‘Clever Plans to Reform Legal Education Won’t Make Legal Services Any Cheaper’ up on Am Law Daily

It’s a revised version of my post from a couple weeks ago, “WSJ Op-Ed Reaches Acceptable Conclusion on False Premises.” Link is here:

Clever Plans to Reform Legal Education Won’t Make Legal Services Any Cheaper

Hopefully this will inspire better proposals from reformers.

The Nearsightedness of Career Services

William A. Chamberlain, “Law Schools are Adapting to the Shifting Job Market,” in the National Law Journal

I think the best response to Northwestern dean Bill Chamberlain’s piece is some good old press beating.

“In 2011, law schools came under fire for charging excessive tuition, strapping graduates with unmanageable debt and for allegedly publishing incomplete or misleading employment outcomes to lure unsuspecting students.”

In 2011? More like 2007. For example, Temporary Attorney: The Sweatshop Edition started in December 2005, Big Debt, Small Law began in 2007. The New York Times didn’t precede the scamblogs. Dean Chamberlain’s revisionism gets worse.

“Just a few short years ago, jobs in the legal profession were plentiful — although perhaps we remember those times as better than they were. Many students could rely on on-campus interviews, job postings or applying directly to government offices to get their first jobs. Networking, contacting alumni, constant follow-up and frequent lack of response from potential employers were not the norm. Rejection happened, but there always seemed to be another opportunity just around the corner.”

This might’ve been true for Northwestern grads, but career services are often nearsighted. Once grads have their “first jobs,” its work is done. This is fine, but that doesn’t mean we should rely on what they say regarding the long-term value of a law degree.

“If [post-graduate employment] information becomes standardized, prospective applicants will be able to make apples-to-apples comparisons among schools and, hopefully, their decisions about pursuing law school will be better informed. Some of those pursuing the degree just for the money may be deterred, leaving those who have weighed other alternatives and are truly passionate about practicing law.”

Like many law school deans, Chamberlain believes standard economic laws do not apply to law practice; in other words, the most productive lawyers are those that work for less, and passion for “The Law” alone makes one a good attorney and creates jobs. Admissions departments also apparently have no capacity to screen out the hordes of greedy, mercenary applicants who by desiring a living wage must be incompetent attorneys. The idea that people who would make good lawyers are deciding not to apply because the profession has no place for them doesn’t cross his mind.

“One response to the market has been the proliferation of bridge-to-practice programs that fund unemployed graduates for a short time to work in public or private sector jobs … It seems more responsible, for the law schools that can do so, to provide funding for the unemployed graduate so that he or she gets legal experience and makes contacts rather than abandoning that grad to a low-paying retail job to pay the rent.”

This is the first direct endorsement of law school-paid positions for graduates. Oh what the hell, let’s call them what they are: law graduate dowries, but what I’ve read about them is that they only enroll a fraction of a graduating class and can’t possibly be sustainable. The graduates’ incomes are really their successors’ debts. One doesn’t have to ponder the veracity of Ricardian Equivalence theory to realize that this pseudo-Keynesian legal sector stimulus will reduce law graduates’ long-term living standards, IBR aside. Also, if career services personnel are so concerned about abandoning graduates why not tell admissions departments to enroll fewer students?

I must add that I’m still waiting for law schools to cook up a scheme in which they hire one another’s graduates so they can report them as employed in “academia” rather than “law school funded” positions.

“Even with high tuition and a contracted job market, the J.D. is still worth having. All sectors of the economy have been hit by the recession, but, in relative terms, getting a law degree still makes a lot of sense … [I]t remains the threshold to a worthwhile profession for those who truly want to be there.”

I have to credit Chamberlain with the backhanded closing, but it is confusing for him to worry about abandoned law grads and then close by saying that they’ll get law jobs later. If that’s the case, as a successor law student, I certainly wouldn’t want to pay for their dowries, but as I said, career services personnel are nearsighted. They do not have the credibility of Bureau of Labor Statistics when they opine on the long-term value of legal education, particularly when their work ends when graduates land their first jobs.

FixUC Stumbles onto Human Capital Contracts

Nanette Asimov, “Plan Would Eliminate Tuition to UC’s Benefit,” in SFGate.com

Leanne Maxwell, “UC Considers Students’ ‘Delayed Tuition’ Proposal,” in sfist.com

News outlets are reporting on a proposal (PDF) produced by a student organization, FixUC, which operates out of University of California-Riverside. More importantly, the university is actually considering it. The proposal is essentially the kind of human capital contracts plan endorsed by economists from Richard Vedder to Robert Reich: instead of paying tuition up front, students pay after they graduate (or drop out). In this incarnation, graduates will pay 5 percent of their incomes over 20 years; FixUC argues that graduates earning $50,000 on average over 20 years will pay the current four-year tuition, $50,000, back to the university. Tuition, though, isn’t total cost of attendance, including living expenses, textbooks, etc.

As readers know, I’m a fan of these kinds of proposals. With good enforcement, they provide clear data on the value of specific degrees, encourage efficient education, and prevent the drain on college graduates’ incomes to interest payments on student debt. I’ve written in more detail on the potential benefits of human capital contracts before.

As of now, the proposal only applies to undergraduates, so UC will still be able to loot its law students’ future incomes at $40,000 – $50,000 per year to pay for other programs, excessive administrators, and pepper-spraying security. If it were applied to legal education, UC’s programs would be able to offer cheap national-level education, though it’s doubtful it’d still be worthwhile.

I have two concerns to write about:

(1)  From a practical standpoint, “graduates’ income” here isn’t defined. Is it gross income? Net income? Net income above the poverty line, which Income-Based Repayment uses? Much rests on the assumption that the premium of a college degree over a high school degree is sufficient to make the endeavor worthwhile for students, including forgoing four years of full-time income, which FixUC doesn’t discuss. If the premium of opportunity costs plus five percent more income plus one dollar doesn’t materialize, then it’s still a drain on the economy going to the university.

(2)  One point in the proposal reads:

“Campuses will be encouraged to refrain from giving preferential treatment to departments and majors that lead students to more traditionally lucrative careers.”

I fail to see the problem with investing in lucrative education. As much as I enjoyed reading Theaetetus, that doesn’t mean I think electrical engineers should subsidize it. Doing so promotes education as consumption rather than investment. People should take a Plato seminar because it’ll enrich them, not because someone else is paying for it.

As a caveat, I’ve written elsewhere that I’m acclimated to a worldview of downward mobility for young adults, but FixUC’s proposal boldly promises to be revenue positive for the university. Thing is, I’m not sure that on net UC’s college degrees are really worth $50,000 given the corruption EduBubble routinely accuses of UC. Human capital contracts are generally better than student loans, but while universities have an incentive to maximize graduates’ employment, they still get paid if graduates ultimately lose money in the long run. “Better than student loans” isn’t the same thing as “revenue positive for students” and society.

December LSATs Drop to 11-Year Low, Applicants Down

Those who gander at the LSAT data will find the LSAC put up the December numbers recently. I can’t remember if anyone else has reported this, so I’ll touch on it myself. Big drop in December LSAT-takers, and since the number of eligible test-takers (college juniors and up) has grown since then, it’s that many more people choosing not to take the test, and a fortoriori not interested in applying to law school.

Since February’s test hasn’t occurred yet, here’s what the ex. February data look like.

Yep, that’s a 16.7 percent record drop in non-February test takers. (As it’s illegible, 2010-11 was -9.99 percent.) I should add that around 2005, law schools and the LSAC stopped averaging repeat takers’ scores and instead allowed applicants to send law schools their highest scores, this greatly increased the incentive to retake the test. This accounts for some of the 2000s bump in test takers. Then again, it also means fewer people are retaking the test.

The ABA Journal tells us this tracks a 16.7 percent applicant drop for fall 2012 to date (31,815). Applications are down 15.3 percent to 233,361 to date as well. What’s interesting—and I don’t know if this holds generally—is that this makes the number of applications per applicant higher than the annual average: 7.33 as of now. Here’s what it is typically.

2011 is an estimate because the LSAC hasn’t provided the final 2011 numbers.

Maybe those who apply later will apply to fewer schools and bring the ratio down, but aside from computerized applications (to say nothing of law schools that allow people to apply via cell phone) I’ve found this trend interesting.

WSJ Op-Ed Reaches Acceptable Conclusion on False Premises

Distantly following the op-ed published by Clifford Winston and Robert W. Crandall that called for deregulating legal services entirely, the Wall Street Journal has now published an op-ed by a law professor and a lawyer, John O. McGinnis (Northwestern) and Russell D. Mangas (Kirkland & Ellis, Chicago), advocating allowing undergrads to sit for bar exams. This is a much better argument than Winston’s and Crandall’s, and certainly better than law school gimmicks of offering refunds or changing the law school tuition structure, but it’s still due a few criticisms. A more complete copy of the editorial, “First Thing We Do, Let’s Kill All the Law Schools,” can be at TaxProf Blog.

McGinnis and Mangas write:

“The high cost of graduate legal education limits the supply of lawyers and leads to higher legal fees … States should permit undergraduate colleges to offer majors in law that will entitle graduates to take the bar exam. If they want to add a practical requirement, states could also ask graduates to serve one-year apprenticeships before becoming eligible for admission to the bar … This option would reduce the law school tuition to zero. And the three years of students going without income would be replaced by a year of paid apprenticeship and two years earning a living as a lawyer.”

What’s this? A proposal I get to agree with? Ya~y! Instead of “pushing the string” of having people pay for graduate education and then letting the market decide if they get to use it, McGinnis and Mangas let the market make the first move (whether law as a college degree is still worth pursuing is obviously debatable). Good job. The problem, though, is that in a few important respects their plan has already been implemented in California, and the alleged benefit of cheaper lawyers hasn’t been documented.

First, the op-ed’s tagline, that the high cost of legal education is somehow limiting the number of attorneys is utterly false. There is no direct financial barrier to attending an ABA law school. Law students can take out student loans to pay the exorbitant tuition. That’s the problem. Indeed, the ABA collects data on the number of lawyers in the U.S., and it actually released this in the form of a spreadsheet on its Web site recently. By comparing its national lawyer count to the population, we find that there are more lawyers per capita than ever before, so high tuition has not created a shortage of able-bodied lawyers.

I have a lot more to say on how accurate this is, but that's for a different post.

Second, McGinnis and Mangas adopt the persistent, widespread belief that lawyers are passing their student loan payments onto their clients in the form of higher fees. This belief is untested and there’s good reason to believe that the opposite is in fact true, that the “incidence” of student debt falls on student debtors and not clients. To make things more confusing, towards the end McGinnis and Mangas abruptly change course:

“[T]he great benefit of the undergraduate option would be lowering the cost of legal education, thus increasing the supply of lawyers willing to charge lower fees.” [Emphasis LSTB]

The emphasized qualifier materially changes the argument, and the authors should have been more specific about what they were talking about from the beginning. Now it appears that McGinnis and Mangas believe that there are enough attorneys, but student debt is stymieing them from charging less. One wonders why they aren’t demanding the end of the Direct Loan program, restoring bankruptcy protections to student debtors, expanding income-based repayment programs for lawyers, or supporting a mass student debt write-down, as those would increase the “effective” number of lawyers far more quickly than their proposal would.

The issue, though, isn’t one of willingness to charge less but of incentive. If law graduates can make more money doing non-legal work, they typically will, irrespective of student loans. This is how labor markets work. It should not surprise anyone that lawyers would rather make more money than less, any more than plumbers, electricians, etc. The only question is whether those high-paying jobs are plentiful enough for people to be able to choose them. Ultimately, if lawyers can’t make a living serving the poor and have higher paying options, then we need to subsidize legal services, not legal education.

Returning to the problem, in principle, the incidence of student debt is much like that of a tax, which rests on the relative elasticities of demand and supply for the product. For legal services, this boils down to an empirical question: do clients have alternatives to lawyers with excessive student debt? Answer: Certainly. For the incidence of lawyers’ student debt to fall on clients, (nearly) all lawyers would have to be making the same payments on their student loans. Thus, the more unevenly distributed student debt is among lawyers, the more lawyers will have to eat their student loan payments to compete with those who have less debt. Here’s what we know about law school debt’s distribution.

(1)  About 15 percent of all ABA grads finish with zero law school debt.

(2)  Some law schools are cheaper than others, especially public law schools and those in Puerto Rico, so those who graduate with debt have varying amounts. (Notice that Professor McGinnis voices no concern that Northwestern’s graduates will be unemployable when Mr. Mangas’ firm decides to switch to hiring NIU or SIU grads to cut costs.)

(3)  Older lawyers often have less student debt than more recent grads, so their loan payments are smaller.

(4)  Some states allow graduates of cheaper, non-ABA schools to sit for their bar exams, or they allow people to forgo the legal education requirement altogether.

(4), here, is critical. California has scores of dirt-cheap state accredited, unaccredited, correspondence, and online law schools. This system is not new, either, yet no one has compared the cost structures of California’s legal sector to “ABA-only” states’. Surely by now there are more than enough non-ABA attorneys licensed in California to have made a qualitative difference in the cost of legal services as McGinnis and Mangas argue, yet California’s ABA law schools (including public ones) aren’t competing with the non-ABA ones in terms of price. They charge about $40,000 per year in tuition, and they increase it each year over inflation.

Why aren’t California’s more price sensitive firms hiring grads directly from the People’s College of Law in Los Angeles rather than from UCLA? Better yet, given non-ABA graduates’ higher bar failure rates, why aren’t firms sending associates to stand around outside LSAT test centers, handing people their business cards and saying, “Send us your LSAT score and your undergraduate transcript, and if we like you, we’ll give you a clerk position. If you like the work, we’ll pay half of your tuition for a correspondence degree, you’ll take the bar, and we’ll give you an associate position afterwards. The benefits: You get paid and trained now, and save money and time. We get to charge our clients less; and the only loser is the overpriced, middleman ABA law school.”

Better yet, they could simply hire people straight out of college (California doesn’t even require that much) and have them qualify for the bar by “reading the law,” which California allows. Firms could do this, but instead, they hire Stanford’s top5%mootcourtlawreviewrequired. Either California’s lawyers are all monumentally bad businesspeople, or student debt isn’t their problem.

On the contrary, debt is a fantastic, time-honored motivator, probably only a notch below holding a person’s loved ones hostage. The threat of financial ruin greatly benefits employers, providing them with willing debt peons who will eagerly overwork themselves to escape their condition. This is why student debt as a political issue is brought up by folks who identify with Occupy Wall Street and not Citizens United.

I don’t mean to close so critically; McGinnis’ and Mangas’ plan would save would-be lawyers’ time and money while probably providing better practical training for lawyers, which are good reasons for states to adopt it, but that’s all it does. The fact that the McGinnises and Mangases (to say nothing of the Winstons and Crandalls, etc.) of the world aren’t saying, “Let’s adopt the California model because it’s proven to make legal services cheaper,” leads me to conclude that they’re arguing from false premises. It will take a lot of courage for the profession to admit that noblesse oblige and low-cost education won’t entice lawyers to serve the destitute and student debt just reduces the standards of living of law school graduates, who have to work harder and pay more overhead to banks or ED to stay afloat, especially if they don’t work as lawyers.

NPR Asks If Law Schools ‘Cook Their Employment Numbers’

Larry Abramson, “Do Law Schools Cook Their Employment Numbers?National Public Radio

Much of the piece is a rehash of law schools luring students in with juked employment numbers. To that extent, it tells us nothing new. Moreover, the problem I’m having with these types of pieces that characterize the problem as graduates vs. law schools vs. the ABA vs. Law School Transparency is that they take it as a given that law school must be expensive. The only time the word “tuition” appears is when NPR talks somewhat dismissively about scam blogs.

“But in blogs like the LawSchoolScam.blogspot.com [Exposing the Law School Scam], former students howl about high tuition and lousy job prospects.”

That’s it. No discussion on if these “howling” former students have a point about tuition being too high, if there is tuition inflation, and what’s causing it. But that’s not what raised my eyebrow:

“[Changes in the ABA's rules] will help applicants in the future decide if they are picking a school that is turning out employable lawyers.”

If you’re a layperson, doesn’t this sound bizarre to you? Why on earth should we loan money to people to go to law schools that don’t turn out employable lawyers? Doesn’t this mean law schools should close? How many? I chalk this up to unartful writing, but it still sounds like NPR contemplates allowing law schools to waste loan dollars so long as the applicants—I mean—consumers make an informed choice.

There’s one point of fresh substance at the end of the piece: ED’s and the ABA’s powers regarding employment and accreditation.

“When critics attacked for-profit colleges for similar problems, the Department of Education tightened regulations on those schools. But the Department says it has no authority to do the same to the vast majority of law programs.”

So this means ED can’t condition loan access on gainful employment rates ala the gainful employment rule. Earlier:

[ABA Section of Legal Education Chair and New England School of Law's Dean John] O’Brian says it’s still up to students to scrutinize that data, because the ABA can only demand transparency. “These schools are simply required to report. We do not have minimum standards for employment,” he says.

Required to report, yes; enforced to report? No. We’ll see how that one goes. However, can the ABA enact minimum employment standards? 34 CFR 602.16(a) reads:

“§ 602.16   Accreditation and preaccreditation standards.

(a) The agency must demonstrate that it has standards for accreditation, and preaccreditation, if offered, that are sufficiently rigorous to ensure that the agency is a reliable authority regarding the quality of the education or training provided by the institutions or programs it accredits. The agency meets this requirement if—

(1) The agency’s accreditation standards effectively address the quality of the institution or program in the following areas:

(i) Success with respect to student achievement in relation to the institution’s mission, which may include different standards for different institutions or programs, as established by the institution, including, as appropriate, consideration of State licensing examinations, course completion, and job placement rates.”

The only interpretation of this regulation I could find is in a draft of ED’s “Guide to the Accrediting Agency Recognition Process,” dated February 2010, which states on page 27:

Compliance Factors … The agency must specify when it is appropriate to consider course completion, State licensing examination, and job placement rates and provide justification.”

It sounds to me like the ABA can do a whole lot more than transparency when it comes to regulating law schools’ graduates’ employment outcomes, and it would use the same mechanism that allowed it to rescind the University of La Verne’s provisional accreditation last summer due to its low bar passage rates. All it has to do is prove to ED that applying more rigorous job placement standards denotes “success with respect to student achievement.” I’m not sure if that means it can say that 95 percent of grads have to be in full-time JD-preferred positions nine months after graduation, but it can at least make the argument, contrary to Dean O’Brien’s statements.

[UPDATE]: I forgot to mention that I liked Kyle McEntee’s point that the ABA’s changes “won’t help students already in school.” Why current students aren’t walking away is still a mystery to me.

No More Adventures in Perverse Incentives Please

Ari L. Kaplan, “Applying the alternative fee model to law school tuition,” in the National Law Journal

The tagline to Kaplan’s editorial reads, “The time has come to talk more openly about the cost of legal education.”

I guess no one’s had that idea before. He continues:

“I don’t mean cheaper, I mean different. My suggestions … are not driven by performance, where schools persuade underperformers to leave, but rather by student preference, where those who find they lack the passion to continue have a realistic choice to walk another road.

Instead of starting the shift by making law school cheaper, consider restructuring the payment schedule.”

Kaplan suggests that instead of dividing law school tuition evenly by year (he doesn’t discuss the tuition bubble), law schools should backload their costs: make the first year cheap and the next two years more expensive to compensate. He contrasts his proposal with that of Ahkil Reed Amar and Ian Ayres that Slate published recently; the two Yale professors recommended that law schools give partial refunds to students who choose to drop out after their first years.

I wasn’t thrilled with Amar’s and Ayres’ proposal, and as you can imagine, I find Kaplan’s even less appealing. To begin with, he touts, “This proposal neither results in any loss for the school, nor makes a J.D. degree more expensive.” I certainly hope he’s not proposing a net increase in price, but I suspect Kaplan thinks universities’ interests need to be accommodated for the sake of fairness. However, universities aren’t deserving of fairness (at least in this sense). To them, law schools are risk-free ways to make money. As a result, they have every incentive to entice and enroll as many students and take as much from them as they can without looking greedier than their peers. Any proposal that does not discuss law schools taking on more financial risk along with cost and system-wide enrollment reductions does not result meaningful fairness.

More subtly, Kaplan’s proposal, like Amar’s and Ayres’, assumes that what goes on in the first year of law school should crucially influence career outcomes. They believe everyone who performs poorly on law school issue-spotters will naturally enjoy practicing law less or won’t be as good at it, so either give them a refund if they choose to leave (Amar and Ayres) or give them the arm-over-the-shoulder treatment, “Law is not for everyone, but, you know, the choice to continue is really yours to make…” (Kaplan). Whether law schools should be accepting people they know won’t do well, or will hate law, or won’t be employed isn’t up for discussion. In this sense, there isn’t a real difference between the two proposals: all believe that what happens in the first year of law school is and should be indicative of success after graduation.

In contrast to this view, given the endless criticism of legal education as not preparing graduates for practice and the curved grading scales that reward efficient studying to beat one’s classmates over competent understanding of the material (to the extent it’s relevant), emphasizing the impact of the first year is actually one of the bigger flaws in legal education. Indeed, legal education generally needs to be more relevant not merely to what lawyers do but to what law students want to do as lawyers, and it has to recognize and accommodate students with high potential but longer learning curves. Neither proposal addresses this.

Instead of thinking up better gimmicks for discouraging the “wrong people” from continuing, we should reject the ideology that people should pay for education to fulfill career (or class) goals while letting the economy dictate whether they can meet those goals. In other words, no matter how much some people might want to be professionals, even if they don’t articulate clear reasons for wanting to be, there’s no point in training them if we know beforehand that there’s a good chance they can’t get the kinds of jobs they do want or do get the kinds of jobs they later find out they don’t want. It would be better to require applicants to already have experience in the legal profession doing what they want to be doing than handing them diplomas and telling them they should move to Omaha if they didn’t get the jobs they wanted. This way, law students wouldn’t be gambling with loan dollars, their time, and their life expectations, even if it’s just for one year and a few thousand dollars.

Finally, shifting the cost distribution of legal education to the backend is, well, backward. By making the first year cheaper, more people will apply to law school to “test the waters,” even though Kaplan explicitly argues his goal is to discourage people who aren’t passionate about The Law from applying. Similar to Amar’s and Ayres’ proposal, we might expect this to backfire by encouraging applicants—many of whom we know will drop out—to both spend a year of their lives taking on debt (even if it’s small) for a year’s worth of education that’s of questionable value and reinforce this ideology that education creates jobs. These are some of the biggest problems with legal education and Kaplan’s proposal only amplifies them.

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