Grad PLUS Loan Disaster Sidelined by Stafford Interest Rate Hikes

If you didn’t know already, the Higher Education Act is up for renewal this year, but you have to dig deeper to get news about anything other than the Stafford loan interest rate hike that will destroy the lives of the undergrads or something. For those curious about law school tuition, here’s what’s been going on.

For one, you have the Bill and Melinda Gates Foundation dropping $3.3 million in grants on 14 organizations to produce policy papers aiming to improve college completion rates by changing the federal loan program. (How about, “Don’t send people to college who are unprepared or can be expected to fail, and create living wage jobs for young people instead”? Now can I get my slice of that $3.3 million?) I don’t know about Melinda’s education (and I don’t care), but I think it’s pretty funny that a wildly successful college dropout is trying to increase completion rates. Those Redmond engineers have to learn coding somewhere.

The policy paper that probably carries the most weight is the New America Foundation’s “Rebalancing Resources and Incentives in Federal Student Aid,” which tackles the graduate-level debt disaster with several proposals:

(1)  Terminate the Grad PLUS loan program.

(2)  Restore bankruptcy protections to private student loans.

(3)  Raise graduate and professional students’ annual Stafford Loan limit to $25,500.

(4)  Set all federal loans’ interest rates to the 10-year Treasury rate plus 3.0 percent.

(5)  Encourage debtors with guaranteed loans to switch them to direct loans with a one percent interest rate reduction.

(6)  Make Income-Based Repayment the sole repayment plan, revise it to protect against high debt, high-income debtors making a windfall.

If these six policies were enacted, it’s certain that average private law school tuition would drop, and it’s clear that the New America Foundation now realizes that IBR isn’t so much the problem as Grad PLUS loans. Recall that the foundation expended much effort last year arguing that an undetermined number of high debt, high income graduate and professional students would benefit most from the changes to IBR (an already generous program compared to the debtors with cosigned private loans that have to come up with four-figure monthly payments or else a megabank will foreclose on their parents’ houses) by showcasing a fly-by-night accounting firm’s advertizing that targeted graduates from a law school with awful employment outcomes.

As you can imagine, I still don’t understand the New America Foundation. Not its policy proposals, those are very crisp and largely unobjectionable, but it doesn’t seem to have much of an ideology, i.e. a coherent set of beliefs that explain why the social order should be one way and not another. “Let’s tweak these programs really well” is not an ideology beyond modifying the edges of an existing social order, which is what you’d expect from a paper using “rebalancing resources and incentives” in its title. This surprises me as its co-founder, Michael Lind, regularly writes reliably lucid liberal (anti-neoliberal!) articles for Salon, including not one but two contemplating taxing land values as a response to advancing technology.

Thus, I draw your attention to point (3), raising the annual loan limit to $25,500. It’s utterly inconsistent with the foundation’s goal of reducing graduate-level tuition:

[Unlimited Grad PLUS loans], especially when coupled with loan forgiveness and Income-Based Repayment, can discourage prudent pricing on the part of institutions and prudent borrowing by students.

“Prudent pricing” here is thinktankspeak for a tuition bubble. As for “prudent borrowing,” I don’t know about other programs, but in the law students’ defense there’s been no evidence that Grad PLUS loans plus IBR has led to an increase in law school applicants who are cynically trying to screw over the government.

(Source: LSAC)

That’s not to say that law schools and students don’t depend on Grad PLUS loans, but I think it’s more one-sided than the New America Foundation indicates. There are fewer law students but not fewer law schools. (Yet.)

We continue:

However, policymakers should increase the annual limit on Unsubsidized Stafford loans for graduate students from the current $20,500 to $25,500 to replace some of the borrowing ability graduate students will lose when the Grad PLUS loan program is eliminated. Although [eliminating the Grad PLUS loan program] will likely push some graduate students into the private loan market, this could ultimately be beneficial in addressing the high costs of graduate schools. If institutions can no longer rely on PLUS loans to fund their high-tuition programs and if the private market is responsive to the ability of borrowers to repay (based on changes to bankruptcy law recommended later), then graduate schools may have to set their pricing based, in part, on students’ expected earnings.

If uncapped Grad PLUS loans discourage prudent pricing, why would raising the cap on Stafford loans encourage it? If the private sector is more responsive to borrowers’ ability to pay, which still doesn’t mean they’re more productive thanks to their educations, then why replace the lost borrowing ability with non-underwritten loans? I don’t really expect the New America Foundations of the D.C. think-tank circuit to argue for doing away with the Stafford Loan Program entirely—there’d be less to tweak!—but without a theory of what causes tuition increases and how people can wind up taking on more debt than they can afford to pay, there’s an obvious contradiction.

The only reason I can think of for the $5,000 Stafford loan increase is to ensure that the proposal looks like it’s saving money. Otherwise, it’d much more consistent to leave the Staffords as they are because eventually the $25,500 loan limit will be eaten by inflation anyway, and the paper doesn’t discuss pegging any of the loan limits to inflation. The other problem with Stafford loans is that universities can increase their haul by setting their tuition at the loan limit and enrolling more students.

********************

Since the New America Foundation’s proposal is probably the most comprehensive one out there (I didn’t read the others, but I can live with it), then how is it faring against Congress’s dysfunctions?

Enter The Chronicle of Higher Education‘s Kelly Field, “House Panel Approves Market Approach to Student Loan Interest Rates,” May 17, 2013.

Here’s the outline:

• Obama proposes setting the interest rates on various student loans as follows:
  • Subsidized Staffords: 10-year Treasury note + 0.93 percent, with no cap
  • Unsubsidized Staffords: 10-year Treasury note + 2.0 percent, with no cap
  • Grad PLUS and Parent PLUS: 10-year Treasury note + 3.0 percent, with no cap
• The Senate is working on the “Student Loan Affordability Act,” which would hold the Stafford loan interest rate at 3.4 percent for two more years.
• The House will vote on a bill that sets interest rates as follows:
  • Subsidized & Unsubsidized Staffords: 10-year Treasury note + 2.5 percent variable rate, capped at 8.5 percent
  • Grad PLUS and Parent PLUS: 10-year Treasury note + 4.5 percent variable rate, capped at 10.5 percent
• The alternative Senate bill would set interest rates for all student loans at the “bond equivalent” of the 91-day Treasury note, capped at 8.25 percent. I have no idea what “bond equivalent” means in this context, probably taking the 91-day rate to the 40^th power or something like that to align it with a 10-year rate.

In short, expect more Grad PLUS loan carnage and more tuition hikes where they can be had.

‘Liberalism’s Most Challenging Task’ Is Clearer Writing

…Not that conservatives’ is better.

Timothy Noah, “The 1 Percent Are Only Half the Problem,” New York Times Opinionator.

I’d describe Noah’s article in the Opinionator as a muddle. To begin with, I no longer use the term “income inequality” because it’s confusing. More recently, I’ve preferred “income polarization,” which is more descriptive. There’s always going to be income inequality because some people are more productive than others and some people own more assets than others. This is an analytic fact. What’s also an analytic fact is that there will always be a “1 percent,” unless you live in a society of fewer than 100 people and you feel like aggressively rounding numbers. Sure, comparing the one percent’s income to the rest will illuminate polarization, but that already assumes that incomes will be unequal. Thus, to say that the “1 percent” is any portion of the problem is a non sequitur.

Noah’s other “half of the problem” is the “rise of the educated class,” i.e. the polarization of incomes of college-educated workers from high-school-educated workers.

(Source: Census Bureau)

Okay, there’s some educational polarization here—and Noah says it began in the late ’70s—but I think persistent underemployment and credential inflation have probably been bigger factors since then. For example, if a worker gets a four-year degree, starts a job that’d normally require only a high school degree, and then gets a pay raise, then it appears the benefits are going to college-educated workers when they’re not. This is why I keep saying that the population distribution of education is important. Education categories aren’t static.

(Source: Census Bureau)

Noah then tries (I think, as I said, it’s not a crisply organized article) to explain why conservatives and liberals don’t like talking about education as the cause of “inequality.”

Liberals resist talking about the skills-based gap because they don’t want to tell the working classes that they’re losing ground because they didn’t study hard enough.

Which liberals are these?

One reason the left plays down the growing skills-based gap is that it accepts at face value the conservative claim that educational failure is its root cause.

Didn’t the Obama administration release a glorious paper dually-titled “The Economic Case for Higher Education/The Economics of Higher Education” last winter?

More than two-thirds into his article, Noah gets to his argument:

But the decline of labor unions is just as important. At one time union membership was highly effective at reducing or eliminating the wage gap between college and high school graduates. That’s much less true today … The decline of labor unions is what connects the skills-based gap to the 1 percent-based gap … According to the left-leaning Economic Policy Institute, the G.D.P. shift from labor to capital explains fully one-third of the 1 percent’s run-up in its share of national income. It couldn’t have happened if private-sector unionism had remained strong.

True, provided you also ignore the increase in the share of college-educated Americans, credential inflation, and the proportion of educated Americans who aren’t in the workforce. Degrees don’t have much value for stay-at-home parents, unless you look at them as modern dowries/bride prices, and that’s very problematic for class discussions.

This isn’t to say nationalized and globalized scabbery isn’t a problem, but in Noah’s more lucid final two paragraphs, he admits that labor rights are political non-starters:

[I]f economic growth depends on rewarding effort, we should all worry that the middle classes aren’t getting pay increases commensurate with the wealth they create for their bosses. Bosses aren’t going to fix this problem. That’s the job of unions, and finding ways to rebuild them is liberalism’s most challenging task. A bipartisan effort to revive the labor movement is hardly likely, but halting inequality’s growth will depend, at the very least, on liberals and conservatives better understanding each other’s definition of where the problem lies.

(Add “middle class” to my list of terms I disfavor. It’s like saying those destitute Americans don’t deserve wage increases either.)

I guess Noah had to save his argument for the end because (a) conservatives would’ve stopped reading it if he’d hastened to his point, and (b) it’s not a very good use of Times real estate to say, “We’re boned.” However, there are a few tactics that might help work around the problem of how to convince the labor-haters to ease poverty.

(1)  Blame the trade deficit: I think Noah’s written in the past that this isn’t as much of a problem as the Dean Baker-types think, but everyone can get behind it except the banks, which aren’t very popular.

(2)  Blame the landowners: The argument against improving states’ labor protections versus federal ones is that they raise labor costs and cause industries to move to the labor-hating South. Land tax shifts break that Gordian knot because labor-hating industries can move but land cannot. Even if landowners sell their land in response, so what? Prices, including taxes on labor, will drop, and living standards will rise for those remaining.

Notice how neither of those suggestions uses the terms “income inequality” or “middle class”? Do you think Noah would’ve been able to confidently open an article with the above two points rather than discussing the half-portion of the one percent and what liberals versus conservatives allegedly think? Liberalism’s most challenging task is adopting a stronger, broader set of policy goals to avoid checkmating itself as Noah does.

Joseph Stiglitz is Still Soft on Higher Education

…But unlike last time, he’s clear about it now.

Joseph Stiglitz, “Student Debt and the Crushing of the American Dream,” New York Times‘ Opinionator.

Yesterday, Stiglitz argued that student debt is connected to inequality, and it’s “intertwined” with lack of housing demand. He writes:

It’s a vicious cycle: lack of demand for housing contributes to a lack of jobs, which contributes to weak household formation, which contributes to a lack of demand for housing.

I’m dead certain that student loans crowd out homeownership for individual debtors, but I don’t know to what extent that can be imputed to the whole economy. Stiglitz is arguing that but for student loans, people have the income to afford housing. I don’t think this is true. I think most student loan debtors lack the income period. Thus, the “lack of demand for housing” is caused by untaxed land rents, which isn’t related to student loans.

Stiglitz might be right, but I don’t think every student loan debtor is just a few hundred dollars away from homeownership. I do think, however, that he’s wrong about the value of higher education. Cue the Eloi lawyers and Morlock material movers who have law degrees:

Curbing student debt is tantamount to curbing social and economic opportunity … Our economy is increasingly reliant on knowledge-related industries. No matter what happens with currency wars and trade balances, the United States is not going to return to making textiles. Unemployment rates among college graduates are much lower than among those with only a high school diploma.

I have to credit Stiglitz for actually connecting the trade deficit to jobs to student loan debt. This connection is very real, but it’s not made often because economists know nothing about student loan debt, and student debt advocates know nothing about labor economics. Again, I disagree. If we flip the trade deficit, maybe the textile jobs won’t come back—I don’t see why they wouldn’t, the U.S. is still one of the world’s biggest cotton manufacturers—but the lump of labor fallacy doesn’t apply to individual industries. There’s only so much demand for lawyers, brain surgeons, advertisers, fashion designers, and other knowledge workers. At some point, technology will reduce the labor economy to trading simple services that can’t be automated, like haircuts, waiting tables, etc. These jobs will rarely pay well, which is one argument for taxing the land rent and redistributing it as a citizen’s dividend.

The other big problem with the article is that Stiglitz doesn’t believe that over-generous federal lending enables tuition increases. He makes passing mention to slashed government subsidies to public universities, which is correct, but he thinks the rest of tuition increases are due to “the banks’” and not higher educators trying to sell parents on multi-million dollar athletic facilities. Then, as expected, he attacks the for-profits as though nonprofits and public universities are guileless. He also doesn’t point out that for 85 percent of the debt, “the banks” are the federal government either directly or by guarantee.

As a result, Stiglitz’ policy prescriptions are a muddle. Yes, restoring bankruptcy protections is critical, but thanks to IBR, even for-profits won’t post very high default rates, unless they don’t tell dropouts how to fill out the forms. Consequently, they will likely have access to federal funding indefinitely no matter what federal judges say. Slashing interest rates to the Fed’s discount rate (that’s the rate it quotes for its direct lending to the banks) will reduce debt burdens, but it certainly won’t discourage people from taking out loans they don’t need for degrees that have little value.

Stiglitz supports adopting Australia’s income-contingent repayment system, but I think we should take the government out of higher education finance entirely.

In Which I Attempt to Match the Times’ Non-Reporting

Annie Lowrey, “Student Debt Slows Growth as Young Spend Less,” New York Times.

Do yourself a favor and don’t bother reading the piece. No that’s not reverse psychology; it really just rehashes stuff you already know, especially once you get to the bit of propaganda in the fourth-to-the-last paragraph:

On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.

Four paragraphs earlier, the article states that the average (I think, the article doesn’t say) debt-to-income ratio for households under 35 has grown from 1:1 to 1.5:1 between 2001 and 2010. How lifetime earnings can rise while the young—which, I interject, are people whom society treated as full adults a few decades ago—are spending more on debt service is unexplained.

Okay, I can’t match the Times‘ non-reporting; here’s some value-added:

(1) More Americans have college educations than the past, so logically it’s harder to say that it provides an earnings premium. It could just be credential inflation.

(Source CPS)

(2) Young(ish) college-educated Americans make less money than they used to.

(Source CPS)

I included professional degrees, but the sample’s pretty small. It’s accurate but imprecise. Do not take it for the value of a juris doctor; those probably pull down professional degrees’ values.

To be fair, though, I’m going to give a little credit to the Times because people’s incomes would be higher if the economy were at full employment, and it’s not. In other words, it’s unlikely structural degree oversupply is the primary force depressing college graduates’ earnings. Thus, the 1.5:1 debt-to-income ratio should be lower than it is. But just when exactly will college graduates in their 20s and early 30s “make up for lost ground” after their prime earning years? The Times doesn’t say. You’re supposed to have faith that *it* can’t happen here, *it* being rule by the future-present aristocracy in a democracy-lite.

Liberal Law Professors Shielded by Hostility Towards Lawyers

I read Brian Tamanaha’s “The Failure of Crits and Leftist Law Professors to Defend Progressive Causes,” which castigates politically liberal law professors for participating in institutions that encourage both the class schism in the legal profession and law students to borrow unpayable debts. How could they not know what was going on? Tamanaha writes:

Seduced by the allure of prestige of material comforts, Crits and progressive law professors have become a part of the system they set out to reform. Watching market-thinking become pervasive and the gap between rich and poor in America steadily increase, knowing that on broader economic issues we had lost, we succumbed to the temptation to grab what we could for ourselves and our families. (35)

Ouch. It occurred to me while reading this passage that of all the topics I think or write about, legal education is the one where I think we need more “market-thinking,” so I end up sounding like a perfidious neoliberal. I’m not. Instead I think that what passes for “market-thinking” has largely shielded liberal law professors: Lawyers are regularly perceived as playing outside market rules. They chronically overcharge their clients—a belief that’s readily reinforced by actual instances of file-churning, etc.—and they don’t do enough for the poor given their awesome privilege. For the more conspiratorially minded, they file frivolous lawsuits against one another to drive up business, or they use their dominance in legislatures to enact laws that create yet more work for themselves. Even corporate America is powerless to negotiate lower rates against the almighty leveraged, billable hour.

The public’s uncharitable perceptions aren’t helped by economists who misunderstand the effects of professional licensing. Anyone who reads Dean Baker’s Beat the Press will regularly find the author complaining that free trade advocates are willing to subject manufacturing workers to competition with cheap foreign labor, but they hypocritically use professional licensing regulations as trade protectionism. Never mind that professional services aren’t as fungible as precision-made goods; that lawyers’ contributions to legal matters are usually more valuable than assembly line workers’ to their products; or that most states, including California, New York, D.C., Texas, Illinois, and Florida, allow foreign-trained lawyers to take their bar exams (subject to various other requirements, admittedly) with no evidence of lower lawyer incomes there as a result. For some inexplicable reason, foreign lawyers will be able to topple biglaw in a way that tens of thousands of unranked law school grads cannot.

An even better example is Clifford Winston’s, Robert W. Crandall’s, and Vikram Maheshri’s 2011 book, First Thing We Do, Let’s Deregulate All the Lawyers. The authors calculated that lawyers earned 50 percent more than people who had the same amount of education. They also found that over time lawyers’ incomes increased even though their GPA and LSAT scores did not, and that the number of lawyer jobs created each year is significantly less than the number of people who apply to law schools. Therefore lawyers must be creating a huge deadweight loss to society.

No one pointed out to them that (a) demand for legal services is income elastic, which means rich people and corporations spend more money on brand-name firms as they become wealthier (and they have become wealthier); (b) the wages of lawyers are determined by their marginal product, not their education; and it might just be the case that lawyers are more productive than people who drop out of English PhD programs; (c) incomes for high-test-scoring people have increased generally over the last few decades as credentials from elite universities have led to higher-paying jobs; and (d) demand for legal education is not the same thing as demand for legal services.

One need only read First Thing We Do‘s introduction (PDF) to understand the methodological problems with the authors’ argument:

As regulatory economists, we find it natural to reason that occupational licensing, like other regulations that restrict entry, benefits existing suppliers by limiting competition. Thus its primary effect is to generate earnings premiums to practitioners in a particular profession such as law—earnings premiums that could be inefficient.

In short, it’s an argument from incredulity nestled in a begging-the-question fallacy: We can’t believe the legal profession would allow more people to purchase legal education than there are jobs available for them because that would mean lawyers are bad at creating licensing restrictions, and they would be callously dumping over-indebted, underemployed law graduates onto the labor market and tolerating a massive wealth transfer to law professors that doesn’t directly benefit lawyers. Therefore, the licensing requirements must be restricting supply and raising incomes.

However, the fact is, applicants’ willingness to risk rejection, which indicates they would pay full freight if accepted, increases with tuition. Behold the number of rejected full-time applicants at private law schools (ex. Puerto Rico’s and Brigham Young) and public law schools whose tuition is higher than the average private law school’s.

Those of you who wanted an upward-sloping demand curve, here is your upward-sloping demand curve.

Even in my private life, I’ve encountered two economists (whom I respect) who thought “licensing = labor cartel” applied to lawyers ipso facto. In fairness, it’s not self-evidently untrue, but it shows the heuristics that go into analyzing who’s cheating society and who isn’t.

Okay, I didn’t write this post to rehash First Thing We Do—not that I didn’t savor the empty calories and hope you did too—rather, I brought it up to show that “positions, not interests” explain conventional views about lawyers and law schools:

• Lawyers = cheaters, thieves
• Law students = greedy turds who refuse to serve the poor at lower pay and are whining because they’re bitter they didn’t get to be cheating thieves
• Law professors = tragic figures because despite their liberal agendas, their students still refuse to serve the poor and aspire to be cheating thieves
• Student debt for education = good because education = “upward mobility” = good

Once this framework for the law school debate sets in, it’s no wonder that Tamanaha’s peers call him an outrageous elitist conservative. It takes the ideological equivalent of a spontaneous reversal in the earth’s magnetic field to recognize that law schools have more in common with Bain Capital than they do with Legal Services NYC, which has been working without a contract since July 2012 and might go on strike soon. The dominant liberal story over the last thirty years is that rich conservatives and neoliberals (including cheating thieving lawyers) captured the government to crush labor and redirect incomes from the poor to themselves. Thus, liberal law professors are the types of people we’d least expect to support too-big-to-failist institutions. The fact that conservatives tend to hold anti-higher education and anti-student lending views further warps the discussion along ideological lines.

That law schools were caught fighting on the wrong side of the class war at the same time the banksters wrecked the economy is only a coincidence, but it doesn’t appear that way to the students, who are increasingly seeing a generational war between entrenched, entitled boomers and themselves. Law schools’ legacy will be a severely cynical generation—not something supposedly labor-loving liberal academics see themselves as promoting.

NYT Prefers Discussing Postindustrial Apocalypse to Rule by the Future-Present Aristocracy

Worry not millenials, your underemployment is a fantasy! The “Real World” is so much worse:

Annie Lowrey, “Do Millenials Stand a Chance in the Real World?,” New York Times.

This line stands out:

Thirty or 40 years from now, young millennials might face shakier retirements than their parents. For the first time in modern memory, a whole generation might not prove wealthier than the one that preceded it.

This is a novel definition of “wealth.” If we are talking about land, there’s global warming (why people use “climate change” escapes me), so there may be less of that, but it’s not like the U.S. is so densely populated that we live cheek by jowl coast to coast, document-review style. If we’re talking about capital, however, then it would be pretty crazy to believe that there will be fewer buildings in 40 years than there are today. Maybe when the last boomer dies, we’ll build a pyramid and throw all their stuff in it with them so they can enjoy it in the afterlife.

Oh wait, that’d create jobs. Can’t have that.

Absent an apocalypse (unless global warming really is that bad), the whole generation will prove wealthier than the one that preceded it. It will just be embarrassingly unequally distributed. Many millenials will basically spend their adulthoods waiting for their boomer ancestors to die so they can liquidate their assets. Whether they can live off them is a whole other discussion. The remaining children of the wealthy will be shoed-in to semi-hereditary positions. Not that this doesn’t go on already, it’s just a lot easier to hide, and the public is still very willing to accept it when the system is designed to give the impression that anyone can get into these positions.

For example, education:

Millennials are the best-educated generation ever. Their challenge may just be to preserve that advantage for their own children.

Pop quiz, hotshot: After applying the appropriate discount rates, which document has a higher net present value: an Ivy League university degree dated May 2013, or a birth certificate with Sallie Mae exec Albert Lord’s name in the “Father” field?

The Recession Precedes the Financial Crisis…

…Not the other way around.

It’s when people are unable to repay their debts that the banks start running aground, except when the loans are nondischargeable and either pre-TARPed by the government (guaranteed FFEL loans) or auto-TARPing (direct loans). Then the problem is wholly different: The loan balances simply grow like a cancerous polyp on aggregate consumer credit reports. And this is what’s happening—not that the Fed believes it.

Enter the New York Fed’s recent “Household Debt and Credit Card Report” on student loan debt. In the “Special Section: Student Loan Debt,” it reads:

Higher education is crucial to improving the skill level of American workers, especially in the face of rising skill premiums and a relatively unfavorable labor market for less skilled workers. Due to increasing enrollment and the rising cost of higher education, student loans play an increasingly important role in financing higher education, and student debt is the only kind of household debt that continued to rise through the Great Recession.

…Which I take to mean that the Fed also believes that we can’t possibly create a “favorable labor market for less-skilled workers” and so we must—MUST—educate them via debt.

 

So the delinquency rates are sky-high. Note that these estimates mix federal and private debt.

Let’s create a parallel universe where the loans are dischargeable in chapter 7 and after a chapter 13 repayment plan. What would we see? For one, the debt levels wouldn’t be increasing through the depression:

Student debt is the only kind of household debt that continued to rise through the Great Recession and now has the second largest balance after mortgage debt.

These are not good things. Rising debt without rising growth is very bad.

According to The Wall Street Journal, the Fed’s economists don’t speak as boldly about higher-ed-for-all as the report does, but there is a kernel of dread slowly growing from the denial. “The high delinquency rate is very worrisome, said Wilbert van der Klaauw, an economist with the New York Fed, noting that higher education has traditionally produced a sizable financial payoff. ‘We hope the returns to these educational investments are going to be there” as the labor market rebounds, he added.’”

The good news for the Fed—other than the fact that none of its economists will lose their jobs for failing to observe the obvious—is that the student loan bubble can’t destroy the economy, unless private lenders lend out, like, another $4 trillion on top of their mere $150 billion. It is, however, embarrassing for the government to say that its loans are “traditionally” good debt when a third of the youngest debtors are delinquent, and it’s slowing growth because it’s a capitation tax on our supposedly most-productive workers. The shortfall to bondholders can be paid with rich people’s taxes; your living standards won’t be reduced a whit (unless the government really does decide to levy a capitation tax).

The bad news is that the government still doesn’t really care if people are defaulting on the loans.

‘Hope and Change,’ Meet ‘No Hope, Cosmetic Change’ (Part II)

[Link here for part 1.]

“The need to dramatically elevate college attainment is an urgent one – for our students, our families, our communities, and ultimately our nation’s future. Every capable, hard-working and responsible student should be able to access and afford higher education – and we all have a role to play to keep college part of the American Dream.” – Education Secretary Arne Duncan (18)

Economic Mobility

Eberly and Martin define, “economic mobility,” the second reason for mass-higher-education, as “the ability of children to move up and down the economic ladder independent of their parents’ economic status” (15). The authors use this chart, which looks more like death-by-credential inflation than what they argue:

…And in Eberly’s and Martin’s defense they, don’t appear too convinced either, “[E]ducation among those born in the top quintile plays a strong role in maintaining higher levels of income across generations. Children born in the top quintile who do not obtain a college degree are almost equally likely to end up in any of the five income quintiles.” Aside from the fact that this is a snapshot of generational and education levels in 2011 and not time-series data, “The Case for Higher Education” is starting to resemble the case for RBIs in baseball. Although the number of runs a batter hits home appears to indicate his offensive skill, it’s a mirage because it depends on luck and where the batter was in the lineup. Batters in the one-slot always have few RBIs because they’re guaranteed at least one at-bat where no one is on base. There are better ways of measuring offensive power in baseball.

Likewise, educational attainment doesn’t cause people to remain in the same income zone as their parents; rather, it indicates the kind of leverage wealthy families have over their children’s opportunities. Everyone else either gets lucky or hosed. Thus, if I were to predict what this graph will look like in 10 years, I’d say that in the right panel, the green, fifth quintile segments will shrink in the first four bars as the descendants of college degree-holders are less and less able to find high-paying work in a polarized society.

In the previous post, I asked you to wonder why TreasurED was going to the trouble of crafting such weak, halfhearted, and circuitous arguments for higher education. Only 5 out of 33 full-text pages are devoted to the economic argument. By contrast, 12 pages out of 33 are dedicated to “Financial Aid and Higher Education Policy,” which features a section on President Obama’s higher education actions, like accelerating the changes to IBR.

Pondering all this—to say nothing of the paper’s title-change—one might think that “The Economics of Higher Education” is more about assuaging public fears about the affordability of higher education than its necessity. Just look at the “Student Loans in Aggregate” insert on page 30:

In the second quarter of 2012, U.S. households owed an estimated $914 billion in federal student loans, making it the second largest component of household debt.51 While larger than credit card debt ($672 billion [I get $850.7 billion]) and auto loans ($750 billion), federal education debt is relatively small, only about one-ninth, compared to the size of mortgage debt ($8.1 trillion [I get $9.6 trillion]). The growth in aggregate student debt is driven by increases in the total number of individuals enrolled in college as well as increases in the percentage of students who borrow and the amount they take out. As we have discussed elsewhere in this report, financing college education is an investment: college graduates earn more and have a lower unemployment rate than those with only a high school diploma. In the United States, the average increase in lifetime earnings for an additional year of education is 7 to 10 percent.52The college wage premium is currently at its highest point since at least the mid-1960s. As with all borrowing and investment decisions, however, students and their families should carefully consider and understand the financial commitment they are making. Federal loan programs have per-year and lifetime borrowing limits, deferral options, and income-based repayment contingencies that distinguish these loans from other types of lending.

Take that, Zero Hedge doomsdayers!

You have to admit it takes a lot of finesse to say that even though we have record-shattering proportions of the population taking on debt for higher education, we simultaneously need even more to do so. Even part II of the paper shows the rapid increase in higher education enrollments in the last few years.

So why isn’t the paper titled, “Things Are Great Because We’re Sending, Like, Four Million More People to College Than in 1999″?

If I didn’t know any better, I’d say that the study’s authors don’t really believe what they’re saying but have to say it anyway because it’s their job. I concede that’s a harsh, basically unfalsifiable assertion, but if the Treasury is so concerned about our “competitiveness” in the global economy, why not publish a policy paper advocating weakening the dollar? The current account deficit is one of our economy’s biggest problems, and the Treasury could certainly address it a lot more easily than sending even more people to college than we already are.

Some Real Data

If high-skill jobs were in demand, then we’d expect the BLS’ employment projections to not show vast surpluses of college graduates for college-requiring jobs, so here’s the breakdown of all 54.8 million jobs that are expected to open between 2010 and 2020 by education required. (Table 1.7)

Just over a quarter of the jobs will require some kind of higher education, which should terrify us already, but just how many degrees will be conferred between 2010-2020? According to ED’s own Digest of Education Statistics, Table 279, it’s barbaric. Avert your eyes children!!

• Associate’s degrees (8,904 – 3.0x graduates/jobs)
• Bachelor’s degrees (18,065 – 2.1x graduates/jobs)
• Master’s degrees (7,606 – 8.4x graduates/jobs)
• First-Professional degree (1,100.7), Doctor’s degrees (848.4) (~1,949.1 total, 1.1x graduates/jobs (and don’t you dare say this means the law grads will be employed))

This horror raises the question: What is going to happen to college-educated Americans who can’t get skill-biased-technological-changey jobs? Will they instead take some of the top 30 jobs by growth and replacement listed in the BLS’ Table 10, which includes the all-time greats?

• Retail salespersons (1,957.7)
• Cashiers (1,775.9)
• Waiters and waitresses (1,324)
• Registered nurses (Whoah! You need an Associate’s degree for that! Back to school, again!) (1,207.4)
• Combined food preparation and serving workers, including fast food (Can you dig it?) (1,146.5)
• Office clerks, general (first on the list to require a high school degree) (1,011.5)
• Laborers and freight, stock, and material movers, hand (980.2)
• Customer service representatives (Be sure to finish high school) (959.6)
• Home health aides (837.5)
• Janitors and cleaners, except maids and housekeeping cleaners (682.0)
• Personal care workers (675.2)
• Childcare workers (HS required) (665.8)
• Heavy and tractor-trailer truck drivers (HS required) (649.4)
• Postsecondary teachers (McAdjuncts require doctoral or professional degrees) (586.1)
• Etc., it’s too depressing to continue.

How is higher education supposed to increase the wages of the souls with these jobs? Who will advocate for the material movers (hand)?

That’s a dreary quip to close on, but perhaps there is a silver lining: “The Economics of/Economic Case for Higher Education” represents the dying wheeze of the government’s we-can-be-neoliberals-too game. After you’ve borrowed money to buy stock in a bullshit Internet startup, to throw a third HELOC on a house in the desert, and to take courses on “law and the anarcho-syndicalist commune,” there will be nothing left to buy with borrowed money. In the post-debtpocalyptic wasteland, Democrats will have to run candidates who know something about wealth creation rather than ape those who redistribute it.

‘Hope and Change,’ Meet ‘No Hope, Cosmetic Change’ (Part I)

“The moral case for doing a better job of giving Americans the opportunity to succeed is very compelling. The economic case is just as strong. If more Americans are educated, more will be employed, their collective earnings will be greater, and the overall productivity of the American workforce will be higher.” –Treasury Secretary Timothy Geithner, March 15, 2012 (13)

Jan Eberly and Carmel Martin, “The Economic Case for Higher Education,” (more neutrally titled “The Economics of Higher Education” in the actual PDF) Treasury Notes.

Eberly is the Assistant Secretary for Economic Policy and Chief Economist for the Department of the Treasury, and Martin is the Assistant Secretary for Planning, Evaluation, and Policy Development for the Department of Education (or at least those were their positions in the previous administration). Yes, you read the title right: Even the Treasury Department thinks sending everyone to college is nonnegotiable because it’s absolutely impossible to create living wage jobs otherwise. I come down hard on this perspective not just because it’s wrong, and not just pessimistically so, but because this was the government that ran on “hope and change” that now says there’s no hope and only cosmetic changes in student loan repayment plans.

As I dive into the paper itself, keep this question in your mind: Why would Treasury and ED join forces (TreasurED?) to craft the same post hoc ergo propter hoc argument defending unlimited higher education that everyone else is fond of?

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While you were chewing on that, I read this line in the fact sheet, which doesn’t appear in the actual paper:

Workers with more than a bachelor’s degree see an even wider gap relative to high school graduates on average. For example, a worker with a master’s degree typically earned twice as much in 2011 as one with a high school diploma. Those with a professional degree, such as a J.D., earned more than two-and-a-half times as much on average.

Why? Why in the name of Lord Xenu bring up law degrees? Why?? It’s a casual reference, but the Treasury Department is joining discredited composition fallacizers as the Pew Research Center and the Georgetown University Center on Education and the Workforce, and for even this minor an infraction I can give “The Economic Case for Higher Education” no quarter.

The odious line about law degrees refers to this terribly misleading graphic from the BLS:

Source: Bureau of Labor Statistics (2012). Data are for individuals age 25 and over. Earnings are for full-time wage and salary workers.

Real translation: Education pays off, when it pays off, if it pays off.

Long form: When your earnings are at or above the median, and if you have a full-time wage-and-salary job, then you will earn 2.6 times as much or more than the median high school-educated worker who also has a full-time wage-and-salary job. If, for example, you are self-employed, your earnings are not counted. If you are working part-time, your earnings are not counted. If you are ass-unemployed, your $0 weekly earnings are uncounted. It is fully possible that your degree is in no way necessary for your full-time wage-and-salary job, and in the end of all things it is fully possible that your degree’s substantive coursework in no way prepared you for your job’s duties, and its value is wholly due to the signal it sends to employers. Welcome to the world of credential inflation: Population: Untold Millions.

Credential inflation also muddies the usefulness of the left side of the chart that connects higher education and low unemployment for just about all the reasons I listed above plus the fact that the unemployment rates are all measured with different civilian-labor-force-level denominators. Here’s what they have looked like since 1992.

(Blue = “Bachelor’s Degree or Greater,” Red = “Some College or Associate Degree,” Green = “High School Graduates, No College,” Red/Green = “Less than a High School Diploma.”)

Here’s the unemployment level, the numerator:

To be sure, the percent of unemployed less-than-high-schoolers is higher than the others, but in absolute terms, it’s the smallest unemployed category. I’m also willing to bet that a lot of them didn’t grow up here and don’t know English very well, i.e. people who come here because they are willing to work for low wages.

Let me also draw your attention to the absurd “Some College or Associate Degree” category, for no one else seems to consider it. Even when you include people who get two-year degrees, those in this category barely make more than those who finish high school. In other words, the college premium is back-loaded: you only get the benefits if you get the diploma (when/if you’re employed full-time, etc.). This is consistent with credential inflation, otherwise people would leave college once they had completed the minimum number of classes to qualify them for the work they’re doing, receive a more significant earnings boost, and probably be no less likely to be unemployed than those who finished a four-year degree.

Incidentally, in footnote 21, Eberly and Martin write, “In Q1 2012, BLS estimated that approximately 26 million individuals age 25 and older have some college or an associate’s degree; another 35 million have at least a four-year degree.” Um, no. It’s like double that.

There are now more Americans over 25 (60 million+) who have at least a four-year degree than who only have a high school degree. The number who have an Associate’s degree or some college is closing on the number of high schoolers, but they too number over 50 million. Don’t let that fool you though: A lot of these people aren’t in the labor force anymore.

Skill Premium

One American in three has some tertiary education. Why is it not enough? Answer: the college “skill premium.”

Empirical evidence suggests that one important driver of the rising skill premium is the continually increasing demand for skilled workers and a deceleration in the supply of college graduates.24 Since at least the early 20th Century, technology has allowed advanced economies to substitute physical capital for manual labor in the production of goods and services. Machinery, computers, and other technical infrastructure have required skilled workers to design and operate; this so-called “skill-biased technological change” increased the relative demand for skilled workers.25 While demand for skilled labor has continually increased, the supply of college-educated workers has not kept pace. The 1960s and 1970s were associated with an increase in college attendance, leading to a rapid influx of skilled workers into the labor force in the 1970s, and thus decreasing the skill premium in that period. However, the relative supply of college-educated workers has slowed since the 1980s, which further magnified the increases in the skill premium (see panel B in Figure 5).26 (14-15)

In other words, college is where people learn to use computers by typing up long papers (or where they learn to unscrupulously buy them off the Internet).

David Autor’s 2010 paper on job polarization (PDF) is the basis for the report’s skill premium argument, and I have to credit Eberly and Martin for condensing him so succinctly, as his paper is not so clear. I admit I’ve never heard anyone say that the deceleration in degree-conferring has caused wage polarization between college-educated and high school-educated workers, but it’s still unpersuasive. Here’s Autor’s reasoning with some of the gaps filled in by me:

(1)  Demand for high-skill jobs is increasing due to “skill-biased technological change” and the “competitive global economy.”

(2)  The rate of increase in the supply of high-skill workers is decelerating.

(3)  As a result, high-skill workers’ wages are separating from low-skill workers’ wages.

(4)  (Low-skill workers’ wages are dropping for other reasons too, e.g. union-busting and off-shoring, but it’s absolutely impossible to raise wages for low-skill workers.)

(5)  (College education is the only way to beat skill-biased technological change.)

(6)  (All high-skill workers are equally fungible, i.e. course of study doesn’t matter.)

(7)  The solution is to increase the supply of high-skill workers to fill the wage gap and … reduce their expected wages. Yes. Severely reduced pay for all.

The biggest fault here is in proposition one. Plenty of people in the U.S. have disproportionately high earnings for reasons other than mastering the “vlookup” function in Excel. Examples abound: Bain Capital’s principals’ fortunes came about essentially by bankruptcy fraud; three Wall Street executives were convicted over a massive nationwide bid-rigging scam of municipal bond markets; and the tax code leaves all kinds of unearned incomes untouched, like patents, copyrights, and land rents. The dream of meritocracy conceals the reality of kleptocracy.

To Be Continued…

Send a Comment to the ABA Task Force on the Future of Legal Education

A while back I wrote about how the ABA was convening a Task Force on the Future of Legal Education and how it has its work cut out for it. It’s asking for comments before its February 9 meeting in Texas, so if you feel like saying something, do so. I’m reprinting my comment here, with a couple of corrections to watch out for in the endnotes. I admit I didn’t plan on submitting a comment until I was asked to, but it helped me summarize my thoughts on what the problems are and how they should be solved. It also gave me an opportunity to dumpster-dive into the LSTB and find posts on topics that don’t come up often but lurk in the background. The LSTB crested 300 posts recently, so there’s a lot there.

I’ll add that some of the comments are quite good (UC-Hastings dean Frank Wu’s is getting some deserved attention), and I mentioned a few of the better ones. I’ve at least skimmed through all of them (not so much the one by the Canadian lawyers that spanned hundreds of pages), but of the ones uploaded after mine I recommend most the one by UC-Los Angeles law professor Richard L. Abel because it addresses the history of how lawyers are licensed in the U.S.

****************************************

Matt Leichter

[email]

lawschooltuitionbubble.wordpress.com

January 16, 2013

Task Force on the Future of Legal Education

c/o Art Garwin, Deputy Director

Center for Professional Responsibility

American Bar Association

futurelegaled@americanbar.org

To the Honorable Randall T. Shepard and Task Force members,

I write at the encouragement of Task Force member Thomas Lyons, and I thank you for considering outside opinions such as my own. The Task Force is to be commended for accelerating its timetable, for such eagerness reflects positively on the ABA’s willingness to take seriously the problems facing new lawyers and legal education.

Until now, legal education reform has primarily focused on what I consider “demand-side issues”: furnishing more accurate information about law school graduates’ employment outcomes to prospective applicants so they can hopefully make informed decisions about becoming lawyers. The ABA Section of Legal Education and Admission to the Bar responded quicker to the information deficit than I’d predicted, but the successes of demand-side reforms of legal education pale against those problems remaining on the supply-side of lawyer licensing: The barriers to obtaining a law license (which includes law school costs) are too high and arbitrary, and they harm both aspiring lawyers and the public the profession serves. I recommend the Task Force consider legal education as one of many practices that require reform.

The Task Force Should Encourage the ABA to Shift Its Position on Federal Student Loans and Bankruptcy Reform, Embrace Novel Education Financing Options

            That said, the education requirement for becoming a lawyer is obviously the most salient issue today, but recognizing that one of the Task Force’s subcommittees is dedicated to improving the delivery of legal education, I believe this is one of the last items that require revision. Overall, I find demands for “practice-ready” attorneys to be a distraction from more legitimate concerns. If employers want certain skills they should train their workers themselves and advocate simplifying the lawyer-licensing process accordingly. That’s how it works other industries, and asking educators to provide training for jobs that employers aren’t obliged to create costs students unfairly.

Rather, the dominating problem with law school is the over-generous Federal Direct Student Loan Program (DLP), which obligingly lends most students up to $20,500 in Stafford loans and the remaining total cost of attendance plus living expenses in Grad PLUS loans each year. I believe that access to unlimited student loans, well-intentioned as it may be, enables law schools to increase their tuition for as long as people are willing to attend them.[i] I suspect that without Grad PLUS loans and the restrictions on discharging private student loans in bankruptcy, both authorized in Congress’ 2005 bankruptcy reform,[ii] tuition at private law schools would have begun to level off or even decline by now because students would have been unable to finance it.

My views break with those long held by the ABA, which regularly supports increased lending to law students,[iii] and calls for ending the DLP are often met with hostile responses that the legal profession would only be accessible to the wealthy. I disagree. With the Bureau of Labor Statistics predicting a surplus of law school graduates into the indefinite future, I see no justification for the government to lend money to people to buy degrees for which jobs are unavailable.[iv] Nor am I convinced that legal education is a public good requiring government support. I further believe the often-made claim that legal education is versatile and opens job opportunities beyond law practice to be unsubstantiated and fallacious.[v] Cheaper lawyer training is possible, and the current system does not open doors to the poor but in fact creates poverty by saddling law students with large loan burdens.

Consequently, many of the people who will graduate law school in the future, to say nothing of those from the past, will have very large debts and no place in the legal profession commensurate with the effort they put into law school. Although the government’s Income-Based Repayment (IBR) plan will rescue these students from destitution, it will still require them to pay essentially an additional, regressive tax on their earnings for twenty years, which will be acutely felt if they are not working as professionals. IBR’s loan cancelation privilege (if it is not abolished in the near future)[vi] coupled with excessive loan burdens persuade me that the federal government will lose billions of dollars canceling money lent to law students. Law schools and the ABA ignore the approaching confrontation with legislators at their own peril.

The ABA’s most-recent response I know of to existing student loans is to advocate requiring private lenders to extend IBR-like protections to debtors.[vii] I think instead the ABA should shift its position towards reforming the bankruptcy code to restore full bankruptcy protections to all student loans and ending the DLP. It can also encourage state governments to require their public universities to offer, instead of debt financing, an equity option called “human capital contracts,” which obligate graduates to pay a certain portion of their incomes for a fixed time period back to their universities. Unlike IBR, this type of policy forces universities to internalize the costs of their own programs, and if their programs become insolvent, universities should terminate them.[viii] Embracing these policies would signal to the public that the ABA understands the causes of factors enabling law school tuition increases and excessive student debt, and it would begin to heal the generational rift forming between new law school graduates and the profession from which they are increasingly alienated.

As for the law schools themselves, the student loan system animates many of their frequently discussed inefficiencies, such as competition over U.S. News rankings, overcompensation of employees, needless new buildings, funding positions for graduates to improve their employment statistics, over-focusing on GPA and LSAT scores at the expense of other factors,[ix] and using fees from some students to attract well-credentialed students with scholarships. If possible, rather than regulating bad behavior, the ABA should address the incentives that encourage bad behavior.[x]

Even other reforms such as easing accreditation requirements or reducing the required number of credits for law school[xi] might not affect how law schools operate so long as their students are fully financed by the government. For example, many private law schools that do not rank very highly on U.S. News are nevertheless very expensive. Also, the lure of federal loan dollars is so powerful that many law schools in states that license graduates of non-ABA institutions forgo the option of delivering cheaper legal education in favor of national accreditation and the DLP loans that accompany it. For these reasons I believe the Task Force should take student loan reform as the most urgent priority for law licensing and legal education reform.

The Task Force Should Encourage Bar Authorities to Reduce Remaining Entry Barriers to the Profession

Student loans, however, are not the only problem the profession’s entry system faces. In recent years critics have used the discontent directed at law schools as an opportunity to advocate for deregulating the legal profession entirely. Many of their arguments are poorly researched, particularly those demanding reform by claiming without evidence that doing so would cure an attorney shortage in the United States.[xii] They are correct that the profession’s entry barriers are arbitrary, and the longer the profession defends them and the DLP, the more likely outside forces will unilaterally rescind its autonomy. Outside of the risk of incompetent practice, this might not be a bad thing, even if done for the wrong reasons, but rather than resisting calls for change, the Task Force should acknowledge the weaknesses in most states’ lawyer-licensing rules and encourage efforts to change them.

For instance, bar exams in their current form are not defensible entry barriers. They almost always occur long after bar petitioners have sunk enormous costs into legal education,[xiii] they are too hard for some people who might otherwise make fine lawyers (“false negatives”), they test many obsolete legal doctrines, and they also omit entire substantive practice areas to which many attorneys dedicate their entire careers. Although I agree that some showing of legal knowledge (especially of ethics and constitutional law) is justifiable, demanding too much is not. Streamlining bar exams along practice lines would greatly reduce the incidence of false negatives among bar petitioners and conserve resources for all test-takers.

Simplifying the bar would also reduce the possibility of law schools knowingly accepting applicants who probably lack the aptitude to pass the exam because of the correlation between LSAT scores and bar passage.[xiv] Perhaps between five and ten percent of ABA law school graduates who take a bar exam never pass. Some test-takers might take more than one exam, passing one and not another, but the ABA should do everything in its power to prevent law schools from enrolling students who will waste precious time and money for a license they probably will not obtain, even if it means tightening bar passage requirements for accredited law schools. It’s unfair to deny people a place in the profession because the exam wasn’t calibrated to the knowledge they need as practicing attorneys. It’s also unfair to the clients they could have served.

It’s also probable that the law licensing system allows too many “false positives,” people who by virtue of their LSAT scores and GPAs appear to make good lawyers but don’t.[xv] I’m not knowledgeable of data on firm associate retention rates or similar topics, but front-loading the legal education requirement makes it too easy for people who do not know if law practice suits them to enter the profession. It also widens the information asymmetry between law school applicants and law schools, which the latter has greatly used to their advantage by admitting applicants who serve law schools’ reputational goals before their students’.

The mandatory legal education requirement doesn’t serve potential lawyers well either. For instance, the aforementioned correlation between LSAT scores and bar passage rates disserves those on the opposite end of the bar exam aptitude spectrum as well, which raises the question: Why require someone who will likely pass the bar exam by self-study anyway to attend law school? If the principal benefit law school provides these individuals is signaling their competence for good job opportunities, then I believe the Task Force should consider eliminating the formal legal education requirement altogether.

Conclusion

Declining applications and hostility towards law schools and law practice are teaching the public that demand for legal education (or, rather, law licenses) is not connected to demand for legal services. If the near-term solution to many of legal education’s problems is curbing the government’s lending to law students, the longer-term solution is to align the profession’s licensing system to the public’s need for legal services. I believe adopting my suggestions will accomplish both goals.

Thank you for considering my thoughts.

Regards,

Matt Leichter

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[i] For information on the theoretical basis of my beliefs, I recommend, Andrew Gillen’s “Introducing Bennett Hypothesis 2.0,” from the Center for College Affordability and Productivity. http://centerforcollegeaffordability.org/uploads/Introducing_Bennett_Hypothesis_2-1.pdf (PDF). I have yet to see a convincing author discredit Gillen’s analysis.

[ii] [Update: This is incorrect. Grad PLUS loans were authorized separately from bankruptcy reform by Congress in February 2006.]

[iii] See e.g. ABA president Carolyn Lamm, “Law School Debt Has a Manageable Solution,” 2009. http://www.americanbar.org/groups/law_students/initiatives_awards/advocacy/debt_solutions.html

[iv] Bureau of Labor Statistics, “Lawyers,” Occupational Outlook Handbook. http://www.bls.gov/ooh/legal/lawyers.htm

[v] Matt Leichter, “The Juris Doctor Is ‘Versatile’ Thanks Mainly to Numerous Logical Fallacies,” The Am Law Daily, August 14, 2012. http://www.americanlawyer.com/PubArticleALD.jsp?id=1202567415810&The_Juris_Doctor_is_Versatile_Thanks_Mainly_to_Numerous_Logical_Fallacies

[vi] One bill that may make its way through Congress proposes to end the loan forgiveness portion of IBR for future students, which will condemn many law school graduates to a lifetime of debt. http://www.bloomberg.com/news/2012-12-04/student-loan-collection-targeted-for-overhaul-in-congress.html

[vii] ABA Resolution 111A, Young Lawyers Division, http://www.abajournal.com/files/111a.pdf (PDF).

[viii] Similar ideas have been proposed by a student organization advocating reform of the University of California systems, called “FixUC,” which I wrote about here: http://lawschooltuitionbubble.wordpress.com/2012/01/23/fixuc-stumbles-onto-human-capital-contracts/.

[ix] One comment to the Task Force that illustrates law schools valuing incoming student credentials over applicants’ strengths is by non-traditional law student Elizabeth Paskiewicz, who has significant experience in the legal profession as a non-lawyer and performed very well in her paralegal education, but most ABA law schools overlooked her because of their mechanistic decision-making processes that exclude applicants with low undergraduate GPAs.

[x] For example, even without the student loan system, law schools still have an incentive to compete over their magazine rankings, which is fine, but they may still falsify student data they send to the ABA. If so, then auditing them is a good idea.

[Update: This sentence didn't come out right. Something more like "If possible, rather than regulating bad behavior, the ABA should address the factors that aggravate bad behavior." My point is that we might not be able to live in a world where law schools don't engage in needless competition (over their U.S. News rankings, for example). Regulations like auditing make more sense if addressing the loan program is insufficient.]

[xi] Although there have been growing calls (most recently in New York) to reduce the education requirement from three years to two, I discourage the Task Force from endorsing such proposals simply because the third year is expensive and not useful. This ignores the root cause of tuition increases, and one private law school in five has raised its tuition by 50 percent or more since 1999, meaning two years in 2011 buys a full degree then. Rather, I recommend the Task Force address the DLP but flip the question of usefulness around: How much formal legal education is necessary and why?

[xii] The primary example that springs to mind is Clifford Winston’s, Robert W. Crandall’s, and Vikram Maheshri’s book, The First Thing We Do, Let’s Deregulate All The Lawyers, 2011. A blurb from their Wall Street Journal article on the subject can be found on TaxProfBlog: http://taxprof.typepad.com/taxprof_blog/2011/08/its-time-.html. I’ve written more on the topic: http://lawschooltuitionbubble.wordpress.com/2011/08/23/wsj-op-ed-brings-shock-doctrine-to-law-practice/, http://lawschooltuitionbubble.wordpress.com/2011/09/02/the-economist-has-never-heard-of-the-bureau-of-labor-statistics/.

[xiii] One influence for this section are the sentiments expressed in the comment to the Task Force by Nicholas L. Georgakopoulos.

[xiv] Here are two examples documenting the connection: http://www.unc.edu/edp/pdf/NLBPS.pdf (PDF); http://academic.udayton.edu/thewhitestlawschools/2005twls/chapter2/Legaled04.htm (more recent, but hearsay).

[xv] I believe the “26 factors of lawyer effectiveness [plus one]” cited in Nancy B. Rapoport’s comment to the Task Force are the definitive factors for “true positive” lawyers.