A blog post on out of control college tuition may seem a little out of place on a blog devoted to disruptive innovation in the delivery of legal services. However, given the current regulatory regime controlling who can practice law, it is a near certainty that lawyers reading this went to college and law school. The only exception may be the tiny fraction of lawyers who went through some sort of state specific apprenticeship program in lieu of law school such as this one in Washington. The chart below shows tuition in private and public universities from 1975 to 2016 represented in 2015 dollars.

As can be seen from the chart, tuition is f@#king out of control! Tuition is three to four times higher than it was in 1975 across the board after being adjusted for inflation. Some leading entrepreneurs have publicly stated college is turning into a giant scam and does not deliver on its promise. As a result, would-be college students in other industries are choosing to attend the school of hard knocks or choose an alternative route to success. Lawyers do not have that luxury. In most states it is a requirement that one attend both undergrad and law school to be eligible to sit for the bar. In 2015 the average law student was graduating with $140,616 in student debt.

THIS AMOUNT OF DEBT PREVENTS MOST LAW GRADS FROM INNOVATING.

If you come out of law school with that amount of debt you better pray to whoever is listening that you can land a high paying job at a firm. If you do, then it is very unlikely that you will ever effect truly disruptive innovation in legal services because you are indoctrinated into a system that will work pretty well for you. It is very unlikely that you will be too concerned with inadequate access to the justice system because you are doing well.

Similarly, if you do not land a high-paying job out of law school then taking a risk on an innovative legal start-up is extremely high stakes. Most disruptive companies are not profitable right out of the gate. As time passes on your student loans the interest compounds and what might have been a barely manageable mortgage-size number quickly gets out of control. Income-based repayment plans, contrary to popular belief, do not help this effect because of their dirty little secret that the “forgiven” amount is taxable income.

When you attend a law school open-house prior to choosing where to go all you hear about is income based repayment. An income based repayment plan just requires you to pay an amount that cannot exceed a percentage of your income for 20 years, then the remainder is forgiven. Sounds pretty sweet right? Wrong. The dirty little secret is that the “forgiven” amount after 20 years of making payments is considered income by the IRS and is taxed as such. Further, since almost nobody actually pays anything towards their loan principal on an income based repayment plan, the amount that is “forgiven” can be higher than the amount actually loaned! For example, a law student who borrows $150,000 at 6.8% and lands a job with a starting salary of $50,000 would repay $159,376 over the 20 year period with the amount “forgiven” being $215,272. Assuming that puts the student in the top earner’s tax bracket, their tax liability on that “forgiven” amount would be $85,032.44! Therefore, if you come out of law school you likely want to start making as high of payments towards that debt as you can to prevent as much interest from compounding as possible. Otherwise, you will have a completely crippling tax burden coming in 20 years.

Ultimately, the vast majority of students coming out of law school have a debt that forces them to keep their head down at whatever job they can get to start digging through their mountain of debt with a spoon. This is not a fertile environment for disruption of the legal industry.