Tuition Cuts Beyond Thunderdome

Observing some law schools gaining 1Ls as they cut tuition, The Wall Street Journal chants, “Two applicants enter! One applicant enrolls! Two applicants enter! One applicant enrolls!”

I don’t think I’ve ever seen Mad Max Beyond Thunderdome without commercials. I don’t think there’s another way either.

Back on topic, the WSJ article appears quite well researched. I’ve never been big on tuition cuts drawing the crowds, but I’m willing to disagree with some of the quoted deans—in their favor, even—and say that the tuition cuts helped their enrollments. The real question, though, is whether tuition cuts can draw applicants who otherwise wouldn’t bother taking the LSAT. I ask that because it appears that the applicants are sending their materials to multiple schools and taking whatever they consider the best deal. In that sense the nominal tuition cuts are little different from the discounts the law schools have been touting. It’s when they can convince new applicants to step out of the ether that we can really say the tuition cuts are working.

We’ll also have to see whether the schools with high LSAT profiles are cutting their nominal costs. I bet plenty of 2Ls would love to transfer into Columbia and pay more than $55,000 per year.

In other news, the New York Fed people have started a series titled, “The Value of a College Degree,” which rehashes everything you’ve already heard repeatedly about the average college graduate. However, its authors promise to look at wage dispersions, which tell them that “college actually does not appear to have paid off for a sizable fraction of those who made the investment.” They said it’s hard to see whether the premium is due to innate abilities but then said they were going to explore what happens to five- and six-year graduates. Hint: If the five- and six-year graduates don’t make more than the four-year graduates, there’s a good reason to suspect that there are problems with the human capital hypothesis.

Here’s my spoiler version of the wage dispersion from a while back:

Dispersal of Earnings by Education (25 -34) (Thousands, 2012)

(Vertical lines are medians.)

Yeah, so not everyone who went to college makes the median income. (Mind = blown)

I gotta run. Take care, folks.

Don’t Go to Law School: International Edition

Usually I write about legal education in Japan, whose decision to ape the U.S. legal education model has failed brilliantly, but today I have good news! Other countries do it badly too.

In the United Kingdom of all places, The Times furnishes us with, “What law school doesn’t tell you: 17,500 graduates; only 5,000 jobs.” Alas, subscription is required for the specifics, but the headline sure made me do a double-take. Being ignorant of such things, I have no idea what The Times‘ slant is, but superficially I’m pretty impressed that the U.K. has managed to out-do the U.S. in law graduate overproduction. Come on, Britons! Mimic our nondischargeable Grad PLUS loans—I dare you.

The other disaster du jour is … Korea! Korea JoongAng Daily informs us that adopting an American-style law school system has led to immiserating tuition hikes. It’s much more expensive to go to the new law schools than just taking the country’s damned bar exam old-school style.

The kicker is that Korea is phasing out the bar exam process in 2017, meaning it’s expensive legal education for all!

1,014.20 Korean won equal $1.00, so yes, law school costs, like, twice as much in Korea as it does here (even with living expenses). (I’ve heard hearsay that Korea is a higher education disaster where everyone goes to college but people in menial jobs still earn more than the typical college job.) Here’s the math:

[A] research team led by business administration professors Cheon Do-jeong, from Chonbuk National University, and Hwang In-tae, from Chung-Ang University, presented their dissertation analyzing the lawyers produced under each system.

According to Cheon and Hwang’s data, it costs an average of 22.17 million won annually over 4.77 years [$21,859], from entering law school until becoming a lawyer. The law school system costs a total of 105.79 million won [$104,309].

By contrast, the old system of taking the national bar exam cost an average of 9.32 million won annually over the course of 6.79 years [$9,190], including completing training at the Judicial Institute. The whole process amounts to 63.33 million won in total [$62,443].

My favorite quote from the article: “Furthermore, tuition increased by 9.8 percent this year.” Don’t worry, though, without government loans, the universities are going to shut down the law schools, according to a former dean. Imagine a dean saying something like that in the U.S.A.!

That’s all for now. Hope you enjoyed your Labor Day.

No Bubble, Just Rock!!! Vol. 10

Mellow is the Bubble

I really don’t do these nearly enough.

Here’s Lambchop’s “The Militant,” which I was obliquely reminded of with the Ferguson, Mo. news.

And here’s something a little more fun that I discovered to start off your week, The Shirts’ “The Tiger Must Jump.”

I regret not seeing this show.

Slate Thinks LSAT-Takers Are Clairvoyant

The law-school shills at the Law School Truth Center inform us that Slate gives us, “One Group of Law School Applicants That’s Growing: High-Scoring Students.”

I will keep this quick.

Jordan Weissman argues that the ~7.5 percent growth in law school applicants in the 170-174 and 175-180 LSAT brackets this year is a sign that “the right people” have decided to go to apply to law school again.

It might have helped readers if he’d told them that these applicants only account for about 5 percent of the total applicant decline since 2010.

Change in Applicants by LSAT Score Share of Net Change in Applicants (2010-2014)

(Source: LSAC, Slate, author’s calculations)

It turns out about two-thirds of the decline has been in applicants with scores below 160 and 86 percent with scores below 165, so once again the lesson is that the real right people, i.e. the ones employers don’t really want to hire, are getting the message.

As for the high-LSAT scorers, part of Weissman’s problem is that people who take the LSAT do not know ex ante what their scores will be. Sure, many people study for the exam, but the proportion of “pleasant surprises” increases the higher the bracket. It’s possible that a lot of the non-applicants are people who would have done very well on the LSAT but were not confident of that fact in advance of deciding not to take the test. It’s pretty unlikely that many applicants had a high LSAT score in hand but chose not to apply.

Grade Inflation: It Depends How You Define ‘Educational Quality’

On VoxEU, we have Raphael Boleslavsky and Christopher Cotton’s, “The unrecognized benefits of grade inflation.” The authors write:

Our analysis reveals a surprising link between grade inflation and investment in education quality – schools invest more when they are allowed to inflate grades than when grade inflation is banned. …

With grade inflation, student transcripts convey less information, and therefore the employer relies less on transcripts and more on school reputation when evaluating graduates. In this way, grade inflation increases the incentives that schools have to undertake costly investments to improve quality of education, and the average ability of their graduates. To the extent that school investments and a student’s own study efforts are strategic complements in human capital development, students who anticipate greater investments by schools in turn have greater incentives to increase their own efforts. [Emphasis LSTB]

You could replace the emphasized bits about “education quality” with “wasteful spending” or the like and you’d have an accurate description of what goes on at law schools.

For instance, we have expanding faculties:

Law School Faculty Per School (Calendar-Year Average, Index 1999=100, Excl. P.R.)

(Source: Official Guide, author’s calculations)

We have lots of internal grants and scholarships:

Spending on Internal Grants and Scholarships Per Law School (2013 $)

(Source: ABA (pdf), Bureau of Labor Statistics, author’s calculations)

We have no (net) positive impact on job outcomes:

Percent Employed by Status (NALP)

(Source: NALP)

We have a decline in legal sector labor productivity:

Legal Sector Labor Productivity (2005=100)

(Source: Bureau of Labor Statistics)

…And all this is covered with tuition hikes on the poor souls who are paying full tuition (if that):

Median Full-Time Law School Tuition (2013 $)

(Source: ABA (pdf), FinAid.org, Bureau of Labor Statistics, author’s calculations)

None of this is necessarily the result of grade inflation, which the authors’ model takes to be endogenous when I happen to think it’s exogenous (Hell, even the law school deans say so). If anything grade inflation is a symptom of the same pressures the schools are under to signal their degrees’ prestige to employers. But job outcomes is most of what this all comes down to. If there weren’t such a wide dispersion of jobs and salaries, then there’d be less motivation to engage in these kinds of wasteful behaviors. The free student loans are the accelerant.

However, there’s no reason to believe that, in the face of grade inflation, colleges and universities would improve their reputations by carefully investing in better student outcomes; rather, they would invest the bare minimum of what the employers want to see—not what actually makes the graduates more productive. That’s why the employers complain about how law students take frivolous courses but keep hiring from elite law schools nevertheless.

Revealed preferences, people. Revealed preferences.

The ABA Task Force Might Not Think Grad PLUS Loans Are a Problem

…But Barack Obama certainly doesn’t either. Mere days after the ABA Journal tells us of the skepticism of some members of the ABA Task Force on the Financing of Legal Education about the effect student loans have on law school pricing, MainStreet.com informs us that the Obama administration is proposing new rules that would further reduce the already lax underwriting standards for Grad PLUS loans. If the administration has its way, prospective borrowers will no longer have those pesky 90-day-plus-delinquent debts held against them by the Department of Education.

And just how many grad students are denied Grad PLUS loans due to bad credit? ED tells us that they numbered about 129,100 between March 2013 to February 2014, but don’t worry, 65,507 were able to remediate the department’s decision via appeal or endorsement. ED data also tell us that Grad PLUS loan three-year cohort-default rates are below one percent. Care to know how many of them are on IBR? Well too bad: The “non-Federal negotiators” who met with ED officials before ED proposed the new rule didn’t think to ask that. (Source here and here)

Borrowers might also be able to exclude $2,000 in delinquent debt from their federal credit checks as well.

“The Obama administration is committed to keeping college accessible and affordable and helping families make thoughtful and informed choices to fund a higher education in today’s economy,” Education Secretary Arne Duncan said in a statement. “These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them.”

Right. Something tells me Arne Duncan will never be held accountable for the student debt balloon he helped birth.

The MainStreet.com article then focuses on Parent PLUS loans that end up wiping out the parents because their kids are broke after college. However, you shouldn’t let that lull you into discounting the Grad PLUS variety. In the 2012-13 academic year, Uncle Sam issued $10 billion in Parent PLUS loans and $7.7 billion in Grad PLUS loans, which have been rapidly catching up in volume despite having half the number of recipients. That means people who take out Grad PLUS loans are likely to borrow larger sums than Parent PLUS loan borrowers. (Unless Parent PLUS borrowers are double-counted when they’re married couples or whatever.) Grad PLUS borrowers take out about $22,800 on average compared to the $14,000 for Parent PLUS borrowers.

On the bright side, Grad PLUS borrowers can throw all their loans onto protracted, bureaucratic, chapter 13 bankruptcy IBR and let the government eat the write-down if they’re largely unpayable. Parent PLUS borrowers aren’t so lucky.

54,527 Law School Applicants in 2014

…Which is down from 59,426 in 2013, an 8.2 percent decline. It appears the number of applicants is plateauing. The number of applications is down to 352,406; it was 385,358 last year. This and more you can read on the LSAC’s Web site.

Last year I speculated that the applicant decline would be 6,000, but it was lower at 4,900. I’m surprised that so many people are interested in law school. I sincerely thought the drop in applicants would be sharper than it’s been. Maybe the siren song of tuition scholarships is too much to resist.

Here’s what this year looks like compared to previous years.

No. Applicants Over App Cycle

No. Applications Over App Cycle

Interestingly, the number of applications per applicant has stabilized.

No. Applications Per Applicant

Last year’s decline clearly meant that the types of people who weren’t applying were those who would submit their applications early in the cycle. That’s still true to a great degree: The number of applicants from week 10 until the end is roughly the same at about 12,000. Week 4 to week 10, by contrast, has plummeted from 26,700 in 2010 to 15,700 this year.

2014 also differed from previous years in that the number of applicants didn’t really “accelerate” into the cycle based on a comparison of average monthly estimates of the final count to the actual number of applicants.

Average Monthly Final Applicant Estimate Variance

For example, last February it looked like there would be 56,500 applicants, but in June it looked like it’d only be 53,000. These are further indicators of a plateau in the decline.

Next year, though, I bet we’ll see an unusual sight: The number of applicants will be less than the number of incoming 1Ls in 2010 (52,448). I think by now everyone acknowledges that this applicant collapse is unprecedented, but that factoid should really bring it home.

Go in peace.

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