New York Law School Dean and President Richard A. Matasar, “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?” [bad link!] in the New York State Bar Association Journal
Typically, law school deans’ presence on this blog highly correlates to face-palmed criticism. Dean Matasar ups the ante by not completely ignoring the reality of the tuition bubble.[i][ii] I say “not completely” because he tethers himself to two assumptions that I wish were true but probably aren’t: (1) That prospective law students are well-informed, and (2) that uncertainty of legal education’s ROI makes it too soon to tell whether we should be discouraging people from going to law school. If you can find a copy (or politely ask me to violate all copyright in the name of knowledge and scan it and e-mail it to you) it’s actually a very good read.
(1) Regarding students’ information, he writes:
[O]ne might expect that law schools are facing an imminent market collapse – declining applications, few students willing to take on financial risk, the need for significant internal cost savings, price cutting, and other similar measures. Surprise, surprise, surprise! The demand for legal education has remained strong throughout the economic downturn. Applications at many schools are at record levels. Enrollment has been solid, with many schools recording historically high yields of new students…Law students are not ignorant. Today they have access to more information than ever, information that is tested daily in the blogosphere for accuracy, which is producing even greater transparency about law schools and employment. Students do not ignore costs. (21)
[Disturbingly, there] is a widespread belief that students are intentionally misled into thinking that they all will receive whatever employment they seek; that they could have a BigLaw job if they want one. Given the pervasiveness of stories of law firm layoffs, popular law-debunking sites that catalogue the plight of law school graduates, the straightforward warnings that senior students give to applicants, and even honest communication from law schools to applicants, students today know, or should know, that banking on a BigLaw job is risky. (24) [My emph’]
Do 0Ls really “know” this?? Recently, Heather Diersen and Frank the Underemployed Professional, upon assessing the masses of unemployed and disenfranchised JDs, both concluded they do not. There are multiple explanations for why people defy what Dean Matasar knows or thinks everyone should know by now—0Ls and 1Ls: (i) believe the economy will recover for them in 2013+, (ii) suffer from cognitive dissonance, (iii) fear the stigma of quitting, or (iv) believe they should take one thing at a time (first your torts exam, then worry about your job hunt). I don’t think Dean Matasar considered these possibilities. I can see why he wouldn’t want to.
(2) On legal education’s ROI:
The return on investment is not merely a short-term measure; it depends on lifelong earnings as against alternative paths, discounted by the opportunity costs of delaying entry to the workforce. It is simply not possible to know in advance whether the long-term financial return on a legal education will pay off until a number of years have passed…However, I have no doubt that the value of a legal education will continue to erode in the years ahead, especially if the price of that education continues to rise at a higher rate than the expected return on that investment. (22) [My emphasis]
Partially agree. Yes, it looks bad right now for most contemporary law grads and prospective students. It may turn around, and I hope in 15 years reformers and blamers can chuckle about their career arcs. But I think Matasar misunderstands the point: We calculate ROI because we’re uncertain of a choice’s outcomes. We place our bets based on the best information we have, and even if it turns out we’re wrong, at least it won’t be because we misunderstood the risks. Right now, law school is a certain risk, and graduating into unemployment remarkably impacts one’s life earnings. Nondischargeable student debt makes it worse. Discussing risk reminds me of Herwig Schlunk’s crucial footnote 16, justifying his high discount rates for a legal education’s ROI requiring a six-figure starting salary in most cases:
Law students may not appreciate how volatile attorney income is, even in the case of established attorneys. Not all associates become partners. Not all partners become senior partners. Law firms blow up, leaving non-rain-making partners in the lurch. In-house attorneys are subject to all the vicissitudes of corporate down-sizing. And so on.
Matasar acknowledges these risks, for later he writes:
Many students will ultimately end up in non-law jobs. For some students, like those in part-time programs, this may have been the goal to begin with; they seek law degrees to enhance their roles with current employers. For others, it reflects disenchantment with a profession they may erroneously have chosen. And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer. (24) [My emphasis]
We can add the following risks to Schlunk’s footnote: municipal bankruptcy, misguided federal downsizing, and inability to break into the profession beyond contract work as Down By Law discussed extensively in its third podcast. Given all these risks, we can tell that law school has a lower ROI than Matasar (and everyone else) would like due to the legal economy’s volatility. I sympathize with these two assumptions (and I’d be happy if Matasar knew something I didn’t), but I don’t think people are well enough informed. Nor do I think the ROI is as high as he does.
To add some value, perhaps now is the time to wonder how the bubble will pop. This question is significant because we already know the American legal education system is unsustainable (my spread is 1-3 years for the bubble popping, place your bets in the comments), but how it pops will tell us what kind of new equilibrium will emerge. My meaning will be clearer below.
As I see it, the bubble can pop in one of five ways:
- Internal Reform. Law schools or the ABA turn course. This is unlikely; law schools cannot self-terminate.
- Bankruptcy Reform. Once Congress realizes >$850 billion in student loan debt will never be paid down, it’ll remove the undue hardship exception from all student loans, and the Department of Education will refuse to loan money to heavily indebted students. Prices drop; schools close.
- Title IV Reform, “The Apocalypse Option”. Congress or the Department of Education realize universities are sucking taxpayer dollars out of the treasury, overinvesting in themselves, raising tuition, and then demanding higher student lending caps to cover the self-inflicted costs. The federal government either slashes the caps, or it switches to an equity-like human capital contract system such as Robert Reich’s 10% of 10 years’ income proposal.
- State Government Intervention, “(Chuck) Newton’s Gambit”. State governments realize the dangers, jettison ABA accreditation in favor of their own stricter standards, require employment disclosure by higher education institutions, close schools, sue them, or directly regulate them.
- Run on the law schools, aka “Scam Blogger Victory (V-SB Day)”. Enough 0Ls figure out that a large number of law schools are nonperforming, send their applications to either far cheaper alternatives or do-or-die to US News’ top tier schools, and if they’re rejected, they go back to their jobs at Target. Law schools fail or drop prices.
Matasar believes in a combination of V-SB Day and the Apocalypse Option:
- Some schools will continue to prosper charging high tuition (at least for a while); others will not.
- Lower priced alternatives to the current model will certainly evolve; non-U.S. law schools will become viable competitors in training U.S. lawyers; some schools will fail; others will adjust…(20)
The demand for legal education will decline at high-priced schools whose graduates are having difficulty repaying their loans. The federal government, the only remaining lender, if at all rational, will respond: perhaps by restricting the amount of credit to students of such schools, requiring an equity contribution by those students, requiring co-signors, or increasing the interest rate for their loans. Alternatively, the Department of Education (aka the “Bank”) as the regulator of higher education might respond by issuing regulations requiring schools to reduce their costs, justify their price increases, or otherwise alter their model…Like any other market, as economic barriers to entry are lowered, we should expect lower cost and more efficient providers to enter the legal education field. (22-23)
I used the term “equilibrium” above, meaning the concern isn’t when the bubble starts to pop but what the next era of legal education will look like, and how long it’ll take to get there. V-SB Day alone is dramatic, but it reforms the system by causing schools to close. Given that the legal profession would probably function just fine with near-zero new law graduates for at least several years (depending on how bad the oversupply situation really is & the timing and manner of any economic recovery), reformers don’t see an end in sight for a lo~ng while. Nor does the BLS, for that matter. Here’s the rub: a run on the law schools is just that, a run, which depends on the information 0Ls have. Years later, some may irrationally believe law is a worthwhile investment again and submit their applications, reinflating the bubble.
By contrast, the other solutions check against law school tuition. For Bankruptcy, unlike every banker and Congressperson, I staunchly believe debtors are honest people who want to pay down their loans and won’t cheat the system. The Apocalypse Option or Newton’s Gambit force tuition down, and in the human capital contract context, a law school that currently produces tri-modal outcomes (BigLaw, LittleLaw/NonLaw, & TentLaw) won’t be feasible until unemployment vanishes. When it does, though, legal education will be bubble-free. Yay!
We don’t want partial solutions that end up failing again. Why? Because I’d like to not be writing about this when I’m older and grayer.
The lesson I take from Matasar’s article is that until this new equilibrium emerges (or at least the economy returns to full employment), law school’s ROI will worsen. If his predictions are right and legal education will transform to a market-responsive system, current graduates won’t have the skills in demand. In other words, the “lost generation” would be better termed the “abandoned generation.” Matasar blithely accepts this. Repeated from above, “Many students will ultimately end up in non-law jobs…And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer.” As the legal profession begins to understand the need for change, reformers will have to stake a position that clearly advocates on behalf of involuntarily unemployed attorneys and their student debt, if they wish to have any credibility.
[i] For example, Matasar casually dismisses (& more concisely than I did) everything Valparaiso dean Jay Conison told Heather Diersen a few weeks ago:
The American Bar Association regulatory regime has been built over many decades and includes many requirements that increase education cost, like requiring job security for faculty members, librarians, and deans; requiring a significant physical plant; requiring three years (give or take) of law school; requiring an undergraduate degree; or limiting the number of classes that can be taken online. Recent proposed changes that mandate law schools to announce, measure, and improve their outcomes and offer particular types of skills classes, while desirable, will not lower costs.
[ii] I should say Matasar and NYLS are not bucking the system. NYLS charges $46,460 per year in tuition and due to unfortunate circumstance shares New York City with seven other law schools, many of which are better regarded regardless of what others say about NYLS’s sophisticated curriculum. I have seen no evidence that under Matasar’s stewardship NYLS has reduced its ecological footprint, and Third Tier Reality criticizes him for chairing the board of Access Group, a “non-profit loan service provider.” That said I don’t want to discourage law school deans from using their prominence to say things against their interests—so long as they subject themselves to the inevitable outcomes.
Filed under: Uncategorized Tagged: | Human Capital Contracts, Law School Over-Expansion, Legal Education, Legal Education ROI, New York, Richard Matasar, student loans, U.S. News (& its loathed rankings), Versatile J.D.