concerned, anyway) to aid conditioned on more common non-competitive terms, such as maintaining academic good standing.  But it appears that a fair number of law schools did engage in elimination-tournament financial aid, and failed to give their students any meaningful warning of what they had to expect until the schools were forced to do so.

Telman and Simkovic make one other argument I want to address before returning to our friend Big Jule.  They assert that “Hunger Games”-style financial aid is really good for students because it incentivizes them to work hard.  That needs some scrutiny.  It’s worth observing at the outset that this “incentive”  theory smells of post-hoc rationalization given that incentives are generally thought to work best when those they are supposed to incentivize are thoroughly informed of the nature and consequences of the incentive—and that is exactly what most law schools most invested in the tactic failed to do until forced by regulators.  That suggests that perhaps some of those schools really had another purpose in mind, and while I’m no mind-reader it would not be irrational to infer from the facts just related that some administrators may have intended to induce students to enroll at their institutions by encouraging them to assume that they were being offered much more, and much more certain, financial aid than in fact they were.  Does this apply to everyone?  Of course not.  Could it apply to some?  You be the judge.

It’s also worth taking a moment to imagine the kind of institution that would emerge around the “incentives” proposed.  Yes, it’s fair to say that if everyone given elimination-tournament-style financial aid at a particular law school were fully apprised that over half of them would have the price of the final two years of their legal education jacked up from little or nothing to a sticker price of roughly $40,000 per year unless they outperformed their classmates, that would create a certain, um, “incentivized” atmosphere.  So would a policy assigning public beatings to the losers.  But many people might not want to attend a school with the atmosphere such policies created, or take the chance of losing the bet that “Hunger Games” scholarships creates if another school presented an alternative.  Maybe that’s why some schools faced with falling applications and falling revenues failed to take the step (namely impressing the nature and rules of the competition on the players) necessary to use conditional financial aid as the “incentive” now proposed to justify it.  Maybe (as Jerry Organ observes) that’s why the number of institutions widely employing the tactic and the number of competitive financial aid awards has started to fall since the ABA required disclosure.  Maybe Harry the Horse is right that “Big Jule cannot win if he plays with honest dice”—that is, ones with spots that everyone can see.  Or maybe it’s all just a coincidence.

There’s another tie between Big Jule and my last post.  Both Big Jule and the resurgent defenders of certain long-discredited law-school practices are not thinking clearly about the differences among the three categories of judgment described in my last post and above.  (To be fair, Big Jule probably has other issues that he does not share with my friends in the blogosphere or the law-school administrators they defend.)  Were any of the financial-aid practices described above unlawful?  Apparently not.  But “no convictions” (in Big Jule’s words) doesn’t make what you do admirable or good practice.  And as I said above, if you present information in a context and format that an appreciable portion of its intended audience can be expected to materially misunderstand, you are behaving badly, and you deserve to be criticized.

The quick and easy answer I anticipate is that, whatever may have happened in the past, the new ABA disclosure rules eliminate any problem going forward.  Of course, that doesn’t excuse past excesses.  (“I used to be bad,” Big Jule confesses.  “But ever since then I gone straight, as I can prove by my record.”  It's not obvious Big Jule feels he has much atoning to do.)  But as far as I know, the new ABA disclosure rules do improve the situation.  I would hope that there will be empirical research testing their effectiveness, but they look like they should help and are helping.

Does that end the discussion?  I don’t think so.  Because in my world, there are categories of ethical and practical discourse beyond what’s legal.  You don’t have to live in my world, but I believe a lot of folks live in one more or less like it.  Let me offer you a glimpse of what things look like there:

Some law schools are complying with all relevant ABA disclosure requirements, but are recruiting and accepting increasing numbers of students with seriously limited academic ability or preparation (LSAT scores in the 30^th, 20^th, or even 10^th percentile), whose chances of success in law school, on the bar exam, and in the legal workplace are poor.  These schools effectively depend on these students’ optimism bias and other cognitive biases to overcome their better judgment.  Sometimes these prospective students are offered exploding conditional financial aid to draw them in, and when they predictably lose that aid, the schools depend on human inertia, the sunk cost fallacy, and other cognitive biases to induce the students to continue their studies at a price that has become irrational.  Again, let me be clear:  Many schools do little or none of this kind of marketing; those that do may not do it with respect to all their students; and how disreputable you find the practice in any particular human instance is a question of degree and values.

Is any of this illegal?  No, it isn’t.  Do such institutions have any legal obligation to connect the dots for these marginal applicants (some of whose applications they actively solicit from lists of LSAT-takers who would not otherwise apply) and warn them of the cognitive biases that will naturally come into play and induce them to underestimate their risks?  No, they don’t.  Do I believe that people should be paternalistically prevented from taking irrational risks?  Well, occasionally, depending on the extent to which information asymmetry and cognitive bias create too great a risk of too much ill-considered waste.  But sometimes irrational risks pay off, and the freedom to make a great many bad choices is essential to the functioning of a liberal democracy and efficient markets.  Which is why I say only "occasionally."  

What I do think is that such practices are shameful, and I think you should too.  There is nothing novel or radical about that idea.  There are all kinds of people in our economy who tell all the truth the law requires and take advantage of others’ cognitive biases and perceived needs to walk them into what could objectively be described as poor or irrational risks.  We tolerate these actors, but most of us don’t admire them.  And when they turn out to be people or institutions in whom we have invested special trust, because for example we view them conventionally as helpers or educators, we admire them even less, and in my view that’s as it should be.  As I have said in this space before, if you act like a door-to-door encyclopedia salesman, you deserve to be treated like one.

These ideas are deeply embedded in our culture.  For a more diverting illustration, I invite you to watch the brilliant performance of Ursula the Sea Witch in “Poor Unfortunate Souls” from Disney's The Little Mermaid.  (I’m totally serious.  Stop reading, click on the link, and watch it right now.  You almost certainly don’t remember how stunningly artful it is.)  Portraying herself as a selfless supporter of the disadvantaged and unfortunate who need her help to pursue their dreams, Ursula makes a complete, and completely truthful, disclosure to Ariel the Mermaid of all the terms and risks of a horrifically costly Mephistophelian deal.  She does it so skillfully that Ariel voluntarily surrenders her voice and foolishly risks her freedom by signing on the dotted line.

Most of us feel sorry for Ariel.  Most of us despise Ursula, though she undeniably tells the truth and breaks no rules.  (Hint—she’s an evil witch.)  And what does Ursula sing about herself?

I admit that in the past I've been a nasty 

They weren't kidding when they called me, well, a witch 

But you'll find that nowadays I've mended all my ways 

Repented, seen the light and made a switch--

True? Yes!

Word.

--Bernie

Comments

[JM]

I have no problem with conditional scholarships. Schools want a heavy hitter that will bring credibility to the school through impressive achievements when they pay out heavy scholarships. It is just pay for performance, which is common in this economy. To wit, students that do well often try to negotiate scholarships up after first year.

The real holy grail of reform is in the federal student loan system. First priority is getting rid of IBR/PAYE and any sort of public interest/government loan repayment. Then make schools purchase any deliquent loans issued to their students. That would rid this system of so many problems.

[jess]

I disagree with Dean Yellen on his conclusion that such scholarships do not work when they are properly disclosed. Some schools have eliminated them, and many have not. For prospective students, there is nothing inherently irrational about accepting a one year scholarship, which is what a scholarship unlikely to be renewed is. If a student has a 20 percent or 70 percent chance of retaining the scholarship in year 2, they can and generally do take that into account in calculating the total cost of attendance.

[BoredJD]

Ideally I'd like to see an accreditation requirement that says "no conditional scholarships other than those requiring good academic standing." That's because I find preying (whether intentionally or not) on students optimism bias, special snowflake syndrome, sunk cost fallacy, and any social/familial pressure they may face not to drop out immoral. But transparency is a good start.

If the justification for these is "motivating" students to perform better, it's just willfully blind to the incentives that are already out there. Your incentive at the level of school that offers a harsh conditional scholarship is to work as hard a possible to get good grades so you can get a good job or transfer. And the nature of the law school grading system means that a student could be perfectly, sufficiently motivated and still fall below top 1/3 just based on the fact that their professor was having a bad day when he graded that half of the stack of papers.

It's possible to imagine a student who already has a guaranteed job when they come into law school, has no desire to have a different job, and is not otherwise sufficiently motivated to try hard, but this scenario can't happen very often.

[anon]

The argument about the curve is telling: no matter "how hard" one works, there will only be so many "As" and "Bs" and so forth.

Thus, the top 10% might have been the top 15% but for the rule that only 10% are "allowed" by the curve - a rule that requires a prof to judge one conceivably indistinguishable essay against another, with drastic consequences.

Speaking of performance in hypothetical terms is simply ignorant.

No matter how well students do, the math dictates that a certain percentage will lose scholarships in most of these programs.

Justify that with nonsense about "working hard."

[The Most Interesting Breh in the World]

Just to pile on, there is also a small sample size issue in play too. I.e., there are only maybe 6-8 exams over the first year of law school. Those exams also happen to be (a) the first law school exams these students have ever taken, and (b) at least somewhat less than objectively scored.

This would be like trying to figure out who the best professional baseball players are based on their first 10 or so at bats of their career, and cutting players who fail to, I don't know, hit .300 or something (which, if you're into this sort of thing, I suppose BABIP could kind of be a metaphor for the subjectivity in grading?).

The point, I think, is that incentives are only going to play a minor part in who retains their scholarships (even assuming students meaningfully change their habits in response to these incentives). What you're going to see instead is statistical noise and the inconsistency that comes from a lack of experience.

Add in the optimism bias/special snowflake stuff, and our cultural negativity towards quitting, and you end up with a system that is going to have very few observable positive effects on students.

[Derek Tokaz]

Bored,

I think the bar could be a little higher than "good academic standing." For instance, a school might give out 30 scholarships and only 1 students loses it, or 150 and only 2 students lose them. I don't think a school like that is taking advantage of optimism bias.

I could also see your proposed rule working. I think the question would be about where schools choose to draw the good academic standing line, and if it makes sense to have a second line a little bit above that. (For instance, in the class I teach there are two lines, one for failing, and a second for not passing. And it makes sense, but only because of the nature of the class and how grade distributions actually play out.)

Perhaps the important distinction to make is between conditional scholarships and competitive scholarships. The way curves work, if the condition is high, it will necessarily also be competitive. However, many curves leave more wiggle room at the bottom, so in this range something could be conditional without being competitive.

[terry malloy]

thinking a little more on this:

I have no problem with a conditional scholarship described in the following way: this is a 1 year scholarship. if you manage to attain X at the end of year one, this scholarship will continue for six months, and be re-evaluated against X until graduation. the probability of X based on the grade curve is Y.

That's not the way these were sold.

it was "you have a full ride!!*"

*there is a 70% chance you have a full ride for only 1 year, then you have to pay full freight.

[Plush]

I think it would be better to lower tuition for everyone a bit instead of having "merit" scholarships at all. If most people are borrowing, and you are not addressing need with the scholarships, then you are just enticing the better students to come.

Once you have gone down the road of rewarding "merit", it seems appropriate in the second year to reward those who have shown "merit" in their first year grades, rather than those who simply have come into school with higher LSATs or undergrad GPAs. So it might be a better system for the second year to just re-award the scholarships to those closer to the top of the class. Then the school can help keep its better students from transferring.

[Lonnie]

The most insidious practice (aside from section stacking) is a conditional scholarship mandating a certain GPA, but not disclosing what percentage of students obtained that GPA or higher under the school's curve. For example, is a 3.3 GPA top 50% or top 10%? There is no way to tell without knowing the school's grading curve. Many students would see a 3.3 GPA and think, based on their undergrad experience, "I can get that in my sleep" without understanding how the curve works at a particular school. And really, how would they know?

It's extremely misleading, especially considering the power and knowledge disparity between schools and 0Ls, and if it were done in any other industry would rightly bring outrage, government investigation, and successful class action lawsuits.

Conditional scholarships making explicit the class rank required to retain are less objectionable, and have probably fallen out of favor only because many schools are willing to give unconditional scholarships to attract students, so using conditional scholarships is no longer a viable option if a school wants to attract quality applicants.

[BoredJD]

Derek,

I think those 1/30 or 2/150 would be what you'd see under a good academic standing rule. The other floor I see is usually top 75-80% keeps the scholarship. The point is that the number should be consistently low enough that nobody can credibly claim the primary purpose of the conditional scholarship program is to recoup revenue.

I had many professors and admins tell us some variation of "grades don't reflect how hard you worked or your potential as a lawyer." One even went so far as to say he thought that 1st year grades were essentially random among the middle 80% of the class- a tough thing to admit when everyone understood how much grades mattered. I think most people who have been through law school know that two students could be putting in X amount of effort each and see many percentile points differential in rank during their first year of law school. I'm not sure how to reconcile those experiences with 50% conditional scholarship rates to reach the conclusion that those students just didn't try hard enough.

[John Steele]

Just out of curiosity, what would it take for students at a particular school to crowd-source the issue of whether their school is section stacking? (AFAIK, that practice is an urban myth, but there's no harm in verifying that.) I suppose the students could (1) ask the dean for a written answer as to whether it's done; (2) set up a website for students to identify which section they are in and whether they have a conditional scholarship; and (3) at public schools issue a FOIA. Presumably, the percentage of CS's would be the same across all sections. Finally, I suppose that the most likely targets would not be the schools where almost all students retain their scholarships.

By way of example, the law students at Berkeley crowd sourced the issue of whether their priority numbers for enrolling for courses each semester were truly random as the administration had said. Turned out, they weren't (due to a software glitch and nothing nefarious, as I understand it).

When we are pondering whether the students were given adequate information about scholarship retention, we might head over to Contract Law Prof Blog to read the recent comment by a Valpo grad. The post is May 4th and the comment is May 8th.

[Lonnie]

@BoredJD

That's a great point. Assume in a 1L class with 100 students, honors grades are given to the top 10%, B's to the middle 80%, and Cs or below to the bottom 10%. The qualitative difference between the "best" B earning exam and the "worst" B earning exam (i.e. the difference between the 11th best and 90th best exam) would certainly be quite pronounced, but no one would ever know except for the professor doing the grading. To make things more pronounced, essay exams are inherently subjective and vulnerable to the grading whims of the professor.

Especially at T2 schools and below, the grading curve exists for two purposes: first, to separate out the very top of the class who will become eligible for biglaw firms, and second to separate out the very bottom of the class, those students likely to fail the bar and not succeed in practice so the school can fail them out before they hurt the US News ranking.

[anon]

Is this group unfamiliar with the vigororous scholly/stip debates that flourish among law school applicants? I think its arguable that applicants are far better at ferreting out useful information than law faculty and that makes sense since they have the appropriate incentive to do so.

[Kyle McEntee]

I'm astonished by the need for this post, Bernie, but alas...

Excellent work as always. The legal profession depends on trust and still too many people are making it difficult to restore that trust to its entrance point.

[anon]

Lonnie

THe typical law school curve is more like 10/30/60.

Doesn't affect your point, but that is the more typical forced distribution.

[ConcernTroll]

First, the vast majority of financial aid are not scholarships. I would define a scholarship as a source of money devoted to financially assisting students with school. This is simply a discount, a sale, - the money never EXISTS!

Second, in a macro sense, why are these a good idea? You are subsidizing the very students who are more likely to have a better outcome. There are already programs which subsidize new law debt (IBR, etc.) You would think that the ultimate master who provides the money (the federal government) would insist on a broader distribution for better credit risk.

Since in total, these types of discounts are not in the interest of law students I would propose that the ABA ban them. The only scholarships allowed will be real money. The stated tuition gets paid.

What would be the impact of this? First, tuition goes down. But how much? I'm sure law schools will figure out a revenue maximizing point soon enough.

Second, law applications probably drop somewhat. The lower price will help but the "free riders" will find something else to do with their life and their high LSAT/GPA combo.

Finally, the lower ranked law schools are going to have some real problems as it it likely that the "full pay" cohort at these schools might not be large or frankly bright enough to sustain the school.

[Barry]

jess : "If a student has a 20 percent or 70 percent chance of retaining the scholarship in year 2, they can and generally do take that into account in calculating the total cost of attendance."

First, since an example of just how hard to get that information has already been mentioned in the last post on this topic, your basic premise is incorrect.

Second, since by now it's clear that 0L's are far more ignorant than informed, your basic premise - cited without evidence, is 100% wrong.

[Barry]

Professor Simkovic and others have made the claim that law schools are reporting employment rates the same way that the government does. They are incorrect, in that the government reports several unemployment rates, and gives definitions and breakdowns of them.

In addition, the federal government gives other background information, including sampling methods, response rates, and corrections/adjustments/weighting.

As listed in my previous comment, the federal government also monitors ***applicable*** employment rates. For vocational schools, 'applicable' means employment in the field.

Law schools, of course are for the most part vocational. They are not general education programs.

[Barry]

"When we are pondering whether the students were given adequate information about scholarship retention, we might head over to Contract Law Prof Blog to read the recent comment by a Valpo grad. The post is May 4th and the comment is May 8th."

Posted by: John Steele

And as usual, the defense finally retreats to 'we didn't break the law'. 'Acting ethically' has long since been abandoned.

[Barry]

Kyle: "The legal profession depends on trust..."

Note that by now it's clear that the legal education industry depended (and depends) on misplaced trust, trust that this industry is not more accurately place with the used car sales industry.