Links Dances—JDs Rising Gets the Tuition Bubble

Just so you know, I’ve never heard the Who’s Face Dances–a mystery I’m happy to leave unsolved.

Kelly Francis, “Law School Debt and the Mortgage Meltdown,” in JDs Rising

Mark Cohen, “Law School Debt: It’s Broke, Why Won’t Anyone Fix It?” in MinnLawyer Blog

Comparing legal education to the subprime mortgage market, Francis writes a post responding to Heather Diersen’s post (that I also wrote up recently):

The law schools, the ABA, and the federal government have shown a startling degree of irresponsibility in handing out student loans and law degrees to whoever will sign on the dotted line, regardless of their ability to land a job or eventually make good on the debt.  In turn, the students themselves should certainly shoulder their fair share of the blame for failing to read between the lines or see the forest for the trees.  Much like the mortgage crisis, however, it’s difficult not to assign blame to the parties that appear to be profiting the most from the drunken free for all, and in the current situation, that’s not the students.

Focusing on who profits is important, but we also need to focus on those who were in the best position to prevent the crisis.  In this case, it’s the Federal Reserve for recklessly ignoring an $8 trillion housing bubble, and the federal government that operates under the belief that full employment and income equality are discretionary duties of the state.

What’s difficult for many of us to fathom is this concept that something like higher education, even with federal student aid, is just not something that all Americans can afford.  If this is true, what does that mean for America?  What does that mean for capitalism?  What does that mean for the future?… Anytime you question long-standing beliefs about God or country like that, you should expect to have some venom thrown your way.

It occurred to me that the irrational exuberance that fuels asset bubbles is an incomplete statement about the social dynamics at work.  During an asset bubble, people who think they’re being risk-averse are actually taking an incredible risk (this is why But I Did Everything Right! is so aptly titled); likewise, they criticize anyone who doesn’t buy the asset as being risk-acceptant when the opposite is actually true.  The two groups pull far apart (Francis’ venom), yet once people start defaulting on the loans, risk-averse and risk-acceptant switch violently—much like the Earth’s magnetic fields reversing polarity at six degrees per day.

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5 Responses

  1. An interesting question, I suppose is whether on a going forward basis, a proposed new federal rule ( 34 CFR Part 668) should apply to law schools. See http://kowalskiandassociatesblog.com/2010/07/25/what-if-they-built-a-new-law-school-and-nobody-came/

  2. Jerome,

    I didn’t realize you updated your earlier post.

    From my initial read, it appears the regulation would apply so long as law is considered a “recognized occupation”. I don’t see why it would not be unless it only applies to for-profit law schools, of which there are only 4-6. Your characterization of this as being in the “horses already out of the barn category” is spot on: if applicable, this regulation would smash the legal education system especially due to the current economy. Pity it wasn’t adopted a decade ago when times were better.

    Of course, this wouldn’t relieve recent law graduates of their debt burdens.

  3. Just trying to stay ahead of the curve, Matt. The far more interesting question is, assuming that the regulation is adopted, who is going to bring the matter to the attention of the Secretary of Education insofar as law schools are concerned?

    The proposed regulation is not surprisingly receiving heavy opposition from trade schools (like from the beauty schools I described in my earlier post) . You may have seen the ads in the papers and the web site they are sponsoring, http://www.mycareercounts.org .

    Law schools and their faculties and administration are surely not going to advise the Department of Education “Houston we are having a problem.” The 100,000 plus law school applicants surely won’t utter a peep. Universities with pre-law programs are also going to be mum.

    And should law school graduates who are currently bearing the burden of $200,000 student loans with no means to repay them petition the Secretary, be assured that the forces described in the preceeding paragraph will align all of ther formidable strength to beat back the application of the rule against law school tuition loans.

  4. Wait, I *did* read about this a couple weeks ago. I didn’t think it had any hope of applying to the majority of law schools though. http://www.nytimes.com/2010/09/08/education/08educ.html
    http://www.ourfuture.org/blog-entry/2010093612/boom-times-parchment-profiteers

    Yeah, I’m unsure if graduates would have standing to make an oversupply argument, but my hope lies with current law students, even though they’ve been slow to mobilize. Conceivably, T14 students should be able to make the case given that their schools would be the least likely to be affected.

  5. You may want to think about starting a letter writing campaign (petitions don’t work). Follow the reg to see if its adopted. Keep this in mind: Hildebrandt just issued a report that predicted that AmLaw 200 law firms would lay off 27% of its partners in the next couple of years and a larger number of associates. I wrote an article last month in Managing Partner magazine stating that partners are actually no more than employees at will. The article will be posted on my blog next week.

    If you think there are a lot of pissed off lawyers now, wait another year.

    Have you sen this: http://online.wsj.com/article/SB10001424052748704913304575371243914408322.html

    It’s from the Wall Street Journal and a subscription may be required.

    Jerry Kowalski

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