CBO Projects Additional $1.3 Trillion in Student Loan Debt by 2024

…And that’s just the government loans.

Forget Erwin Chemerinsky’s and Carrie Menkel-Meadow’s NYT op-ed, the real news is the Congressional Budget Office’s baseline projection of the federal student loan program for FY 2014-2024. Notably, it thinks that over the next 11 years the government will lend out another $1.3 trillion in direct loans and that it’ll even make $1.10 per dollar lent. $115 billion of that will be Grad PLUS loans (9 percent).

Federal law requires the CBO to account for student loans by comparing the net present value of federal loans to investing in government debt. It doesn’t make a lick of sense, and the CBO would rather use fair-value accounting to evaluate the loan risk, so its hands are tied behind its back.

…But that doesn’t mean we can’t laugh at its absurd projections for Grad PLUS loans, about 30 percent of which go to ABA law school law students.

For one, the CBO believes that the government will make more than $1.30 on the dollar from Grad PLUS loans.

2014 Student Loan Baseline Projections (2)

(Click to Enlarge)

In the real world, most people who take out large balances of Grad PLUS loans will use IBR and then cancel their loans after 20 years. I’d be very surprised if non-law graduate and professional students counterbalance the losses the government will take on these loans. Another prediction I don’t think will pan out is the increase in the average amount borrowed and the number of borrowers.

The other fantasy is subtler: The CBO expects interest rates to spike over the next few years. By 2018, students will be borrowing at the maximum legal interest rates because either the economy will recover magnificently, or the bond vigilantes will finally come and stop lending the government money. (Then, of course, there would be a run on the dollar, export demand will spike, and we’ll return to full employment, but that’s off-topic.)

2014 Student Loan Baseline Projections (5)(Click to Enlarge)

If you do the math, on a 10-year repayment plan (which is used for calculating 20-year IBR monthly payments), law students entering today will pay a maximum additional 5.3 percent in interest for their 3L Grad PLUS loans over their 1L ones this fall. In other words, the CBO predicts law school’s costs will increase even as schools flatten or cut tuition.

I wonder if law professors writing op-eds agree.

New America Foundation Discovers Law School Debt Disaster

Via Jordan Weissmann of Slate, the New America Foundation (NAF) issued a policy brief titled, “The Graduate Student Debt Review.” It opens with a suspiciously leading question, “Is America’s student debt problem due more to expensive graduate degrees than unaffordable undergraduate educations?” Like, why would it think graduate debt is a bigger problem than undergraduate debt? Hm … If I didn’t know any better I’d say the NAF has it in for Grad PLUS loans…

…Which I have no problem with. If the NAF wants to dress up in camos, put on war paint, and emerge from the lagoon with a machete clenched in its teeth as it hunts down the beast of unlimited student lending, I say have at it. I might even sneak into the theater to watch.

The obvious question, though, is what does the NAF mean by “America’s student debt problem”? I know what I think it means, but the NAF’s justifications appear to be different:

Students, families, and taxpayers invest significant resources in financing “college,” in large part because a bachelor’s or associate degree is a must for anyone who wants to secure a middle-class income. If students are taking on unmanageable debt to earn those credentials, then many would argue that the system isn’t working. We should not, however, draw the same conclusions from debt levels of students who attend graduate and professional school. While a graduate or professional degree boosts a student’s earnings prospects and the economy at large, it is not the foundation for economic opportunity and middle-class earnings that a two- or four-year degree now provides. (2)

My eyes bleed reading such ideology.

So if someone goes to college, doesn’t take out a lot of debt, but ends up among the 20 percent of graduates who earn less than the median high school graduate in the same age bracket, then the higher education system is working? What about the average defaulted federal loan balance being less than $15,000? How is the system working if someone can borrow a lot of money and pay it off even if they learned their skills on the job?

If I were paranoid, I would suspect that the NAF’s goal is to cut off the worst abuses of the student loan program to save it from critics who think higher education is mostly a positional good. That, or it’s innocently confused on the theoretical debate (such as it is in Washington). Recall that the NAF advocated eliminating Grad PLUS loans while increasing the unsubsidized Stafford loan limit to restore students’ lost purchasing power. It reasoned that Grad PLUS loans can “discourage prudent pricing on the part of institutions,” but the mainstay Stafford certainly does not because education is necessary for the middle class and $30,000 of student debt isn’t so bad.

Okay, so the NAF is probably motivated by a (correctly) assumed conclusion, but what about its findings?

The point of the policy brief is to show that graduate and professional students are borrowing more than a few years ago and that their borrowing accounts for a large portion of total federal student loans (40 percent of the evil $1 trillion+ figure). Therefore, we should separate trends in college borrowing from post-college borrowing. As evidence, the NAF sampled a dataset of people who finished several types of graduate and professional programs in 2004, 2008, and 2012 and displayed their median, 75th percentile, and 90th percentile debt levels.

The tables the NAF provides are interesting for what they are, and along with data provided elsewhere they do show that typical grad students’ debt levels are growing more than undergrads’. However, the tables don’t really answer the questions the NAF is asking. If 40 percent of all student loans are owed by graduates and professionals, we’d want to know the distribution of that 40 percent aggregate by course of study. (How much of it went to med school students? Is it really as bad as those law school scambloggers say? Etc.) That way, we’d know if the growth seen in the tables is systemic as the NAF asserts or isolated to a handful of degree fields.

Instead, the NAF tells us median debt levels for graduates in all fields have gone up, but we knew this already because Grad PLUS loans can go to living expenses and relatively few 2008 grads used them. In a sense the NAF equivocated when it asked, “Is America’s student debt problem due more to expensive graduate degrees than unaffordable undergraduate educations?” Are graduate degrees expensive because tuition costs more or because people are borrowing from the government to leave near campus? We can’t tell, but in Weissmann’s post, the brief’s author, Jason Delisle, claimed Grad PLUS loans mightn’t responsible for the increasing medians but probably the increases at the 75th and 90th percentiles. I don’t believe him either, but that’s what happens when you deny the possibility that credentials are positional goods.

One big reason a distribution analysis would have been more useful is that median debt levels in most graduate degree fields grew by less than $10,000 between 2008 and 2012, and the overall median was only $6,854 higher. The median for “medicine and other health sciences” grew by $23,700, but law grads, as always, stole the show: $44,500 more debt in four years. Indeed, very savvy readers will note that at $128,000, the median 2012 law grad’s debt load was way higher than the weighted average grad’s debt (~$107,000 by looking at the number of graduates and U.S. News debt rankings).

If there’s anything to say about graduate students and debt from this policy brief, it’s that the NAF has discovered that legal education is a unique disaster in higher education.

Instead, it lectures:

Students pursuing [graduate and professional] degrees already have an undergraduate degree, and they should be far more informed consumers. Therefore, they shouldn’t need a lot of public support to finance their next credential, which is why there are no Pell Grants for master’s degrees.

I can’t tell if the gratuitous phrase, “should be far more informed consumers,” is a normative statement against the grad students, their undergraduate institutions for failing to educate them properly, or the grad programs for pitching degrees of dubious value. Chalk one more up to the strategic use of the passive voice, I guess. The worst-case scenario is that the NAF believes that everyone who goes to grad school knows about IBR’s loan cancelation feature, so they irresponsibly attend thinking they won’t have to repay their debts even though they make lots of money because they’re so amazingly educated.

If you think I’m being hard on the NAF—well, I am—but the point is that its policy brief is a bellwether. The Grad PLUS Loan Program is not long for this world, and that’s a very good thing. On the other hand, the NAF is not the ally to the working class—sorry, “middle class”—it fantasizes to be. It’s very much enthralled by human capital theory, and it won’t pay any price if people graduate from college and don’t collect any premium.

Pew Research Center Publishes Non-Sequitur to Send Everyone to College

Readers will recall that the first time the LSTB crossed paths with a study by the Pew Research Center, it committed the mother of composition fallacies by applying findings for professional degrees to J.D.s only. It was a poor effort but instructive of Pew’s college-for-all agenda. Its most recent study, published on February 11, goes all-in on the you’re-hosed-if-you-don’t-go-to-college line. It’s titled, “The Rising Cost of Not Going to College,” and opens triumphally:

For those who question the value of college in this era of soaring student debt and high unemployment, the attitudes and experiences of today’s young adults—members of the so-called Millennial generation—provide a compelling answer. On virtually every measure of economic well-being and career attainment—from personal earnings to job satisfaction to the share employed full time—young college graduates are outperforming their peers with less education.

There are two problems here:

(1) I don’t care about Millenials’ “attitudes” based on Pew’s surveys. I’m not saying that the Pew Center is dishonest in its methodology or interpretation; rather, Millenials’ perceptions don’t address any of the criticisms “those who question the value of college in this era of soaring student debt and high unemployment” have raised. The same situation arose recently with a survey of law students’ opinions about law school. They said they felt they were getting a good legal education, which is fine, but it doesn’t mean that there were jobs for them afterward that allowed them to use the knowledge they gained and pay their debts.

Likewise, I don’t care if Millenials think their educations prepared them for their work; I care if it did prepare them, if it could have been delivered more cheaply, and if there were actually enough jobs available for them. Instead, the bulk of the study is an Orwellian effort to twist the simple finding that the economy’s deeply depressed, jobs are scarce, and wages are low into an advertisement for college education.

For example:

To be sure, the Great Recession and the subsequent slow recovery hit the Millennial generation particularly hard. Neither college graduates nor those with less education were spared. On some key measures such as the percentage who are unemployed or the share living in poverty, this generation of college-educated adults is faring worse than Gen Xers, Baby Boomers or members of the Silent generation when they were in their mid-20s and early 30s.

But today’s high school graduates are doing even worse, both in comparison to their college-educated peers and when measured against other generations of high school graduates at a similar point in their lives.

Yes, the economy’s better than in 2009, but how bad do things have to get for Pew to say that cyclical forces are a bigger cause of mass unemployment and reduced earnings than lack of college education?

(2) To say that college graduates are “outperforming” those with less education is a waste of time. The questions are whether all college graduates benefit equally (they don’t) and why they generally earn more than high school grads. If college education is mostly a positional good that signals preexisting abilities, then the problem is positional goods, not lack of education.

My subtlest part of the study is when Pew asked college graduates what they could have done in college to better prepare them for an ideal job.

Question: If everyone studies harder or looks for work sooner at the same time, how many jobs will they create?

Close to zero.

The Pew Research Center’s structural unemployment dogma is irresponsible and wholly without basis.

Carnevale’s (and Obama’s) College Jobs Clock Is Ticking

For some reason, last month the Orlando Advocate published the White House’s response to the petition drive to forgive student loan debt to stimulate the economy. I say “for some reason” because the administration’s response first appeared in October 2011, not December 2013.

Nevertheless, one of the administration’s factoids stuck out:

Over the past three decades college tuition has grown 10 times faster than a typical family’s income, making higher education unattainable for many; however, more than 60% of jobs in the next decade will require more than a high school diploma. It is more important than ever for Americans to get a good education to stay ahead in an increasingly global economy. [Emphasis LSTB]

President Obama parroted this line a few weeks later:

Now, I mentioned that we live in a global economy, where businesses can set up shop anywhere where there’s an Internet connection.  So we live in a time when, over the next decade, 60 percent of new jobs will require more than a high school diploma. And other countries are hustling to out-educate us today, so they can out-compete us tomorrow.  They want the jobs of the future.  I want you to have those jobs.  (Applause.)  I want America to have those jobs.  (Applause.)  I want America to have the most highly skilled workers doing the most advanced work.  I want us to win the future.  (Applause.) [Empasis LSTB]

I love this line because it’s so absurd while scoring points on America’s trade paranoia. In Obama’s worldview high-paying jobs are a zero-sum game (but don’t worry “free trade” agreements are good for some reason).

Interestingly, the 60 percent figure is possibly an upward revision from the president’s 2011 State of the Union Address, where he said that more than half the jobs over the next decade would require a college degree of some kind. He emphasized the importance of having the highest proportion of college-educated workers in the country compared to others, as though that metric alone is a measure of “competitiveness,” whatever that means.

The 50%-60%+ figure raises an eyebrow, and I was curious where the president got it from. My best guess, and one confirmed by jurisdebtor’s comments here, is the LSTB’s old friend, the Georgetown Center for Education and the Workforce. In a paper titled, “Help Wanted: Projections of Jobs and Education Requirements Through 2018,” authors Anthony P. Carnevale, Nicole Smith, and Jeff Strohl argue that the BLS’s employment projections systematically underestimate the future demand for educated workers. So great will the demand for college education be that by 2018, the U.S. will be short 300,000 college graduates annually. Holy cow!

How does the GCEW arrive at such alarming conclusions? Well, you’ll have to turn to Appendix 4 for that. Really, did you expect such a crucial methodological disagreement that forms the backbone of the paper to be discussed up front?

BLS’ educational and training requirement data undercount postsecondary degrees by 22 million in 2008. This implies that 22 million workers are overeducated. The overwhelming consensus in the literature contradicts this. (127)

The primary cause of this discrepancy, according to GCEW, is that the BLS misses “upskilling,” e.g. auto mechanics today require more training than they did 30 years ago, but the BLS still classifies the occupation as one requiring only a high school diploma.

The problem with GCEW’s analysis is that the issue is not how much upskilling is going on in each occupation; rather, it’s the distribution of overqualified workers in each occupation. In other words, what occupations do the 22 million overqualified people work in?

Thanks to the BLS’s update of its employment projections, we have an answer. Here’re the top 20 occupations held by the 12.8 million underemployed bachelor’s degree holders that require a high school education and less. These 20 account for more than half of the 12.8 million workers.

Percent of 12.8 Million BA's in HS & Less Jobs

Not seeing any auto mechanics here, but in fairness I can see some managers benefiting from a college education. However, Carnevale et al. are going to have to show why we should believe retail salespeople who have a bachelor’s degree are more productive than their high school graduate counterparts.

To give you some more bare numbers, for those with a bachelor’s degree and higher, 15.9 million people are working in high school and less jobs. The overall underemployment rate for those with any kind of college degree (including, e.g. PhDs working in jobs that require only a BA) is 36.7 million. By contrast the number of college-educated workers in jobs for which they are qualified or underqualified is only 20.5 million.

As for the future, of the 55.7 million jobs that the BLS now predicts will be created by growth and replacement by 2022, only 30 percent will require anything more than a high school diploma. 23.4 percent will require a bachelor’s degree or more.

In short, the GCEW has four years for 15.9 million Americans aged 25 and over with a bachelor’s degree or more to find jobs that fully use their credentials, to say nothing of everyone else who is still underutilized like well-educated nurses. The Obama administration, though it ends in 2017, has until 2020 for the prediction to come true.

Happy New Year. The college jobs clock is ticking.

College Pays (Some Restrictions Apply, Void Where Prohibited)

Nancy Folbre of the TimesEconomix blog leads us to the College Board’s most recent exercise in post hoc ergo propter hoc human capital reasoning, “College Pays” (PDF). Its most insightful figure, 1.6, is on page 16: “Median Earnings (in 2011 Dollars) of Full-Time Year-Round Workers Ages 25-34, by Gender and Education Level, 1971-2011.”

Figure 1.6

Using median earnings and the 25-34 bracket are good moves. Full-time, year-round workers, however is a little dubious, though that’s the only consistent source the College Board had for 1971-1993 (Condition of Education 2004a, Supplemental Table 14-1), so I don’t mind it so much.

What I do mind, though, is the median-to-median comparisons because they hide college-educated workers who earn less than the median high-school graduate. Presumably college wasn’t that great an investment for them. On the other hand, I like the percentile-to-percentile comparisons found in Figure 1.5, which shows earnings ranges for all full-time, year-round workers ages 25 and up, except it’s not the more relevant 25-34-year-old bracket that the College Board used in Figure 1.6. Our loss.

Figure 1.5

For the record, at least 20 percent of 25-34-year-old college graduates who had any earnings (not just full-time, year-round workers) earned less than the median high school graduate the same age. Also, the Census Bureau omits people who earn nothing, which these days is about 12 percent of all college graduates and a quarter of all high-school graduates.

Percent Range College Grads Earning Less Than HS (25 - 34) Percent 25-34 With Zero Earnings

(Source: PINC 03, author’s calculations and did he mention that student loan debt has gone up?)

As always, the College Board’s actual findings are college pays off, if it pays off, when it pays off.


To editorialize on Folbre’s response, she correctly points out that the median college graduate today earns less than in 2000, to say nothing of 1971, and she notes that in fact many college graduates are simply displacing high-school graduates in the job market. Her metaphor is very similar to what I had in my mind:

Many college graduates are simply displacing less-educated workers from the jobs they once held, scrambling up the attic stairs to the roof of a bungalow whose first floor, inhabited by mere high school graduates, is now largely underwater.

I’d characterize it as people clinging to a ladders that’re sinking into the ocean, and the energy spent jumping from the “high school” ladder to the “college” ladder just to remain at the same altitude equals the rents transferred to universities.

Although Folbre isn’t a cheerleader like the College Board, her explanation for poor college payoffs is a bit iffy. To her, U.S. college-educated workers were hit with a supply shock of similar college-educated workers overseas, e.g. China quintupling the number of bachelor’s degrees it was conferring between 1999 and 2005. As the charts above show, however, plenty of college-educated workers haven’t been doing well for a while, which raises questions about the human capital hypothesis.

Trade doesn’t explain why 20 percent of high-school graduates between 25 and 34 have been in zero-earnings territory since the dot-com bust, much less 25 percent now. That’s obviously a lack of demand in the economy that’s best explained by the trade deficit rather than trade itself. Our trading partners are job-destroying neo-mercantilists, not comparative-advantage Ricardians.

Folbre also isn’t willing (in this post at least) to acknowledge other U.S. underconsumptionist policies of rewarding unearned incomes while taxing earnings, which is another monster problem that keeps workers chronically underemployed regardless of their education.

“College Pays, Sort Of” Indeed.

Why Would Admissions Offices Think the LSAT Nosedive Is Temporary?

The National Law Journal ran an article recently about the low October 2013 LSAT numbers. It quoted Drexel law professor Dan Filler saying, “I think there was a kind of optimism bias among a lot of people in the academy, and maybe a sense of disbelief that the number of applicants could and would continue to decline.” Later he said that some law deans had requested funding from their universities arguing that the nosedive would “reverse or at least level out.” The University of Michigan’s Sarah Zearfoss also opined that “admissions officials” believed the low drop in June LSATs this year indicated a leveling off.

These statements are all hearsay, but that doesn’t mean we must disbelieve them. Nevertheless, the “surprised” response raises the obvious question: Why do law schools and parent universities believe that people will suddenly start taking the LSAT and applying to law school again or that the decline will stop?

To begin with, past experience indicates that law schools should be booming right now as young people are thoroughly jobless. I’ve been sitting on this for a few months, but now I think it’s time to trot it out: The 2001 Official Guide contains the total number of LSATs administered going back to 1963. If you want “past experience,” this is it.

Enrollment, LSAT, & Application Data

(Source: ABA, LSAC)

I count five peak-to-trough cycles: 1973-1980, 1981-1985, 1990-1997, 2002-2005, and 2009-2012+.

Here are their average annual rates of decline. (I’m not going to bother compounding them.)

CYCLE Average Annual Growth Rate
1973-1980 -3.12%
1981-1985 -6.31%
1990-1997 -5.29%
2002-2005 -2.42%
2009-2012+ -13.07%

So yes, in case you were wondering, the current annual decline is more than twice as steep as any previous one, the only caveat being that the typical composition of first-time and repeat test-takers might be significantly different from previous years because of the rule-change allowing law schools to report applicants’ highest LSAT scores rather than averaging them.

Whether the 2013-14 administration year will be lower than the 1997-98 one (103,991) is disputable, but given that there were fewer total applicants in 2012 than 1985, it’s possible that first-time takers are at an all-time low going back to the 1960s. The last 1L low point was 1986 (40,195), and 2013 might have crossed that line. If it hasn’t, 2014 probably will.

Another observation worth noting from the chart: 2012 was the first year that there were more graduates than 1Ls, a phenomenon that should continue for the next few years until a trough is reached. It further illustrates the steepness of the current nosedive(s).

…Which returns us to the question of why the academy is surprised we’re not there yet. Looking at the older LSAT data demonstrates just how countercyclical demand for legal education was until 2009. Each of the LSAT peaks pretty much coincides with recession years: 1973, 1981, 1990, 2002, and 2009. The troughs coincide with recoveries. I’m recalling that Slate article from a few months back rationalizing the applicant nosedive on what now passes for “economic recovery.” You get the point, though. It would be one thing if the economy had recovered rapidly, but it didn’t at all. This is the first “cyclical” downturn in LSATs.

Part of the academy’s surprise, I guess, is that belief in the human capital hypothesis in a sense cuts both ways. Law schools continue to believe (and argue) that their degrees make people more productive and aren’t at all positional goods. It follows that they would be surprised that LSATs/applicants/1Ls/etc. would decline past the boundaries of the normal cycles in legal education over the last few decades.

I suppose at some point an equilibrium will be reached because some law schools can credibly promise their graduates access to elite law careers, regardless of biglaw’s fortunes. For instance, going by the Current Population Survey and Occupational Outlook Handbook, all levels of government reliably employ roughly 127,000 to 160,000 lawyers, about 16-18 percent of the total. That, and demand for legislators, judges, and corporate honchos of various stripes will keep law a winning career for some. When the alternative is underemployment, elite law schools will always be able to find people willing to graduate with higher debt-to-income ratios than their predecessors.

A lot of other people will continue to attend due to misinformation, believing that the degree will signal more than it does. At some point the damage done to them will be mitigated whenever student loan reform comes along, but you can’t prevent everyone who shouldn’t go from going, especially when they face desperate unemployment as an alternative too.

As a final, philosophizing note, I see the irreparable, generational shift in attitudes toward law school as a limited political victory against Americans’ fetish for positional goods. (I use “positional” rather than “Veblen” because I’ve come to think all Veblen goods are either positional goods or some other explainable exception to the neoclassical theory of demand.) The sequence of events is: see wealthy with positional goods, get angry, legislate subsidy for poor people to access positional goods (student loans, subprime mortgages), watch poor get poorer fighting their way up the ladder, and then spitefully deny them liquidation rights.

I don’t expect admissions officials to agree, but I am interested in what their response will be in the next couple years when the numbers of LSATs, applicants, and 1Ls reach record lows going back as far as most of the profession can remember.

I would, however, like it if people and politicians recognized that subsidizing zero-sum wealth is self-defeating.

Good News: Students Borrowing Less From Education Department

The bad news is that I just updated the LSTB’s student debt data page, but revising it again is my problem, not yours.

For those in the know, the Department of Education (ED) tracks the amount of debt the government lends out each quarter (and each academic year), going back to the late 1990s. Here’s total borrowing by loan program, which includes direct loans and guaranteed loans back when they were around.

Amount of Federal Loans Disbursed

Don’t let the 2012 data throw you. Because Congress stripped subsidized Stafford loans from graduate and professional students, the 2012 bars’ meanings completely changed from previous years. Now all subsidized Stafford loan borrowers are undergraduates only, and ED kindly separated graduate unsubsidized borrowers from undergraduates. Nevertheless, the total amount of Stafford borrowing is dropping. In the 2011-12 academic year it was $85 billion; in 2012-13 it fell to $78 billion.

The declining loan volumes imply that the Office of Management and Budget’s long-term direct loan projections, which are discussed in the aforementioned student debt page) are probably high.

Projected Direct Loan Balance (OMB)

Less money lent out means fewer dollars likely to be lost to the program, so I consider this good news. However, the amount of money lent in 2012-13 is still sky high compared to the middle of the decade, and we don’t know who’s not borrowing, why they’re not borrowing, or whether their parents are just taking out dubious 410(k) loans instead.

Parent PLUS loan borrowing is down as well (-170,000 recipients), but that’s probably due to ED tightening the eligibility requirements on those loans. Grad PLUS loans are down slightly too, with about 18,000 fewer recipients. At most 2,000 of these can be attributed to law school graduates who were not replaced in the 2012-2013 academic year.

Here’s a chart of the number of recipients by loan type:

No. Federal Loan Recipients Per Year

(Note: the data point for unsubsidized undergraduate Stafford borrowers overlaps with the point for all PLUS borrowers in 2012, 6.9 million (left) and 697,000 (right), respectively.)

…And here’s the amount disbursed per recipient:

Amount Disbursed Per Recipient

Splitting graduate unsubsidized Stafford borrowers from the undergrads reveals just how much more graduate and professional students borrow. If grads and professionals go add Grad PLUS loans to their unsubsidized Staffords, they’re taking on more than $37,000 in debt in one academic year. Since there were 335,000 Grad PLUS borrowers last year, we can expect that in the near future, the highest student debt brackets (e.g. >$100,000) that we’re told aren’t really a problem will increase more quickly than the lower brackets. This much is not good news.

I’d give an update on the freestanding private law schools, but for some reason Western State didn’t appear in the data and I’m waiting for an explanation from ED.

Census Bureau to America’s Youth: ‘Don’t Grow Up!’

In the famous original Star Trek episode “Miri,” the Enterprise happens upon a world that is exactly like Earth in the 1960s (boy that gimmick got old), except the only people alive are a handful of children. The grown-ups—”grumps”—all died due to a deadly disease that was supposed to make everyone immortal. “Miri”‘s children, however, were hundreds of years old because they only aged one month per year.

Wackiness ensued.

Worse than life imitating art, children in the United States of America could only dream of living on the pseudo-Earth in “Miri.” This week, the Census Bureau updated its “Income, Poverty and Health Insurance Coverage” page for 2012, and most of the focus has been on the cratered real median family incomes. Indeed, last year the median family income was less than what it was in 1989. Heckuva job.

But I’m not here to dumpster-dive into Census data to comment on families’ incomes; rather, the update’s relevance to me is the 2012 person income tables, which contains the ever-so-useful PINC-03: “Educational Attainment—People 25 Years and Older, by Total Money Earnings in 2012, Work Experience in 2012, Age, Race, Hispanic Origin, and Sex.” PINC-03 goes back in some form or another to 1994, and it gives us personal earnings data on Americans in the 25 to 34 age bracket by educational attainment, courtesy of the Household Survey. It is awesome.

To get things rolling, here’s a chart showing the dispersion of incomes by education (with medians drawn in) in 2012 and a blow-up version to better show the LSTB’s favorite category, professional degrees:

Dispersal of Earnings by Education (25 -34) (Thousands, 2012) Dispersal of Earnings by Education (25 -34) [Blow-Up]

The PINC-03 tables measure incomes in $2,500 brackets, stopping at $99,999. After that they lump all incomes above $99,999 that into one category. Here’s a comparison:

Percent 25-34 Earning 100,000 by Ed (2012)

So what does the 2012 update add to the time series data beginning in 1994? Why, mass unemployment and declining incomes for young Americans!

Median Earnings by Education (25 - 34) (2012 $)

One of the neat tricks the government uses to buoy median incomes is to exclude people who have $0 earnings from the population (the denominator), figuring that we can’t tell whether people choose to leave the workforce or are involuntarily unemployed (because, you know, unemployment is voluntary). Excluding zero-earners makes less and less sense as we go up the education scale. Like, come on Census, you really expect us to believe that 12 percent of the people with professional degrees took on all that education debt and sacrificed prime working years just to earn nothing last year?

Percent 25-34 With Zero Earnings

As you can see in these last two charts, the professional degree-holder data are much noisier than the other categories, the reason being that they only comprise 1 percent of the 25 to 34 bracket. Small sample sizes bedevil us. The remaining categories I’ve depicted are all greater than 10 percent, so they’re likely more precise.

Now you might be asking, “Hey LSTB, how many college graduates are earning less than the median high school graduate?” and you would be clever for doing so, for the answer indicates that for many young Americans college does not provide a “premium,” unless you think being less unemployed than a high school graduate is an accomplishment. Because the PINC-03 tables provide the number of people by $2,500 earnings bracket, the next chart shows the floors and ceilings for how many people are above or below the median.

Percent Range College Grads Earning Less Than HS (25 - 34)


Now, another brief digression on professional degree-holders in the 25 to 34 bracket. Probably a substantial majority of them are law school graduates. I suspect that because according to the Digest of Education Statistics law grads dominate the 10-year degrees-conferred rate for professional school graduates.

10-Year Rate of Professional Degrees Conferred

(Source: Table 322, author’s calculations)

One thing to note is that while the 10-year degrees rate for the last couple of years has been nearly 900,000, the number of 25- to 34-year-olds in the PINC-03 tables with such degrees is usually half that. Either the Household Survey is consistently imprecise, wantonly excluding many professionals, or non-law school professionals don’t obtain their degrees until much later than 25. If the latter is true, then the “professional degrees” category in the 25 to 34 bracket is even more law grad-heavy than the rest of the population, justifying my hunch that “professional school grads” in these charts means law degree-holders and a handful of doctors.

So, here’s the percentage of professional school grads who earn less than bachelor’s degree-holders and high school graduates, aka The End of All Things.

Percent Profesisonal School Grads With Below-Median Earnings (25-34)

Three in twenty professional school graduates who have earnings at all earn less than the median high school graduate of the same age bracket, and one in eight of the total earns nothing. That’s a quarter of the total making less than the median high school graduate who has earnings. I’m not the first person to point this out, but no one goes to a professional school program to drop out of the workforce or be severely underemployed. If they do, then we’re way into credential inflation territory. And no, these people are not all in low-paying non-profit gigs, and if you say they’re going back to school to get better degrees, you get a grade-inflation immune “F”.

One more pair of charts, the percent of 25- to 34-year-olds with earnings greater than $100,000, adjusted for inflation.

Percent BA's With 100000 Earnings (25-34, 2012) Percent Pros With 100000 Earnings (25-34, 2012)

NALP, eat your heart out.

The collapsed earnings for young people depicted in these charts are among the most discouraging things I’ve ever seen since I started this blog. It’s as if the Grumps’ ultimatum to young Americans is: Either acquiesce to your stolen futures or don’t grow up at all. “Planet ‘Miri’ or Bust!”

Gene Roddenberry would roll in his grave if his ashes hadn’t been dumped into space.

Unsave the Date

For those of you paying attention to my Am Law Daily posts, at the bio blurb at the end I would note that I will be speaking on student loan debt at the Henry George School of Social Science in New York City on September 27, 2013. I hadn’t announced it here because it hadn’t been finalized.

…Which is fine because it’s been postponed until a later date for various reasons.

I’ll let y’all know when it is rescheduled.

In the meantime, here’s Martha Reeves and the Vandellas running through an auto plant.



‘Economic Value’ Paper a Mistrial at Best, Part 2 of 2

[This is the second part of my response to the Simkovic and McIntyre article, "The Economic Value of a Law Degree" ("Economic Value") and the authors' response on The Am Law Daily. The first part of this response can be found here.]

Criticism 4:

“And [Leichter] largely ignores our extensive discussion of ability sorting in Section II.I. of The Economic Value of a Law Degree, while claiming that we did not consider these issues.”

False: I never discussed ability sorting in my article, so I ignored the “extensive discussion” in Section II.I. because it was irrelevant to my argument. Simkovic and McIntyre never demonstrated that legal education causes higher earnings.

It’s a pity none of the few—”though by no means all”—of the misrepresentations Simkovic and McIntyre charged me with were meritorious. Oh well.

Criticism 5:

“Studies by labor economists have found that increased earnings from education generally extend across multiple occupations.”

False: Simkovic and McIntyre never demonstrated that legal education causes higher earnings.

Also, applying the results of “studies by labor economists” about increased earnings for people with various types of education to legal education is an ecological fallacy. The authors must demonstrate that legal education alone is versatile.

Criticism 6:

“Any ability biases remaining after our controls may be offset by an equally important source of bias that Harper, Leichter, and many other critics have ignored: less educated, lower income households systematically over-report earnings and more educated, higher income ones under-report. Less-educated survey respondents tend to forget periods of unemployment, while more- educated households tend to forget end-of-year bonuses and SIPP caps maximum reported earnings to preserve confidentiality. This has been documented in SIPP surveys and it biases our results downward, making them too low, since the comparison group of bachelor’s recipients is systematically lower income than the law graduates.”

False: I ignore the bias because it’s not relevant to my argument: Simkovic and McIntyre never demonstrated that legal education causes higher earnings.

(Implied) Criticism 7:

“What does all this say about law school reform? On the one hand, untested reforms should not be rushed through primarily based on a sense of desperation or crisis, or a belief that changes couldn’t possibly make things any worse. On the other hand, the high returns to law school do not suggest that legal education can’t be improved—some reforms may be beneficial, and should be considered on their merits. Our preference, as always, would be to test proffered theories empirically as best as possible and we look forward to future work that does.”

False: “Economic Value” says nothing about law school reform whatsoever. If anything, it gives us a good reason to eliminate the subsidies to legal education because those subsidies make law school more expensive. Without unlimited, nondischargeable government loans law schools would have to reduce their tuition costs to remain solvent, which would increase the “premium” Simkovic and McIntyre believe they’ve discovered.

Bonus! Criticism 8:

“Leicther’s [sic] description of our take on BLS projections is lifted from context, since we note that even BLS economists are skeptical of these sorts of projections.”

The “context” is in footnote 10 where Simkovic and McIntyre write:

“BLS and other labor economists have cautioned against using occupational employment projections to guide educational investment.”

False: I frequently write about BLS employment projections, so these statements raised an eyebrow because the BLS has featured them prominently in its Occupational Outlook Handbook (OOH) for many years. The OOH pretty clearly targets a non-academic audience on the desirability of various careers, and nowhere does it caution readers to not rely on the 10-year projections, e.g. in the FAQs page. Here’s a taste of what the 1996-97 edition said about lawyers:

“Even though jobs for lawyers are expected to increase rapidly, competition for job openings should continue to be keen because of the large numbers graduating from law school each year. During the 1970s, the annual number of law school graduates more than doubled, outpacing the rapid growth of jobs. Growth in the yearly number of law school graduates tapered off during the 1980s, but again increased in the early 1990s. The high number of graduates will strain the economy’s capacity to absorb them. Although graduates with superior academic records from well-regarded law schools will continue to enjoy good opportunities, most graduates will encounter competition for jobs. As in the past, some graduates may have to accept positions in areas outside their field of interest or for which they feel they are overqualified. They may have to enter jobs for which legal training is an asset but not normally a requirement. For example, banks, insurance firms, real estate companies, government agencies, and other organizations seek law graduates to fill many administrative, managerial, and business positions.” [Emphasis added]

It’s curious that the BLS would publicly characterize the job outlook for lawyers with such lucid direness yet be skeptical of such projections. Looking more closely at footnote 10 explains why: Simkovic and McIntyre use a see-cite to two articles to infer a general consensus within labor economics that the employment projections are unreliable. In neither article is that inference reasonable:

  • The article by Horrigan, for example, merely says that it’s difficult to predict how employers will respond to labor shortages. This is not exactly a sacred holy war against the OOH’s use of employment projections for career-guidance purposes.
  • This leaves the article by Neumark, Johnson, and Cuellar Mejia, which asks whether the retiring baby-boomer cohort will lead to a skills shortage. Again not a holy war against the employment projections that can sustain a see-cite inference. Neumark et al. also admit in footnote 4 that they are using a human capital theory in their paper, not a signaling theory. The authors do not discuss the sheepskin effect or elasticity of labor demand in their paper at all. Moreover, they do not consider dispersal of earnings.

At best Simkovic and McIntyre can say that the authors of these two papers alone don’t think people should rely on the employment projections when choosing a career—even that’s a stretch—but there are still a few other problems:

  • We don’t know if these authors speak for labor economics as a discipline.
  • If there is such a consensus, we don’t know if other economists and disciplines disagree with good cause.
  • The labor economists Simkovic and McIntyre cite in their paper and elsewhere (including David Card from the previous post) tend to prefer human capital theories of higher education over signaling theories, and they rarely point out that elasticity of labor demand is a significant independent variable in occupational wages. In short, it’s reasonable to believe that they are either biased or that their human capital theory is wrong. Such things happen in academics.

Finally, again the authors demonstrate that they don’t really believe their own theory. They should be saying that the projections don’t matter because law degrees increase human capital for all occupations, not because they’re unreliable.

Wait, I take it back! People shouldn’t rely on the BLS’ lawyer employment projections after all…

BLS OOH Lawyer Employment Projections

(Source: OOH, BLS Monthly Labor Review)

…Because they regularly overestimate the number of lawyer jobs that will be created. Oh, but if law school graduates can’t get professional, demand inelastic jobs, then I guess we can’t say applying to law school is rational.


This isn’t meant to be an exhaustive response to “Economic Value” and its authors’ subsequent comments; it could go on and on and on forever, but I’d really like to stop here. Although through its errors their paper has indirectly taught me much about signaling theory and the factors that influence an occupation’s wages, I hope Simkovic and McIntyre leave legal education to more diligent researchers. It would be a tragedy if someone applied to law school based on “Economic Value,” and shame on anyone who uses the paper to induce anyone to do so. But one reason I’ve extended this topic much longer than it deserved is that I have a degree in the social sciences, and “Economic Value” is an excellent example of how not to conduct social science research. To sum up, here’s a list of the authors’ research offenses both in the paper and subsequently:

(1)  Not informing readers of alternative theories discussed in their own citations (“sheepskin effect” – In other papers this one might be minor, but it makes a difference in this case because the audience is not labor economists and readers are unlikely to read the article’s citations as I have.)

(2)  Not falsifying the alternative theories discussed in their own citations before conducting their calculations (“sheepskin effect” – Scientific method, shmientific method.)

(3)  Failing to acknowledge how limitations in their theory impair their methodology’s applicability to the real world (omitting elasticity of labor demand from their calculations by insisting occupations are not “pretreatment covariates”)

(4)  Avoiding discussion of potential intermediate causes (how can human capital theory possibly explain why those 25-year-old law grads in figure 4 go from earning $20,000 to $80,000 in a few years? – This might be attributable to simple oversight and it’s come up late, but given some of the errors here (esp. #5) on balance I think not.)

(5)  Not discussing the demographic content of the data they found for readers (who were the 1,382 law grads in the SIPP data? how many were in each age bracket (25-34, 35-44, 45-54, 55-64)? what jobs did the 25-34-year-olds have? what’s the frequency distribution of non-lawyer jobs? – This one is really egregious, even if it doesn’t have a material effect on the study’s outcome. Omitting a discussion of the data is a hallmark of bad social science research.)

(6)  Falsely charging critics with misrepresentations (at this point, this one’s minor)

(7)  Misrepresenting their critics’ claims (e.g. “distributional data” in Criticism 3)

(8)  Evading critics’ meritorious claims (non sequitur, path dependency, credential inflation—and these are just mine)

(9)  Misusing see-cites to misrepresent a consensus in a discipline readers may know little about (reliability of BLS employment projections)

(10)  Claiming their findings are applicable to real-world policy issues when they are not (legal education reform – Other papers might be able to get away with this, but not “Economic Value.”)

(11)  Omitting independent causal variables from their calculations, but conveniently using them to prove other points (elasticity of labor demand isn’t a “pretreatment covariate,” but it is evidence that lawyers aren’t going to suffer reduced earnings or be structurally unemployed in the future due to off-shoring/automation)

Any remaining advocates of the “law degree premium” or the bottleneck/backlog argument are invited to tell us what demand-inelastic, professional jobs law school graduates will eventually obtain. When will they realize their “premia”? Will it pay off their debts? Will they be able to have families, go on vacations, and save for retirement?

Law school optimists need to answer these questions. Unemployed law grads can’t wait.


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