A Note on Private Law School Tuition Projections Methodology

Diligent readers may know that as of right now I’ve updated about 60 percent of the law schools on the tuition page, which includes tuition projections for private law schools. However, the tuition projections page itself has not been updated. That’s where I am. I’ve decided that before I get to that page specifically, it’s worthwhile to discuss/digress on the methodology I’ve chosen for projecting private law schools’ tuition individually. The reason I’m doing this is that both the tuition page and the projection page have been cited by researchers and academics (the latter page even making an appearance in Chapter 9 of Brian Tamanaha’s Failing Law Schools (FYI: Yale’s projection is actually one of the most accurate ones)), and these types of people might want more detail on the numbers. I think they’re entitled to it, but I also think that casual readers won’t be so interested (you should be), so I’m creating this post separately.

As of fall 2012, there are 117 private law schools outside of Puerto Rico whose tuition the Official Guide tracks. I exclude the two private Puerto Rico law schools for two reasons: one, the dollar’s purchasing power is lower there so including them slightly distorts any averages; and two, neither behaves like stateside law schools in terms of tuition increases. Why do I not include public law schools in the projections at all? Because they are (usually) subsidized by state governments, and the goal of the tuition projections is to see where tuition inflation due to increased spending (including cross-subsidizing students) will go, not tuition inflation due to decreased subsidies. As of right now, I’m also excluding public law schools that are clearly not subsidized by their state governments, even though I sometimes include them in my synthetic, “Adjusted Private Law School” category in other discussions. That may change in future methodological analyses.

This post analyzes the projections methodology by testing it on the last year for which precise data are available: 2011. The results, incidentally, are an interesting lesson in measurement accuracy and precision. The projections are all characterized in nominal dollars to avoid the need for projecting future inflation as well. Arguably, inflation is a minor factor in law school tuition increases, but I’ll not ponder that today.

The Methodologies

There are three potential methodologies I can think of for projecting private law school tuition.

(1)  The current methodology merely extends the linear regression for each law school’s tuition individually into the future based on its Official Guide tuition data going back to 2004 or whenever it was first available. The basis is that past tuition increases are a guide for future ones.

(2)  If one believes that various factors distort individual law schools’ tuition trends, an alternative is to take the annualized rate of average private law school tuition increases and apply it to private law schools individually, an “ecological” methodology.

(3)  Finally, one can try to accommodate both methodologies by calculating the annualized rate for each law school individually and using that rate into the future. In fact, this methodology takes the worst qualities of both: it makes any distortions exponential rather than linear.

The Facts: What Do We Know about Law School Tuition

Before jumping into the analysis, it’s necessary to discuss a few empirical findings from what’s available in the Official Guide from 2004 to 2011 and elsewhere.

• One would think that law school tuition grows exponentially, but in reality it’s better characterized as linear growth because the R_­^2­­ statistic (shown below) is closer to one for linear regression than exponential regression. This is why I chose the linear regression methodology in the first place.

• Even so, the rate of nominal tuition increases has dropped recently, and we know it’s below five percent in 2012 as well. Unfortunately, even the linear regression model doesn’t capture this for 2011. It’s about 16 percent higher than what actually happened.

Comparing the average growth rate from 2004-2009 (5.74 percent) to the average growth rate in 2010-2011 (4.27 percent), the rate dropped by about a quarter, and it stayed at about that level in 2012, according to the National Law Journal.

• Speaking of distortions, a handful of law schools saw rapid tuition growth between 2004 and 2011. The furthest outlier is Faulkner University, which after obtaining ABA accreditation went from charging $15,000 per year in 2006 to $32,200 in 2011, a 14 percent annualized increase that dwarfs all other private law schools. Six others increased their tuition by more than a 4.9 percent annualized rate, placing them in the third average deviation or higher of tuition increases (the mean is 3.1 percent annualized). These law schools frustrate tuition projections for a few reasons:
  • (1) The first and third methodologies above, which use individualized rates, are certain to overstate these schools’ tuition in the future. Faulkner in particular is way, way out there.
  • (2) Given the drop in applications, I doubt private law schools will go on building sprees as they did in the past. Then again, there appears to be an endless supply of wealthy alumni who are willing to finance new buildings, so I could be terribly wrong.

• As stated above, it’s very unlikely law school tuition will increase at a high rate again. Although I don’t expect the average nominal price to drop (the prices are very sticky downwards), I also don’t expect them to go above five percent ever again.

The Test

For 2011, all three methodologies produce average private law school tuition figures ranging from $40,100 (linear regression) to $40,300 (individual annualized rate), all high as the actual rate was about $39,700. However, comparing the absolute values of the variances between the projected tuition and the actual tuition provides a clearer finding: the average annualized rate is the most accurate but also the most dispersed.

	Linear Regression	Average Annualized Rate (5.51%)	Individual Annualized Rate
Average Variance	2.2%	1.6%	2.0%
Avg. Deviation % of Variance	27.7%	37.6%	31.3%

However, since we know that law school tuition is not likely to grow as quickly as it did in the past, we’d want to know the actual variances, not their absolute values, because law schools that come in below the projected average will probably be more accurate in the long run than those actually at the average. When we do this, we find just how poorly the methodology I’ve chosen performs in terms of precision (had to say it).

	Linear Regression	Average Annualized Rate (5.51%)	Individual Annualized Rate
Average Variance	1.2%	1.1%	1.6%
Avg. Deviation % of Variance	78.87%	3.3%	2.3%

Here’s what it looks like. To clarify, I counted these using the “FREQUENCY” function, meaning the tick marks on the x-axis mean that the result is greater than the previous tick mark but less than or equal to the current one, so on the red line, 36 private law schools’ projected tuitions were greater than one percent but less than or equal to two percent above what their actual tuitions were, a very precise yet mildly inaccurate finding that would rapidly compound over time.

That blue bump on the far right is, of course, Faulkner, but the blue bump on the far left is Cooley, which raised its tuition by much more than we’d expect based on a linear regression of its previous costs going back to 2004. Here’s a simpler chart to make things clearer, same >x­­≥% rule.

It’s obvious that the individual annualized rate is the worst of both worlds; it’s less accurate and less precise than the average annualized rate. I’m eliminating it as a viable alternative to individual linear regression.

But there you have it: An unpleasant tradeoff. Either I switch to a methodology that precisely predicts tuition will be higher than it will be (though it “rescues” Faulkner and predicts its tuition much more accurately), or I stay with the original methodology that is more accurate on average but more imprecise overall.

Conclusion

Of the three methodologies I’ve tested, none really gives me the results I want, but then again, I have a perfectionist streak. I may run this variance test again when the 2012 tuition numbers come out in official form (U.S. News is close, but … perfectionism), but trying to find a one-size-fits-all formula for projecting private law school tuition increases might not be possible. I have other ideas up my sleeve, like basing the trend on the last three years’ tuition, excluding more recently accredited law schools entirely, or listing the law schools’ annualized tuition growth rates and/or R^2­‘s and highlighting those that are unusually high or low.

In the meantime, though, I’ll stay the course for at least three reasons: (1) I think linear regression provides a reasonably accurate assessment for average private law school tuition overall (half the R²‘s are greater than .993), (2) the numbers aren’t outrageously wrong even 10 years out, which is more than enough, and (3) my original motivations for publishing the tuition projections remain valid. Law school tuition will continue to increase, though not as high as in the past, I think, and it’s important for anyone who cares about the issue to see that. I particularly hope that any potential applicants who see either the tuition page or the projections will see law schools’ Janus-faced behavior, how they can speak solemnities about lawyers’ important roles and responsibilities in society while at the same time collecting rents from taxpayers and showing contempt for their students’ futures.

BLS Updates Its 2020 Employment Projections: For Law Students, It’s Very Bad

It turns out the Bureau of Labor Statistics updated its Employment Projections in February, though the Occupational Outlook Handbook will have to wait until later this month. Data for 2010-2020 are now available.

For lawyers, the 2010-2020 projection is even worse than 2008-2018, when the BLS predicted that the legal profession would add 98,500 new jobs and replace 141,900 lawyers who left the field by the end of the ten-year period. The new projection revises the number of lawyer jobs downward to 73,600 new jobs and 138,400 due to replacement. Note that the difference between the two sets of numbers places most of the loss on new lawyer positions. Incidentally, the BLS calculates 31,000 lost attorney jobs in 2009 and 2010. By comparison, dentists and doctors both saw job gains between 2008 and 2010, and both professions should encounter shortages by 2020 based on recent (albeit slightly older) graduation rates.

Alarmingly, extending the BLS’ 2018 projection to 2010, we find that there would’ve been 879,800 lawyer jobs, so the new projection sees a legal profession with 78,000 fewer positions than before, an 8.8 percent loss.

Here’s a chart to clarify.

Yes, the projections include self-employed lawyers, and yes, I still believe that the Current Population Survey greatly overstates the number of employed lawyers. That doesn’t make the employment projections correct, but I think they’re more accurate given the legal profession’s attrition rate relative to the number of J.D. holders.

And for those of you who think the Lesser Depression is the culprit, once again the BLS says that it’s projecting full employment in the target year:

“How do the BLS employment projections account for recessions?

The analysis underlying the BLS employment projections focuses on long-term structural change and growth and assumes a full employment economy in the target year. To the extent that recessions can cause long-term structural change, they may impact the projections. However, BLS does not project recessions.

How were the BLS 2010-20 employment projections affected by the recent recession?

The BLS employment projections are based on analysis of long-term structural changes to the economy, not short-term business cycle fluctuations. BLS does not attempt to project the peaks and troughs of business cycles, and the BLS projections model assumes a full employment economy in 2020, the target year. The 2010 (base year) employment for many industries still had not recovered to pre-recessionary levels when the 2010-20 projections were developed. This low employment, coupled with an expected return to full employment over the 10-year projections period, means faster growth rates and more numerous openings than might have been expected in these industries and their occupations had the recession not occurred.

Now, to ask, how does this look for new lawyers, to say nothing of the bottleneck that’s been swelling for the last decade at least?

Assuming graduation levels are flat, i.e. ~44,000 as they were in 2010, then we have 440,000 new law grads for 212,000 jobs, a projected employment rate of 48 percent.

If there are more grads as new law schools open or receive accreditation (Indiana Tech, North Texas, UMass, and others), then the ratio will be that much worse. If enrollments start dropping, more people will find work.

What does this mean precisely? The projection is over a long period of time, which can cause some unexpected distortions. For instance, law jobs that have high turnover rates will be held by multiple graduates who will be counted as employed in NALPian terms. If your garden variety new Biglaw associate position lasts exactly five years, then on average between two and three graduates will fill it every 10 years. Likewise, lawyer positions that have shorter life expectancies, especially solo practitioners, will have even higher turnover rates and will be filled by even more graduates. Moreover, as the BLS’ FAQ answer points out, as some industries recover to full employment they will refill lost positions and then add the new ones.

This is better news for law schools than for law students because it will skew graduation-plus-nine-month employment numbers upward, even though the medium- and long-term value of a law degree won’t be available to prospective law students. Remember, when two grads lacking other options form a law firm, they’re in “J.D. required” positions at 2-10-person law firms, even if the firm has a high chance of collapsing within a few years and the principals move on to more consistent work.

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.

Not Your Parents’ (or Grandparents’) Profession

In a post a few weeks ago, I teased the BEA for a clear typo on its Web site.

For my previous Am Law Daily post, which was based on that, I called the BEA to find out what was what. Turns out my guess of 1,277,000 persons engaged in industry was close (coincidentally), it was really 1,269,000. However, the BEA told me that the correct numbers were in the NIPA tables, and the person I was talking to said, “Oh, they go back to 1948.”

She was mistaken. They actually go back to 1929.

You can see it all in “Section 6 – Income and Employment by Industry.” Here’s the number of “persons engaged in industry” and “full-time equivalent” (FTE) employees in the legal sector. “Persons engaged” adds self-employed workers to FTE employees. (Why it’s not self-employed workers plus “full-time and part-time workers,” a separate BEA series, is beyond me.) The BEA changes its methodology periodically, explaining the breaks.

By dividing these two series by the population (pre-1952 is from averages of this Census Bureau page), we can actually learn quite a bit about the legal sector’s vitality through most of the last century, which is especially useful because the BEA’s data on the legal sector’s real value added only go back to 1977. Think about it: whenever the number of persons engaged and FTE employees per capita grows, that means the sector is absorbing workers from other industries and that demand for legal services is growing faster than the economy. (The opposite isn’t always true, for when it declines, either the whole economy is going down or just the legal sector is.)

This is an interesting example of where precision matters more than accuracy. It’s not so much the exact number of FTE employees or persons engaged per capita that’s important but their growth rates. For the gap years between the datasets, I took the averages of the end years. Here’s the five-year moving average to give the general pattern.

Any year above zero is one in which the legal sector’s “population” grew faster than the nation’s. These graphs should really land home my point about the legal sector. It did fantastically well from about 1960 to 1990 (and the 1970s, wow), and then … Yeah. Here’re the unsmoothed growth rates:

I put this up to show exactly how badly the legal sector has been doing recently. It generally went negative starting in 2004. That was eight years ago.

The other point to take from this is the gravity of the disappointing generational divide between those in leadership positions in the professions and those entering it. I haven’t yet opined on the new ABA President’s ill-advised comments on recent graduates; I may do so in greater detail later, but when William T. (Bill) Robinson III says that “[Law students] are, in my opinion, making very wise decisions about their future,” readers have to realize that as a 1971 grad, Robinson’s career began at the dawn of the profession’s golden age.

In the average year during the 1970s, FTE employees grew seven percent, the number of law school graduates per capita was lower, tuition was lower, and the 1970s was the frontend of the boom in legal education. Today’s law students would be thrilled to graduate under these circumstances. The fundamentals today couldn’t be more different, and the profession will pay dearly if it is led by individuals who refuse to acknowledge (and therefore represent) the growing constituency of lawyers who never had a realistic chance of joining it.

Earlier, I pointed out that the BEA defines “persons engaged in industry” as FTE employees plus self-employed workers, implying that we can isolate the number of self-employed workers in the legal sector by subtracting FTE employees from persons engaged. This can be useful because the vast majority of self-employed workers in the legal sector are lawyers, in contrast to the paralegals, clerks, secretaries, and janitors that can’t be separated from associate attorneys in the FTE employee data. At a per capita rate, it looks like this.

The number of self-employed workers alone better helps us measure long-term success in the profession. Assumedly, starting one’s own practice, or buying into an existing one represents an achievement in terms of professional competence. Not all associates stay with the profession, whether voluntarily or not, and while the number of self-employed workers per capita doubled between about 1950 and 1995, it took a rocky path to get there. Nearly a quarter of self-employed workers per capita in the legal sector have vanished in the last 15 or so years. Don’t expect them to come back.

Why is this important? A self-employed lawyer is by definition a “marginal attorney” in economics terms, i.e. the last person who can make a living as an attorney. That doesn’t need to be a “good” living, but the marginal attorney is someone who in theory can earn more lawyering than doing something else. (Emphasis on the “in theory.”) Unless and until I get the number of self-employed lawyers from the directly from the BLS, this (along with FTE employee growth) is as good a proxy for the long-term career outlooks of current law school graduates. The fact that the number of self-employed workers per capita in 2005–before the Great Recession–was about what it was in 1985 tells us we don’t need to train so many lawyers, i.e. it’s time to shut down law schools.

“Very wise decisions about their futures” indeed.

Good News! The Legal Sector Grew 2.3 Percent in 2010! The Bad News? Everything Else.

On December 13, the Bureau of Economic Analysis (BEA) updated its “GDP-by-Industry” page, which means it released all sorts of useful information on what happened to the legal sector of the U.S. economy in 2010, the sector that employs the vast majority of lawyers.

Skipping the soup & salad, we find that in 2010, the legal sector posted 2.34 percent real growth ($3.9 billion). To put this in context, that’s the highest rate since 2004, and it’s the first serious growth since the legal sector started contracting from its peak in 2005. You heard that right. The legal sector has done very, very badly in the 21^st century; in fact, it’s still smaller today than it was in 2000. Readers will recall this animation.

Less obviously, the BEA also changed its methodology and revised the last several years of data, which means I get to revise it on all my static pages. Joy. The good news here is that the “Great Law Depression” in the animation wasn’t as bad as it looks. By “as bad” I mean that in 2008, the legal sector did not contract but actually grew … 0.61 percent. Growth is growth, though, but 2008 was preceded by two years of contraction, and 2009 was one year of big time recession (-10.77 percent). The revised graph illustrates.

Those who go to the BEA’s Web site might be excited by this line:

“Recoveries in durable-goods manufacturing, wholesale trade, and professional, scientific and technical services industries were the leading contributors to the turnaround in U.S. economic growth in 2010.”

Private legal services are “Professional, Scientific and Technical Services,” so they contributed to the recovery, right? Nope. I’ve made much of others making much of the legal sector’s share of GDP. Despite the turnaround, the overall economy outdid the legal sector yet again, and now the share-of-GDP is at yet another record low of 1.31 percent, down 0.01 percent. Here’s that and the new rate of change.

Compared to “Professional, Scientific and Technical Services,” the legal sector lost share yet again to a new record low of 11.04 percent.

As I said, I don’t take too much from the share of GDP, but don’t say that legal services helped lead the recovery just because the BEA says its parent category did. I still think that at best legal services will never be too much more than 1.5 percent of the U.S. economy as it was in 2005.

Elsewhere in bad news land, the price of legal services continues to increase over inflation, unrelentingly as usual. The legal sector deflator grew 3.85 percent in 2010 in contrast to the GDP deflator, which grew a mere 1.15 percent. From 2001 through 2010, the cost of legal services grew 54.7 percent while the GDP deflator only grew 22.3 percent. In real terms, America paid a quarter more than what it paid for legal services in 2001, and it got four percent less for it.

How this can be sustainable and why it occurs remains a mystery to me.

Unlike shares-of-GDP, I have made much of what I refer to as the “bottleneck argument,” which law school administrators deploy to combat claims of systemic law school over-enrollment by responding that the Great Recession is wholly responsible for underemployed law graduates, all of whom will have fruitful legal careers once the economy recovers. I’ve decided to start researching this from the legal sector output perspective. In other words, what should the legal sector’s output be if 1997-2005 growth rates had continued? Projecting it out, we get this:

From 2006 to 2010, the legal sector should have given us $1.036 trillion, but instead we only got $903 billion, which is a $133 billion deficit over those five years, or 12.8 percent of total potential output. In 2010, the legal sector operated about 21 percent below capacity. But now you ask, “But LSTB, surely the 2.34 percent growth this year means we’re on the road to recovery right? Green shoots I say!”

The problem is that in the reference period, 1997-2005, the legal sector grew at an average annualized rate of 2.7 percent. True, we don’t know what happened in 2011—and like you I wish the BEA released these data more quickly—but with painfully slow growth overall, the fade out of the 2009 stimulus, even Howrey’s collapse in the spring, I don’t think 2011 will be better than 2010. In short, the U.S. legal sector is going nowhere. We’ll see if I’m right next year.

Moreover, there’re two pieces of evidence that pretty clearly suggest that those $3.9 billion did not go to fresh law school graduates, which would validate the bottleneck argument. The BEA’s employment data were updated as well, and the numbers of “full-time equivalent,” and “full-time and part-time workers” in the legal sector both dropped. The number of “Persons engaged in industry”? It grew by 1.8 million.

Wait, what???

See for yourself.

I didn’t make that up, but I sure as shit think it’s a typo. For this next chart, I assumed it was 1277, which seems most accurate, and by “seems” I mean “gut-guess” ’cause 1077/1177 sound abysmally low.

In 2010, there was a net loss of 6,000 full-time equivalent jobs in the legal sector. Aside from full-time, non-lawyer support personnel layoffs, that can’t mean many stable long-term positions opened up for neophyte lawyers, self-employed or otherwise. In fact, between 1998 and 2010 there’s only been a net growth of 93,000 full-time equivalent positions against 346,220 ABA law school grads.

Using the same exponential projection methodology, here’re the potential full-time equivalent legal sector jobs versus the actual numbers.

That’s a 174,000 jobs deficit in 2010 (13.9 percent). From 2006-2010, there were 219,288 ABA grads. Obviously the jobs deficit includes non-lawyers, and it’s on top of the juris doctor surplus the Bureau of Labor Statistics has known about since at least the 1990s. Also, don’t forget the lawyer attrition rate must be fairly high, which is good for the short-term employment data but bad for long-term concerns about career satisfaction, debt repayment, and the stability of the profession.

Still it is a fairly large gap, and while I’m skeptical there could be that many lawyer jobs, who knows, maybe the bottleneck really is that large. I admit I’m pretty much acclimated to a world with high unemployment and dim prospects for new lawyers, so maybe 100-150,000 law school graduates over those years could’ve found meaningful work in the profession, at least for a few years. I just don’t think that counterfactual is a plausible alternative outcome given structural factors affecting the legal profession, but let it not be said that I lack imagination.

Back to the topic of where the new $4 billion of legal sector spending went, here’s the BEA’s composition of the legal sector’s “value added.”

I’m fairly sure this is not inflation-adjusted, but it tells a lot about how the sector reacts to growth (pays lots of taxes), recession (stop hiring employees, cut gross operating surplus), and recovery (increase gross operating surplus). While employee compensation and taxes are intuitive, gross operating surplus means everything else, which is unhelpful. The Expert Glossary defines it as, “consumption of fixed capital, net business current transfer payments, corporate profits, and proprietors’ income.” In other words, they’re maintenance costs, firm gifts, payments for personal injuries caused, taxes to foreign governments, and of course, firms’ and partners’ hauls, which I’m guessing are the largest component of the surplus. I don’t know enough about firm tax structure or if firms tend to sit on large profits without distributing them, or even if they’re allowed to, but ultimately firm profits are partner income. This is where the 2.34 percent growth went. Not to law school graduates. The bottleneck is still growing.

What to take from this? From 1998 to 2008 employee compensation grew an average 6.2 percent, and in the same period, the gross operating surplus grew an average 7.6 percent per year. The surplus is also much more volatile: mean average deviation of 4.9 percent versus 1.5 percent for employee compensation. Since 2008, employee compensation has halted, and in 2010 it only posted a mere 0.4 percent growth while the surplus grew a whopping 14.1 percent. To put this in perspective, here’s the legal sector’s output per full-time equivalent worker.

I remind readers again that in 2010, FTE workers dropped, so the legal sector essentially distributed the $3.9 billion among existing workers.

This, folks, is why I look at government data instead of NALP’s on graduating classes. Assuming that anyone who starts their own practices will not make more than if they had not gone to law school—which I think is fair—unless employee compensation and FTE workers start making serious upturns, it’s going to be very rough for new lawyers trying to find long-term partner-track work in the private legal sector. With technology, outsourcing, and clients unwilling to pay associates, I predict employee compensation will stagnate indefinitely and gross operating surplus (and taxes) to grow instead. Hopefully the BEA won’t make us wait until next December to test that prediction.

The Law School Debt Blob

Many readers know of U.S. News’ “Graduate Debt Rankings” page, which contains crucial information on law graduate debt that for some reason is not published in the Official Guide even though the ABA is surely collecting it. Law School Transparency does us the favor of providing the same data from the previous two years on three separate spreadsheets, courtesy, I’m told, of U.S. News. The magazine uses the number of graduates for each law school from the previous year of its “graduate debt rankings,” but this is easily remedied by a quick trip to the Official Guide.

I filled in the gaps for the three-year period between 2008 and 2010 with the following assumptions. For 2008, I copied debt numbers from a similar school in the same state (e.g. using NYU’s numbers for Columbia) or copied the numbers from the subsequent year(s) (Florida A&M). In 2009, I filled in gaps by taking the average debt numbers from the previous and subsequent years (e.g. Cooley), or used the subsequent year’s numbers (Southern University). For 2010, I duplicated similar intra-state schools’ numbers or used the average private or public school “percent taking on debt” if that was the only missing number. For all three years, I duplicated Widener-Delaware’s numbers for Widener-Harrisburg. U.S. News excluded the three Puerto Rico law schools. Here’s what we learn.

(79 PUBLIC LAW SCHOOLS)	AVERAGE PUBLIC LAW GRADUATE DEBT	AVERAGE PUBLIC LAW SCHOOL GRADUATE DEBT-REVENUE	MEAN ABSOLUTE DEVIATION	TOTAL PUBLIC LAW SCHOOL GRADUATE DEBT-REVENUE
2008	$45,826	$10,593,000	$5,110,000	$836,834,000
2009	$50,271	$11,305,000	$5,764,000	$893,088,000
2010	$53,714	$12,055,000	$5,866,000	$952,310,000
GROWTH RATE	+17.2% (+$7,888)	+13.8% (+$1,462,000)	N/A	+13.8% (+$115,476,000)

*****

(114-117 PRIVATE LAW SCHOOLS)	AVERAGE PRIVATE LAW GRADUATE DEBT	AVERAGE PRIVATE LAW SCHOOL GRADUATE DEBT-REVENUE	MEAN ABSOLUTE DEVIATION	TOTAL PRIVATE LAW SCHOOL GRADUATE DEBT-REVENUE
2008	$69,567	$19,746,000	$8,932,000	$2,310,250,000
2009	$73,926	$21,182,000	$9,148,000	$2,478,262,000
2010	$79,665	$22,807,000	$10,233,000	$2,668,474,000
GROWTH RATE	+14.5% (+$10,098)	+15.5% (+$3,061,000)	N/A	+15.5% (+$358,224,000)

*****

(193-196 LAW SCHOOLS)	AVERAGE LAW GRADUATE DEBT	AVERAGE LAW SCHOOL GRADUATE DEBT-REVENUE	MEAN ABSOLUTE DEVIATION	TOTAL PRIVATE LAW SCHOOL DEBT-REVENUE
2008	$87,761	$16,057,000	$8,323,000	$3,147,084,000
2009	$91,606	$17,201,000	$8,803,000	$3,371,350,000
2010	$97,310	$18,473,000	$9,480,000	$3,620,784,000
GROWTH RATE	+10.9% (+$9,549)	+15.0% (+$2,416,000)	N/A	+15.1% (+$473,700,000)

Note, these tables account for the fifteen percent or so of graduates who do not take on any law school debt. Though it may sound counterintuitive, “Debt-Revenue” is the term I use to characterize the amount of revenue the law school received from student debt for that graduating class. Also, I’m switching from standard deviations to mean absolute deviations because I deal with full populations that are not normally distributed, and I find mean absolute deviations more intuitive.

And now, to sate your unspeakable viewing desires, here’s the animated number of law schools by debt-revenue, aka the Law School Debt Blob. The blue line on the left is the median, the black line, the average.

This gives us an idea of the distribution of law schools by revenue over the last few years, and it’s what happens when you add nearly half a billion dollars onto law students’ backs. We can only imagine how far rightward it moved before 2008. Although, it’s important to note that all universities jacked their tuition in fall 2009 due to the damage the financial crisis did to their endowments.

Oh, and yes, Cooley is the one on the far right, receiving a princely $87.6 million in debt-revenue from the class of 2009.

And here’s the numeric growth in each five million dollar category.

I don’t like adjusting these kinds of numbers by the consumer price index, but we know it’s in excess of that. I also wish I could compare this to graduates’ starting salaries, but NALP data are short-term, too inaccurate in my opinion, and subject to cyclical swings. If you’d like more info on which law schools rank highest in debt-revenue, I listed them in this post.

THE LAW SCHOOL DEBT BUBBLE: $53 Billion in New Law School Debt by 2020

So we know that in 2010, a majority of 44,245 law graduates took on $3.6 billion in student debt based on comparing Official Guide and U.S. News data. Without back issues of U.S. News, is it possible to figure out how much debt previous classes took on, and—*gasp*—project it into the future?

Yup.

The ABA provides a piffle of a PDF titled, “Average Amount Borrowed for Law School,” which begins with the 2001-2002 school year and ends with the 2009-2010 one. I’m guessing the law schools didn’t send the ABA 45,000 debt numbers but merely the average of their students’ debts, so what you see on the ABA’s PDF is not the average debt load of public and private law school graduates but is actually the average of law schools’ reported average graduate debt levels. To test the ABA’s version’s accuracy, let’s compare its numbers to the average of U.S. News’s law schools’ average debts for the 2009-2010 school year.

SOURCE	PUBLIC AVERAGE	PRIVATE AVERAGE
U.S. News	$70,795	$107,182
ABA	$68,827	$106,249

The average public law school’s average students’ debt differs by about 3%, private schools 1%. Clearly, we’re talking about the same stuff, so we can use the ABA’s numbers. Here’re graphs of graduate debt levels.

And yes, they track 3-year average tuition levels, at least for private law schools. For public law schools, I added one year of non-resident tuition to two years of resident tuition, and it falls a little short, which suggests that either a large proportion of people who go to public law schools move to different states and pay at least one year of resident tuition, or public law school students have been taking on more debt than before the turn of the century.

With the ABA data in hand, there are three more things we need to determine total law school debt: the number of graduates, the breakdown of graduates (public/private), and how many of them took on debt. The split between public and private law school grads in 2010 was 34%/66% according to the Official Guide, and roughly 84% of all public school grads took on debt as opposed to 83% of private grads according to U.S. News. Using these assumptions we can compare total graduate debt for the class of 2010 with the two methodologies.

SOURCE	TOTAL PUBLIC GRADUATE DEBT	TOTAL PRIVATE GRADUATE DEBT	TOTAL GRADUATE DEBT
U.S. News	$951,772,400	$2,668,868,422	$3,620,640,822
ABA	$869,979,117	$2,497,898,010	$3,367,877,127

It appears the ABA data are more generous than the U.S. News ones are, placing total graduate debt at $3.368 billion rather than $3.62 billion.

Using the “public/private grad split” and “percent who take on debt” assumptions from above, we can calculate how much total law school debt law grads took on going back to the 2001-2002 school year. Although, we should note that only two of the sixteen law schools that received ABA accreditation between 2001 and 2009 were public schools (Irvine received accreditation in summer 2011), so these numbers likely underestimate the totals because the proportion of public law school graduates would have been greater at the beginning of the decade (say 37% tops) than now.

Since the debt levels are growing exponentially, here’s the projection for 2020 grads.

It appears legal education has been one of America’s winning industries for the last twenty years, posting an estimated 6.8% annualized growth rate in terms of debt revenue alone, though that’s a slight overestimate due to the relatively greater number of graduates between 2001 and 2009. In the future, total annual graduate law school debt will double by the end of the decade (~$6.8 billion/year), and this is a conservative estimate because many public law schools are rapidly “privatizing” by going off state subsidies. Continued high unemployment will encourage this process for those public law schools that aren’t leaving the state dole whole hog, such as Minnesota and Arizona State. Public law schools will supplement subsidy shortfalls with tuition increases and a handful of alumni donations. This will add $50.6 billion onto around 500,000 future law graduates’ shoulders. In 2010, the total average debt for graduates who took on debt was $90,959. At current graduation rates, in 2020, of 54,536 graduates, 45,625 will take on debt, and their total average debt will be $149,120 ($114,801 for public school grads; $173,161 for private grads).

$50.6 billion isn’t completely accurate because not everyone who starts law school finishes. The ABA kindly furnishes us with a PDF that tells us what law school attrition rates are by year (and if you do the math, you’ll find that about one entering student in eight drops out). It doesn’t tell us what the rates are by public or private law school (the Official Guide would), though I’d guess more are private than public. Nor does it tell us how many of them took on debt. I’ll use our previous assumptions anyway and add the following: (1) 1Ls paid 1.5/6ths of what they would’ve paid as 3Ls, 2Ls 4.5/6ths of what they would have paid as 3Ls, and 3Ls 5.5/6ths of what they would’ve paid had they not left. It’s crude, but fair. (2) Those who paid never came back, and (3) they all paid with debt. The attrition PDFs are all missing the 2008-2009 school year (stupid ABA), so I averaged the numbers from the previous and succeeding years to fill the gap. I’m omitting 4L attrition. They’re few in number, and I suspect many of them returned to complete their degrees later. Here’s what we get:

Attrition adds about 6% to the debt totals, increasing the numbers to $53.442 billion, an additional three billion dollars ED will disburse.

According to the Office of Management and Budget, the U.S. will issue $1,302 billion in Direct Loans by FY2020 (Table S-12). $53.4 billion of that will be new law school loans (4.1%), if these data are comparable. I don’t think anyone has an idea of how much existing student debt is for law school, but given what the ABA data already show and looking backwards, it’s probably between ten and thirty billion dollars. Knowing how anemic job growth has been for lawyers over the last few decades, it is clear that the federal government will waste a lot of money supporting the legal education system due to the impracticability of repayment under even 25-year repayment plans, leading to near-universal use of Income-Based Repayment.

I’m in favor of IBR, but endless law school tuition increases makes this a losing program for ED and taxpayers, unless the interest from everyone else repaying their loans covers forgiving billions of dollars in law school debt. However, I doubt the Congressional Budget Office, much less OMB, has projected IBR’s effects twenty-five years from now using fair-value accounting.

Meanwhile, doubling law school debt in ten years all but verifies that law schools are Winston Universities, claiming to ED and Congress that law students must spend billions of federal dollars on educations that in many instances are superfluous to the economy’s needs and are overpriced for the few that are. We can only hope Congress kills the Direct Loan Program and restores bankruptcy protection from student loans before this problem gets worse.

Sadly, the ABA was in the best position to ensure that law schools worked efficiently and were not over-enrolled, yet it stood by while law schools prioritized their own prestige over their students’ welfare. Beyond the cost to students and taxpayers is the immense shame the ABA and the legal profession will face.

Federal Student Loan Debt Will More Than Double by 2021; GDP, Not So Much

A few weeks ago I painstakingly projected where the federal government’s Direct Loan Program was going, and for the last several months I’ve been tracking growth in government holdings of nonrevolving debt as a proxy for the government’s Direct Loans balance to prove that. Here’s what I projected:

Then a reader directed me to the Office of Budget and Management’s (OMB) Mid-Session Review (MSR), which has been doing this all along. The following data come from the 2012, 2011, and 2010 MSRs. The 2009 MSR doesn’t have Direct Loan balances (but amusingly, it fails to predict the recession, which doesn’t bode well for OMB’s credibility).

What’s neat is that my projections were largely accurate. The Direct Loan Program will cause student debt to grow from 1% to 8% of GDP yet never crest it. The loan balance is growing linearly, thankfully. However, there are two potential flaws. One, the GDP growth the government is projecting may not come to pass. Sure, recovery will eventually come, but refusal on Congress’s part to increase spending and the Fed’s inaction suggest that we are taking the slowest, most painful path to recovery. Slow growth implies a higher debt-to-GDP ratio of Direct Loans.

Two, here’s a table of the numeric growth in Direct Loans:

YEAR	DL NUMERIC GROWTH ($ Billions)
2009	293
2010	179
2011	110
2012	126
2013	173
2014	148
2015	138
2016	123
2017	107
2018	101
2019	96
2020	94
2021	96

The numeric growth includes a combination of newly originated loans less defaulted and repaid loans. Notice how the numeric growth declines below $100 billion per year by the end of the decade. Assumedly, this decline is due to loans originated now being repaid. Although, there’s good reason to suggest they won’t be. The government uses “accrual accounting” to determine the value of the loans, which excludes the actual market risk caused by a poor economy. If the economy is depressed, the government will receive a lower return on its loans due to defaults and Income-Based Repayment (IBR), which is effectively a twenty-five (and soon twenty)-year Chapter 13 bankruptcy plan. Student loans are the only type of consumer debt increasing in this depressed economy, and their nondischargeability reduces debtors’ purchasing power, which further hampers economic growth.

By contrast, we know that when we apply fair-value accounting rules to Direct Loans, the government loses money. Meanwhile, we don’t know if the government is taking tuition increases into account. There’s zero evidence that higher education will cost less in the future, so as tuition increases, so will debt loads, and by extension the amount the government is willing to give to ED to loan out.

Doubling the amount of debt on the government’s books makes sense if the gains materialize, i.e. the graduates’ educations transform them into more productive workers than had they not gone. This would be signaled—not proven—by significant growth in wages for college graduates, which we haven’t seen for many, many years. Whether college degrees alone actually transform students into better workers has not been established, and I believe it to be false.

Loaning a trillion dollars over a decade for higher education when the returns are doubtful is not something the private sector would do without loan guarantees. Thus, ending the guaranteed loan program in 2010 was a good idea as it was costly to the government, but doing so gave the federal government a pyrrhic victory because it’s now essentially guaranteeing the loans to itself. Ultimately, we will have to choose between letting the private sector finance higher education with some combination of fully dischargeable student loans and human capital contracts, or the government will have to pick up the tab and assume the risk of buying educations for people who may not use them productively.

2010 Law School Grad Debt at $3.6 Billion

A reader recommended I calculate total law school debt for 2010 grads. How? By taking the number of grads from each law school in the Official Guide and then multiplying them against the average debt levels and the percentage of students taking on debt in U.S. News and World Report’s rankings. Why this isn’t in the Official Guide is beyond me. These data can tell us quite a bit, and it’s only part of some research I’ve been doing.

First, a caveat: U.S. News isn’t complete. It excludes the Puerto Rican law schools, which as I’ve written before are their own unique disaster. It’s also missing a few points. So, for University of Phoenix, Harvard University, and Appalachian School of Law I used the average percent of graduates with debt (85.1%). For Florida International, I duplicated Florida State’s debt numbers and percent with debt, same for Indiana-Indianapolis from Indiana-Bloomington, and Widener-Harrisburg from Widener-Delaware. I also found La Verne’s and Widener-Harrisburg’s number of graduates from their websites as the Official Guide misprinted Widener-Delaware’s data for Harrisburg’s (shows how no one reads the Official Guide), and it excludes La Verne because it had lost its accreditation.

After slapping this into a spreadsheet, here’re a few factoids.

(1)  The average 2010 public law school graduate had $53,661 of debt at graduation; for private school grads it was $79,699. The average overall law student took on $97,306 (yes, the overall average is greater than the public/private ones).

(2)  2010 public law school grads incurred $951.8 million in debt; private graduates $2.669 billion. Total law school graduate debt was $3.621 billion in 2010.

(3)  The average public law school gained $12 million in debt from 2010 grads (median 10 million, standard deviation $7,710,185); that’s $22.8 million for private law schools (median $19.6 million, standard deviation $13,699,205). Here’re the dispersals.

And here’re the top 20 law schools by total graduate debt. For public schools the list isn’t too surprising. For private schools, though, it’s an interesting mix of prestigious and not-so-prestigious law schools. Some of it is high cost and some of it is large enrollments. However, I can’t ignore how much of an outlier Cooley is, so I included the z-score’s on the right of the table. The z-score measures a data point’s distance from the mean, and it’s measured in standard deviations. Cooley’s 4.72 tells us it is way out there.

#	PUBLIC SCHOOL	TOTAL PUBLIC GRADS’ DEBT (2010)	Z-SCORE
1	California-Hastings	35,570,896	3.05
2	Michigan	35,510,278	3.04
3	Virginia	34,631,340	2.93
4	Indiana (Indianapolis) (Est.)	31,571,512	2.53
5	California-Los Angeles	28,055,645	2.08
6	Baltimore	26,128,664	1.83
7	Texas	23,974,030	1.55
8	California-Berkeley	22,810,122	1.40
9	Temple	20,771,127	1.13
10	Indiana (Bloomington)	20,695,707	1.12
11	Minnesota	20,487,209	1.09
12	Penn State	19,684,105	0.99
13	Maryland	19,049,364	0.91
14	George Mason	18,726,770	0.87
15	Florida	18,699,633	0.86
16	Rutgers (Newark)	17,373,648	0.69
17	Wisconsin	16,589,299	0.59
18	North Carolina Central	15,495,257	0.45
19	Oregon	15,462,409	0.44
20	Houston	15,323,970	0.42

**********

#	PRIVATE SCHOOL	TOTAL PRIVATE GRADS’ DEBT (2010)	Z-SCORE
1	Cooley	87,410,308	4.72
2	Georgetown	68,060,738	3.30
3	Harvard (Est.)	58,024,861	2.57
4	American	53,397,546	2.23
5	New York University	49,767,194	1.97
6	New York Law School	48,762,544	1.89
7	Florida Coastal	47,445,152	1.80
8	Suffolk	47,203,984	1.78
9	George Washington	45,084,600	1.63
10	Fordham	43,865,940	1.54
11	Loyola Marymount (CA)	43,621,657	1.52
12	Columbia	42,031,490	1.40
13	Brooklyn	37,970,649	1.11
14	Pacific (McGeorge)	36,806,108	1.02
15	Stetson	36,236,370	0.98
16	John Marshall (IL)	35,749,033	0.94
17	Miami	35,670,595	0.94
18	South Texas	35,593,309	0.93
19	Catholic	34,665,333	0.87
20	Cardozo	34,165,228	0.83

I have more to say on aggregate law school debt growth, but that’s for a separate post.

[UPDATE: Here's the post, "THE LAW SCHOOL DEBT BUBBLE: $53 Billion in New Law School Debt by 2020."]

Consumer Credit Update (2011 October)

It’s the fifth business day of the month, which means the Federal Reserve has updated its G.19 Release, its estimate of outstanding consumer credit. One problem the U.S. economy faces is that nonrevolving consumer credit is growing faster than the economy. While the G.19 Release doesn’t quantify how much nonrevolving debt is student debt, it is very likely that most increases in that category are attributable to the Direct Loan Program’s student loans because of high tuition and the near impossibility of discharging student debt in bankruptcy. All figures are billions of dollars, and all percentages are annualized. Link here for my ongoing analysis of increasing nonrevolving debt relative to GDP and Direct Loans projections.

This month, the Fed revised the second quarter 2011 numbers again. These are seasonally adjusted.

	2011 Q1		2011 Q2 r		2011 Q2 r
Total	2,421.5	2.2%	2,442.5	3.5%	2,442.5	3.5%
Revolving	792.8	-3.7%	795.9	1.6%	795.9	1.5%
Nonrevolving	1,628.6	5.1%	1,646.6	4.4%	1,646.6	4.4%

Not much of a change. Here’s what we get for August.

	2011 Q2 r		2011 July r		2011 August p
Total	2,442.5	3.5%	$2,454.4	5.9%	2,444.9	-4.6%
Revolving	795.9	1.5%	$792.3	-5.4%	790.1	-3.4%
Nonrevolving	1,646.6	4.4%	$1,662.1	11.3%	1,654.8	-5.2%

So there’s a seasonally adjusted drop last month in consumer debt. Good.

As for holdings of nonrevolving debt, government holdings account for nearly all the growth of nonrevolving credit as well as the largest annualized increase. These numbers are not seasonally adjusted and do not sum together; annualized increases are mine.

	July (revised)	August (preliminary)	Numeric Change	Annualized Increase
Total NRV	1,652.6	1,661.7	9.1	6.8%
Government	385.7	391.8	6.1	20.7%
Commercial Banks	491.3	492.5	1.2	3.0%
Finance Companies	432.7	434.1	1.4	4.0%
Credit Unions	186.6	188.7	2.1	14.4%
Savings Institutions	37.0	37.3	0.3	10.2%
Nonfinancial Business	44.7	44.9	0.2	5.5%
Pools of Securitized Assets	74.5	72.3	-2.2	-30.2%

In non-seasonally adjusted terms, nonrevolving debt still increased, and government-held debt is still growing the fastest, though not as fast as July when it grew at a 64.1% annualized rate. According to the BEA, real economic output grew at a 0.4% in Q1 2011 and 1.3% in Q2.