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

[Paul Campos]

Just to add a bit more data to this excellent post and thread:

It appears that in the late 1970s, tuition discounting in American law schools didn't exist. In 1978-79 ABA law schools gave out a total of $13.2 million in scholarships. This means effective tuition (sticker - discounts) was about 96% to 97% of sticker. That in turn suggests that almost all students were paying sticker, and the few that weren't were getting real scholarships, i.e., their tuition was actually paid for by income from endowments for that purpose.

By 1991, however, tuition discounting had clearly come into existence, as by then schools were giving out nearly $140 million per year in "scholarships." That figure grew to $1.08 billion by 2012-13, and is probably a good deal higher now.

What this means is that average tuition (sticker minus discounts) declined from 96%-97% in the late 1970s, to 89.8% in 1991, to 79.8% in 2012. I suspect that percentage has probably declined a bit more since.

Meanwhile, while 55% of law students were paying sticker in 2001, that figure had declined to 45% by 2012. Putting this together, students who aren't paying sticker are paying on average a little more than half of the advertised tuition.

The problem with all this is that it creates a strong reverse Robin Hood effect, in which the students with the best entrance qualifications, who will on average get better grades (and who no doubt come on average from higher SES backgrounds, have better connections to the legal employment market etc) have their tuition heavily subsidized by students who are much more likely to end up with low-paying legal jobs, or no jobs at all.

And transparency is only a very imperfect solution to this. The extent to which prospective law students are sophisticated consumers of this sort of information varies enormously, and again the problem is that the most vulnerable students -- those with relatively low social capital -- are the least likely to be able to take advantage of what information is now available.

[Matt Bodie]

John Steele -- do you have a link for that data? Very interesting.

Also -- does anyone have a sense of whether the dramatic change in the market has affected these disappearing scholarships? Perhaps competition between law schools has also dampened this practice, even if students are in a significantly worse bargaining position after their first year. I would imagine it's easier for a student to transfer -- and get a discount -- these days than it was even three years ago. I know the LSATs don't "count" after the first year, but the marginal price of adding an additional student may be low enough that other schools would welcome the transfer paying 75%, 50%, or even 35%.

Of course, no school has a financial incentive to keep full free rides, unless you are buying not only LSATs but also bar results and job placement. Lots of variables to consider.

[Jojo]

apropos of nothing, I note that the 1986 film "Soul Man" is about a scam to obtain a law school scholarship.

From Wikipedia - "The movie's protagonist is Mark Watson (Howell), the pampered son from a rich family who is about to attend Harvard Law School along with his best friend Gordon (Gross). Unfortunately, his father's neurotic psychiatrist talks his patient into having more fun for himself instead of spending money on his son. Faced with the horrifying prospect of having to pay for law school by himself, Mark decides to take up a scholarship, but the only suitable one is for African Americans only. So he decides to cheat by using tanning pills in a larger dose than prescribed to appear as an African American. Watson then sets out for Harvard, naïvely believing that blacks have no problems at all in American society."

[Kyle McEntee]

Matt, I suspect he got the data from LST, which got the data from the ABA. We actually noticed this morning that there were several mistakes within the data. I looked at the original spreadsheet from the ABA and that's where they're from. The ABA has since updated the data, and we have too.

You can view the data here: lawschooltransparency.com/reform/projects/Conditional-Scholarships/

[John Steele]

Yes, I got them from LST, which drew them from ABA, and I rounded to the tenth. Given Kyle's comment, I am reposting the corrected numbers -- which to my mind still corroborate the last couple of paragraphs from the Campos comment. (If the mods want to delete the uncorrected stats from my prior comment, that's fine by me.)

University of New Hampshire (69%); Howard University (69%); John Marshall Law School – Atlanta (66%); Golden Gate University (65%); University of Akron (63%); University of Arkansas – Fayetteville (59%); Charlotte School of Law (58%); Southern University Law Center (56%); Cleveland-Marshall College of Law (55%); University of San Francisco (55%); Texas A&M (54%); Appalachian School of Law (54%); St. John's University (54%); Chapman University (52%); John Marshall Law School – Chicago (51%); Hofstra University (51%); Wake Forest University (51%); Arizona Summit Law School (50%).

My intuition says that although we seen a reduction in the very highest rates of non-retention since the ABA forced disclosure, there are still lots of high rates. That might suggest that non-retention hits hardest at the students who have fewer choices.

[anon]

John

Now, can we line up the top non-retentionists with their job placement rates?

Could be very interesting ...

Induced to enroll with a "Free ride" and a nearly 70% chance that "free ride" will disappear after year one: only to find that chances of FT LT JD required work (i.e., a job as a lawyer) is about 25% or less.

Nice! Paragons of virtue take solace: S, over at another blog, is explaining that the chances of becoming a lawyer are "too confusing" to disclose and that scholarships pinned to a brutal curve (which in turn relies on amazingly uncertain and subjective grading of four or five essays) are preferable, because otherwise folks in law school won't "work hard." S, of course, is a highly credentialed expert with a long track record in practice at the highest levels of labor economics, psychology, social science, educational design, statistics, trade practices and ethics.

[John Steele]

anon, if you're going to make that chart, please add a column for the average debt loads at those schools.

[Observer]

"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's a great argument - so great, in fact, that I think we should introduce "conditional tenure", by allowing law schools to fire 10% of their tenured faculty every year (like Jack Welch used to fire 10% of managers at General Electric every year).

"Conditional tenure" would be really good for law school faculty because it would incentivize them to work hard.

[anon]

Unfortunately, I still can't discern an answer to this simple question: why spend any time debating views that are clearly the product of dilettantism?

The unseemly nature of some of these views (being put forth elsewhere but debated here), is made even more unseemly by reason of the lack of expertise and funding behind those views. One therefore marvels at the "debate" here ... What really is there to debate?

Shall we debate the proposition that a "free ride" which, for 70% of students, explodes after the first year of law school, is justified because it makes students "work harder"? Or, should be debate whether the non retention rates should be disclosed, else prospective students become "confused" by the facts? Or, perhaps we should debate whether S is correct that no prospective law student should know the placement rate of graduates from a particular law school as lawyers following graduation? Or, perhaps we should debate a mythical "ONE MILLION DOLLAR PREMIUM" earned by reason of attending "law school."

Please. Again, S jumped the shark a long time ago. The recent attention paid to these sorts of propositions in only encouraging the gradual slide into ever more ridiculous contentions and thus, perhaps we would all do better to move on to more logical and supportable views, propounded by persons with the education, training, experience, expertise and demonstrable wisdom in their respective fields of study necessary to credibly examine these issues. Only such persons could contend in any manner worth noting in any way whatsoever that the illogical and unethical practices defended by S are instead justified, and only based on hard evidence, not speculative and often risible musing on a blog.

[Plush]

To John Steeles data in the above post - Wake Forest's website says they have only 2 conditional scholarships a year and the rest automatically renew. Your post says 51% do not retain them. Something is incorrect.

[Derek Tokaz]

Plush,

Wake's 509 data says they have 2 and 1 didn't retain it.

[John Steele]

Plush, thanks! (Because it's from a table I couldn't simply cut and paste, but rather had to look down, look up, type, etc.) That WF entry should be 50, not 51. The list still strikes me as supporting the point under discussion.

[Bernie Burk]

Derek's clarification raises a point to which I would suggest everyone should be sensitive. In my view, at least, there is a huge difference between a 50% retention rate based on loss of one conditional scholarship out of two, and a 50% rentention rate based on the loss of 70 conditional scholarships out of 140. Only the latter raises an inference that a school might be systematically trying to lure or trap the unwary. I would urge those who want to gather or publicize this information to keep that in mind.

Bernie

[John Steele]

Agreed. My point was about the types of schools were you see the higher rates of non-retention and not about any one particular school.

[anon]

Looks like, if I'm reading the ABA form correctly (and, I'll stand corrected if not)

(entering with/eliminated)
John Marshall
2013-2014 Academic Year 176 90
2012-2013 Academic Year 195 99
2011-2012 Academic Year 238 118
UNH
2013-2014 Academic Year 36 25
2012-2013 Academic Year 33 4
2011-2012 Academic Year 66 22
Howard
2013-2014 Academic Year 61 42
2012-2013 Academic Year 58 41
2011-2012 Academic Year 59 50
Golden Gate
2013-2014 Academic Year 104 68
2012-2013 Academic Year 146 83
2011-2012 Academic Year 86 43
Akron
2013-2014 Academic Year 106 67
2012-2013 Academic Year 108 91
2011-2012 Academic Year 113 89

Those are the top five identified above, I believe.

What's not to like there?

S? Perhaps the students there should have worked a little harder to mention that one, all important issue on the Civ Pro exam, right?

That would have made all the difference in the world.

Maybe ...

[anon]

And, lest we forget "THE BEST TIME IN HISTORY TO ENROLL IN LAW SCHOOL" admissions sloganeering and come on, here is KU (again, subject to the same caveat that I hope I'm reading the ABA 509 properly and will stand corrected if not):

2013-2014 Academic Year 80 25
2012-2013 Academic Year 93 31
2011-2012 Academic Year 54 18

Slightly better than the worst offenders ... it seems based on the above, but not by much.

Moving beyond KU, but bearing in mind what we have read in these pages, can we imagine the promise, as actually made (not as described in a tiny font on a form that one signs to receive it)?

Should we assume every representation is carefully designed to explain that, because of the curve and subjectivity in grading, there is no objective standard other than the certainty that a recipient of a conditional scholarship (as described) will more likely than not (or, stand a better than 30% probability to) lose this scholarship?

Should we assume that every representation also makes clear that, for some students and especially in the first year, no amount of "hard work" will translate to success?

In fact, should we inform prospective students that organizations with a financial stake in their ability to pull loan dollars are funding "research" by individuals engaged n dilattantism to put out the obviously false notion that "hard work" is all that separates those who successfully retain conditional scholarships from those who do not?

Or, will this claptrap instead be cited as support?

[ConcernTroll]

Furthering the discussion by Paul Campos, I wonder if the theory of disparate impact might be applied to law scholarships. The Consumer Financial Protection Bureau is looking closely at lending. If merit scholarships are causing unintended negative consequences for disadvantaged groups on a relative basis, they might be illegal.

[anon]

Concerned

I too have been wondering about potential liability here.

ARe there any federal prosecutors reading, who are familiar with the statutes that might govern these circumstances?

Isn't it long past the time to begin the process of putting some teeth into enforcement of some basic rules?

A possible start might be to investigate disallowing federal loan guarantees for law schools that "sell" a degree that does not prepare 50% or more of its graduates for the stated purpose for which the degree was earned.

Also, it seems necessary to investigate whether the sort of "scholarships" offered above act as an inducement to enter into the very contracts that afford such a high probability of inefficacy for the stated purpose for which the contracts were made, misleading then for the purpose of greed and self enrichment. Are there not penalties associated with such conduct?

These are questions that should be discussed and debated. The mistake in the past was that young people were the plaintiffs: their plight was too easily disregarded.

Or, must we be satisfied to continue to discuss and "debate" the casual and ridiculous opinions of a dilettant, expressed on a blog on the internet?

[Barry]

Seconding Bernie here. N's matter, response rates matter, and so on.

[anon]

S has "rebutted" ... on that other blog that promotes his views sort of incessantly.

Meh.