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


[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.

A Bitter Boxing Day Op-Ed for Private Student Loan Debtors

John Hupalo, “Discharging Private Student Loans Is Counterproductive,” U.S. News & World Report.

Tagline: “For an overwhelming majority, it will impair their future ability to borrow.”

Hupalo is the CEO of Invite Education, LLC, which appears to be a college planning resource for prospective applicants and parents, but his cred comes from decades of experience in education finance.

Unfortunately, the arguments he makes in his op-ed do not benefit from his experience. He even contradicts himself within the same sentence early on:

Turning bankruptcy courts into turnstiles for the discharge of the least common form of student loan debt may temporarily assist some distressed borrowers, but the overwhelming majority will not be helped.

How does benefiting “some distressed borrowers” with the least common form of student loan debt who are not in the overwhelming majority of student debtors turn bankruptcy courts into “turnstiles”? Also, bankruptcy is not “temporary,” a discharge order is permanent.

Hupalo’s piece is concise, but I’m going to summarize the arguments and provide brief responses:

(1)  Bankruptcy appears on your credit report for 10 years and ruins your creditworthiness.

Defaulting on a loan is much worse for your creditworthiness (and sometimes job eligibility) than bankruptcy, and plenty of banks love lending money to people who can’t obtain another discharge for eight more years. They also know how to collateralize cars and houses for auto loans and mortgages. The credit hit from bankruptcy is a factor to weigh, but (a) it does recover, and (b) if the loan is large and unpayable, bankruptcy does more good than harm.

Also, I’ll add right now that debtors aren’t stupid, and moral hazard arguments are always overblown. People use the bankruptcy system as a last resort. Most of the time they file because they’ve lost their jobs, gotten divorced, or aren’t insured so they have to pay for their own radiation therapy. Included in the 2005 law that extended the “undue hardship” exception to dischargeability of private student loans was a provision that required Chapter 7 petitioners to show that their incomes were below their state’s median household income. If it’s above the median, they have to file in Chapter 13, which will require them to repay some of the debt in a 3-5-year repayment plan. With bankruptcy protections on their side, debtors can negotiate with their lenders and avoid using the courts, and bankruptcy fraud is very, very rare.

Now that we’ve got that out of the way, we continue:

(2)  Bankruptcy protections increase interest rates for private student loans.

Good.

Seriously, this is how lending works: Those who make large unsecured loans to people who can’t repay them should charge higher interest rates, demand co-signers, and not offer in-school deferments. If the loan is too risky, don’t make it. The alternative is a human capital contract, which may or may not work, but it’s a compromise option.

(3)  It’s not fair for the government to shield its loans from bankruptcy while not doing so for private loans. It’s also confusing to borrowers.

(a) Borrowers will always be confused. The federal lending system alone is very complicated, much less the bankruptcy code. (b) Aside from people who take out Parent PLUS loans, to my knowledge all other federal loans are IBR-eligible. Debtors who are on Social Security Disability can also petition the Department of Education for a hardship discharge, which the “Pay-As-You-Earn” rule-change made easier. Private loans don’t offer these options. (c) Honestly, I have slight sympathy for the fairness argument: Yes, the government is unfairly undercutting the private sector (and not even doing a good job of it). However, I think bankruptcy protections should be returned for federal loans too, and I won’t lose any sleep if the Direct Loan Program is repealed. I just don’t find Hupalo’s argument that incrementalism is unfair to be persuasive.

(4)  The seven percent private loans of all student loans are underwritten; the other 93 percent of federal loans aren’t. This is unfair.

It sure is. That’s a problem with the Direct Loan Program, but how is it relevant to private loans in bankruptcy?

(5)  Private student loan debtors can discharge their debts via the “undue hardship” exception, which is reasonably high to protect from moral hazard.

(a) The “undue hardship” standard is not defined in the bankruptcy code, leaving the statutory interpretation up to the federal appellate courts and the factual application to the caprice of bankruptcy judges. If you were worried about “confusion” before, how many people do you think know off the top of their heads if their federal circuit uses the Brunner test, the “totality of the circumstances” test, or some other one? How many people even know anything about the federal circuit they’re in? (b) Admittedly, many people who might have a shot at discharging their student loans don’t even bother trying to file an adversary proceeding against their student loan creditors, which leads the public into believing the loans are as nondischargeable as child support payments, but again, it comes down to the bankruptcy judge’s opinion. (c) When the “undue hardship” exception was first inserted into the bankruptcy code, it coincided with a five-year time limit on dischargeability, so the urgency for legislative clarity didn’t exist. With the time limit removed for federal loans in 1998, the law pretty much put debtors’ fates in bankruptcy judges’ hands. Hupalo doesn’t appear interested in discussing whether that’s a good idea.

FixUC Stumbles onto Human Capital Contracts

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

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

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

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

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

I have two concerns to write about:

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

(2)  One point in the proposal reads:

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

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

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

Two Worlds, Side by Side: ABA Journal & Letter from Law School

I received a letter from my law school subtly informing me that my name would be placed on “the permanent donor wall located near the entrance” if I gave a gift or commitment of $5,000.

The same day, the ABA Journal published Bill Henderson’s article titled, “The Law School Bubble: How Long Will It Last if Law Grads Can’t Pay the Bills?” in which the author writes in a section called, “ENDGAME”:

“Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools—even those that continue to enjoy a surplus of applicants … [T]he U.S. Bureau of Labor Statistics acknowledges a shortage of [doctors and dentists] and a growing glut of lawyers. Further, the Bureau projects that these shortages and surpluses will continue over the next decade.”

I don’t bring this up to attack my law school specifically—mine’s not alone in asking for alumni donations—and it’s no secret that my dollars are better spent on rent, groceries, and Screaming Trees’ discography than to have my name placed on a wall for vanity’s sake. Rather, I wonder aloud if lawyers who do have the disposable income and the class/professional/generational identity will gift their law schools money after reading Henderson’s argument that law schools are over-enrolled, overbuilt, yet devouring excessive amounts of federal debt money nonetheless.

I have four thoughts on Henderson’s article.

(1)  The law graduate surplus is not new. Here’s how Henderson characterizes the situation:

“Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.”

The Bureau of Labor Statistics wrote in 1996:

“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.”

I repeat this point once again because (a) it still shocks me, and (b) it not only illustrates the scope of the law school bubble, but it also speaks to the ABA’s carelessness. Although I wrote last week that the Association’s Section of Legal Education’s accreditation system doesn’t cause tuition hikes, that doesn’t mean it’s blameless for the situation the profession is now in. The ABA was in the best position to inform the public that there were too many law graduates and it could’ve encouraged existing law schools to taper enrollments while dissuading universities from initiating new programs on frivolous justifications. It may’ve even been able to hamper enrollments by requiring more undergraduate prerequisites the way medical and dental schools do. These steps might not’ve worked, but contrast them to the ABA’s current ideology, which to this day has been to encourage access for anyone at any cost.

Now, the costs are coming in, and worse, otherwise excellent economists tell us that the ABA is greedily engineering a lawyer shortage contrary to the evidence. Catastrophe and ignorance do not combine for effective solutions, and the ABA will now have to manage both.

(2)  Speaking of the ABA, Henderson hints at the question that’s been slowly festering: Will the ABA, ED, and Congress throw indebted law grads under the bus?

“Although IBR may be viewed as a boon to law students, law school graduates may view it differently—15 percent of their monthly income paid over more than half of their career span is a severe burden, especially if the sought-after gains in earning power fail to materialize…”

“Still, scrutiny by the scamblogger movement and legal and mainstream media may speed up the process. One plausible outcome has the Education Department using its accreditation authority to force law schools to demonstrate, as a condition of receiving federal loan money, a minimum threshold of employability and income upon graduation.”

I’m more in the boon category than Henderson. When I enrolled, law school debtors had to make the monthly payments or watch the interest capitalize onto principal forever, so I still see IBR as better than the world without it. Plus, it’s now 10 percent of disposable income, and I’m guessing that a lot of people who have a few kids will see their monthly payments drop to the level of a utility bill they don’t discuss. They’ll worry about the income tax issues later, but that’s a long way off and there is an insolvency exclusion in the tax code.

Still, his is a fair point: there is no justice in forcing someone to pay a debt for something they cannot directly use. The whole point of student debt is to increase human capital more quickly so the economy can benefit from it sooner. If there is little human capital created or it’s unnecessary, then it’s morally wrong to force people to pay a cent for their degrees. Such is the risk of making unsecured loans.

However, look at Henderson’s prediction of ED more rigorously regulating law schools. What does this do for “Andrea,” the twice laid-off 2009 law school graduate the article uses to illustrate the problem? Sure, fewer law grads in the future shrinks the bottleneck and increases the present value of her law degree, but even if that were to happen tomorrow, are we really supposed to believe that lawyer salaries will rise to the point that she’s making payments on a 25-year monthly plan and not on IBR? It’s unlikely to happen, which is why we should be leery of partial fixes. Unfortunately, I doubt the ABA will start advocating for those it’s effectively abandoned. It should.

(3)  Speaking of solutions, we have a law school dean who does not like them:

“Mark Grunewald, interim dean of the law school at Washington and Lee University, thinks any blanket restrictions on federal student lending would be disastrous and unfair. ‘There are real differences among prospective law students’ economic circumstances, and new blanket restrictions on lending could hurt those most in need of financial support,’ he says. ‘It’s also unclear what the legal employment market might look like after a general economic recovery. Market forces may ultimately prove to be a better corrective.’”

Washington and Lee’s tuition has grown 35 percent over the inflation rate since 2004, above $40,000. Three years then buys two years today with no discernable increase in quality. Between 2004 and 2010, its full-time student-faculty ratio dropped roughly 18 percent to 9.5. Washington and Lee could easily provide cheaper legal educations without risking its accreditation, but it chooses not to. If Dean Grunewald were serious about ensuring access, he could persuade W&L’s Board of Trustees to invest in its students by giving them free legal educations conditioned on them paying 10 percent of their salaries back for 10 years. If this causes Washington and Lee to lose money or close, so be it. It’s not the federal government’s problem if a law school doesn’t increase human capital.

But the part that riles me is the “blanket restrictions on federal student lending” being “disastrous and unfair.” Does Dean Grunewald also think the blanket restriction on discharging student debt is “disastrous and unfair”? I bet not.

(4)  Henderson writes:

“Unless the government’s actuarial assumptions on student loan repayments turn out to be correct, federal funding of higher education is on a collision course with the federal deficit.”

It’s worse than this: the government knows its actuarial assumptions are wrong. The Congressional Budget Office directly told Congress that its accrual accounting methodology overstated the revenue of student loans, and when it used fair-value accounting it found the government loses 12¢ on the dollar on average over the next decade. This is without including IBR in the mix, so we’re looking at somewhere around $120 billion in losses on top of the drain on the economy that comes from zombie-debtors making good on bad debts rather than spending on houses and kids toys.

The CBO adds:

“The costs of income-contingent repayment, or of loan forgiveness or forbearance, are generally higher on a fair-value basis than under [accrual] accounting, because borrowers are more likely to take advantage of those opportunities in economic downturns, when the value of the forgone payments is greatest. (Page XI)”

I hope the student debt write-down Henderson writes about isn’t far off, but until then our lawyers are left with two worlds, side by side. In the one hand, the dean’s letter and the name on the wall near the door? Or in the other, Bill Henderson’s shameful law school debt factories?

I choose Screaming Trees.

(Oh, and this is my 200th post. Yay!)

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

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

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


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

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

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

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

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

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

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

The Law School Problem Is Vertical, Not Horizontal as Most Law Professors Believe

I take [the LawScam critique] to be that legal education is hoodwinking prospective law students into law school and conspiring to produce an oversupply of lawyers that face diminished job prospects and crippling debt loads. –Usha Rodrigues (Associate Professor of Law, University of Georgia), “ScamLaw: The Master’s Forum,” The Conglomerate

So, if I’m right, then the argument is: third and fourth tier schools are misleading students, it’s criminal, shut them down. I take it that this is a clean solution to the LawScam: remedy the oversupply of new lawyers by cutting it in half.  I’m not advocating this solution, but just observing that it seems like that’s where you end up if you follow the LawScam argument to its logical conclusion. –Rodrigues, “ScamLaw: Paternalism or prudence?” [emphasis original]

Rodrigues’ statements are a significant step ahead of mainstream legal media coverage of scambloggery, exemplified by Karen Sloan’s editorial on Lucille Jewel’s scam blog article:

It’s difficult to gauge the effect the scam blogger movement has had on the larger debate over the transparency of law school employment data. The American Bar Association recently moved to require law schools to report more detailed job information in its annual questionnaire. However, that push involved a number of more traditional advocates, including law professors and Law School Transparency, a nonprofit group formed by two former Vanderbilt University Law School students.

To which I observe that few if any of the scam blogs I know of prioritize transparency over discouraging people from applying, closing superfluous law schools, and obtaining justice for student debtors. Indeed, I believe scam blogs have been successful in their first objective. Specifically, the wrecked economy did not contribute to as significant a rise in law school applicants as in the past, and according to the LSAC’s preliminary estimates, 2011 is witnessing a law school applicant nosedive. The LSAC’s preliminary number of applicants per law school has dropped to what it was in prosperous 1998, and when compared to Official Guide estimates and Census data, the number of law school applicants per capita is at an all time low going back to 1984, though it’s just one hundredth of a point lower than 1985. Such is the power of the Internet.

The relentless reality presented by scam bloggers persuaded LawProf to begin Inside the Law School Scam (ITLSS), which in turn prompted Rodrigues and her colleagues, the The Conglomerate’s “Masters,” to hold a forum titled, “ScamLaw.” In my opinion, the Masters’ views by and large speak for the legal academy’s understanding of the situation, including what solutions will work. The results discourage me. Here are my criticisms.

I. ScamLaw Misses the History of the Scam Blog Movement

Alarmingly, ScamLaw attempts to reset the clock, setting ITLSS to Year One. This is a wrong move because scam blogs are not a new phenomenon and have existed since at least 2007 with WSJ Law Blog’s Loyola 2L, Temporary Attorney: The Sweatshop Edition, and gifted satirist Scott Bullock’s Big Debt Small Law. Aside from a brief mention of the “burgeoning field of law scam blogs” by Brett McDonnell, ScamLaw brazenly ignores the scam blog movement’s history, which I think contributes to the Masters’ disappointing discussion.

II. ScamLaw Misses Other Academics’ Discussions on the Topic

Sanitizing history, though, is only one of ScamLaw’s problems. Its lack of rigor is more unfortunate, and by focusing on LawProf and ITLSS, it misses an excellent discussion of the legal education system’s pathologies, conducted not even by scam bloggers but between Washington University’s Brian Tamanaha and Loyola Los Angeles’s Theodore Seto. I summarized Tamanha’s and Seto’s discussion and recommend readers skip ScamLaw’s corpus and read that instead, both because it’s better and their discussion illustrates the problems as I see them, making it a good reintroduction to the LSTB for newer readers.

III. Horizontal and Vertical Perspectives

The problem with the ScamLaw Masters’ perspective is that they see the problem as horizontal, as between and among law schools. They do not see it as vertical in terms of the interests of the various parties: prospective students, current students, graduates, lawyers, law schools, the ABA, the profession, and the financers (banks and ED). I see it as vertical, so do scam bloggers and a handful of law professors whose absence ScamLaw sorely missed.

For example, Christine Hurt, whom I should add helped birth the LSTB with her 2010 essay, “Bubbles, Student Loans and Sub-Prime Debt,” presents the Masters with the following two questions:

1. So, what are law schools supposed to do? … [A]t some point we need to talk about the solution, besides “more transparency,” which seems to be on the road to happening.

2. Relatedly, what are law professors supposed to do? … [H]ow do we “withdraw from the conspiracy” (besides just blogging about it).

I find these questions’ assumptions bold. Do universities have the power to change their behaviors? Do law schools? Do these questions even address the situations of alienated graduates and lawyers? What about all the law school debt? Once you assume legal education can be fixed by law schools, then transparent post-graduate employment data promptly follows as the obvious solution. To her credit, Hurt wrote this before the ABA Section of Legal Education decided against asking law schools whether their graduates are employed full- or part-time and whether their positions preferred a J.D. or bar passage. However, I have voiced my doubts about transparency, and I’m sure I’m not alone.

Next, ScamLaw spends an inordinate amount of time discussing entry barriers, such as when Alan Meese wrote, “A system built on subsidized debt and expected perpetual growth in legal employment may not be sustainable. I welcome this debate, particularly its focus on the barriers to entry bolstered by the ABA’s accreditation requirements.” I see this as a psych-out. If the problem is subsidized debt and expected perpetual growth, aren’t the subsidies the problem? Sure, licensing practices are calibrated for an archaic mid-20th century legal profession that idolizes generalized solo practitioners, but the debt problem initiated the discussion.

So, we return to Rodrigues’s aborted suggestion: unilaterally close the bottom half of the law schools. The problem? Whose bottom half? U.S. News’s?? Why should the profession ratify a magazine’s rankings? There are two more problems:

(1)  There are no sacred cows:

For instance, public law schools use the following line of reasoning to justify their existence:

(i)  We need lawyers

(ii)  Lawyers are expensive

(iii)  Government can subsidize expensive things so we can have them

(iv)  Government can subsidize public law schools along these lines

(v)  Public law schools can make inexpensive lawyers

(vi)  We have lawyers

Except (i) is false. We have enough legally educated people to serve the country’s needs. (ii) is debatable. Plenty of paralegals could probably stand before a court and argue a motion just by watching their bosses do it. Moreover, given how much of legal education is memorizing theory and applying it in a blue book, much of that can be self-taught or learned via distance learning. (v) makes no sense when state governments are slashing subsidies to public law schools. What’s the point of UVA or U of Michigan if their students are paying private school tuition rates? The California schools, ASU, and U of Minnesota are coming up behind them. Rather than cut the subsidies, governments might as well do everyone the favor of just closing unneeded programs. Does anyone really think the subsidies will return when the economy starts growing again?

Also, why should we believe that highly regarded law schools provide more value than lesser ones? Just because they charge more? More likely, graduates from top-flight programs could probably pass a bar exam by self-study and learn the trade via apprenticeship. Arguably, the best law schools sell prestige more than substance.

(2)  There is no free lunch.

Behold the Law School Tuition Bubble’s mantra:

The onus is solely on the law schools to demonstrate that they are adding value for the privileges society gives them. If they fail, then we take away their national accreditation, non-profit tax status, grants and subsidies, and access to any student loans that are not dischargeable in a Chapter 7 bankruptcy proceeding.

I’m perpetually nonplussed that the presumption is on reformers to generate solutions. Rather, university officials should be explaining to legislators why they should have access to student debt or why the state government should support public legal education programs, much less secondary campuses. I doubt it will be long before they will.

I don’t think law schools can change themselves so long as they have easy access to government student loans, irrespective of income-based repayment. Even deans of public law schools must toe their institutions’ lines lest they be asked to resign like Baltimore’s Phillip Closius. Neither public nor private law schools seem capable of organizing a boycott of U.S. News, which would help. Perhaps private independent law schools—the ones facing lawsuits from their students—could forgo student loans and offer their students human capital contracts, for example giving them free educations in exchange for ten percent of their income for ten years. If they did that, they’d fail. The jobs are simply not there to keep the financing model viable.

IV. Vertical Solutions

The scam blog movement emerged because law schools took the lead position for the profession by promising careers they couldn’t warrant existed yet charged too much to obtain. The causes of “law career decay” were not wholly in law schools’ power nor in the profession’s (e.g. increased income inequality over the last thirty to forty years). However, scam bloggers are acutely aware that they do not directly benefit from increased transparency, leaving the Masters’ discussions frivolous to them.

While I don’t think internal solutions are possible, here are a few things the profession should do as the problem worsens.

1). Bankruptcy protections must be restored to student debtors, and the Direct Loan Program must be terminated. The ABA’s annual summer resolutions avoid this, further alienating recent graduates. If law professors like Christine Hurt want to help, they can use their government connections to effect this change, and the public will support those who incorporate student debt into reform discussions.

2). The profession must admit that it stood by as the law schools overenrolled students and that many recent graduates will never meaningfully see the inside of the profession. Brian Tamanaha and LawProf have both written on this; they are on the right track.

3). The profession needs to update its licensing system to accommodate the reality that much of law practice is specialized along practice lines. Ultimately, this means the question of legal education will have to be rehashed from the ground up, making suggestions of reducing law school to two years arbitrary.

The truth is that law degrees have been unable to provide long-term career stability for many, many years. Now, the legal academy has twisted into one of the most ossified institutions in American society, a force of inequity and deflation in the economy, transforming prosperity into debt. Contrary to Rodrigues’s cautiousness illustrated above, no solution involves 150,000 law students spending 3-5 billion dollars per year to attend 199 law schools that employ 22,000 people by the end of the decade. That means law faculty who today passively share the views of The Conglomerate’s Masters will tomorrow lose their jobs. Some scam bloggers might delight in this. I will not.

The ray of hope? Separate from the prospective law students who forgo legal education and student debt activists, law students have the power to act. They can walk out and demand tuition reductions and accreditation reform. They have little to lose.

And they will be heard.

How to Make Transparency Work: The Sorting Hat

Introduction

If U.S. senators are calling for transparency in law school statistics, it’s probably time to think through what a transparency regime would look like. By now, it’s become the sacred cow of legal ed reform. How can anyone be against it? Of course, no one can be—it would do a great deal of good—but its advocates are starting to oversell it as a panacea to legal education’s ills.

Before evaluating a transparency regime, we need a brief recap of why we have law schools: If we had a free market in legal services, i.e. a complete neophyte can walk into court, announce that she is someone’s attorney, and then represent that client, we fear that she will be incompetent or unethical. Anyone who’s familiar with law knows that formal education can enable students to learn things more efficiently than experience. One of my favorite examples is hearsay exceptions. There are more than a dozen examples of these, and if you don’t know them in court, you lose. It’s quicker to memorize them than to learn them on the job. We are also concerned with incompetent representation because we believe that any time the state threatens to deprive people of their rights (like their lives in an intentional homicide trial), we feel duty bound to protect those rights as best as possible. These are the only real reasons we can justify formal legal education as a barrier to legal market entry.

This barrier has become increasingly ineffective; it’s both too high and too low in the wrong ways. Too high in that it’s frequently not worth the investment; too low in that it fails to prevent market saturation. Transparentists believe that if law schools publish their graduates’ employment information nine months after graduation (because bar exam results are in by then), prospective students will have reasonable knowledge of the legal labor market they wish to enter. As a result, the barrier to legal labor market entry will rise and fall in the right ways, they argue. Costs will drop because people will recognize that the reported starting salaries do not justify the tuition costs, and those who choose not to attend will force enrollments to drop and educational quality to increase. Transparentists present their arguments as a “market-based” solution even though they don’t admit that we do not have a free market in legal services, and more importantly that law schools are the most significant barrier to such a free market. To transparentists, those who are unemployed after graduating law school (or who flunked out) are fully responsible for that outcome because they were fully informed of that possibility before deciding to attend.

What would really happen if we had transparent, disaggregated law school employment data? The best case scenario would still create an oversupply of attorneys, and legal education would still be too expensive. Here’s why:

Data from students nine months after graduation are insufficient to provide a clear picture of what a legal education’s earning potential is and what market conditions will be like at graduation

This is a common first response but worth repeating. Prospective law students will be relying on data far in advance of the market they will be entering—farther than people might think. Let’s say a college junior in 2012 is considering law school. He will look at the employment data in March of 2012, using it as a basis to take the LSAT. He will do so in June, October, December, and possibly February of his senior year (2012-2013). By the time his scores come back, he will be completing applications due March of 2013. The ABA’s new proposals require the law schools’ data to be posted on their websites by March 31, and plenty require applications to be submitted before then. Let’s assume our applicant matriculates in September 2013 and graduates in May, 2016. That means he will hit the market four years after the 2012 numbers were published. Transparentists would reply that even if our student graduated during a recession, his unemployment would appear in his class’s employment data, discouraging potential applicants for the fall of 2017. However, plenty of people would apply assuming the economy would recover just for them, and the cycle would continue.

As to the career earning potential of a juris doctor, I appeal to Herwig Schlunk, who states in a footnote:

Law students may not appreciate how volatile attorney income is, even in the case of established attorneys. Not all associates become partners. Not all partners become senior partners. Law firms blow up, leaving non-rain-making partners in the lurch. In-house attorneys are subject to all the usual vicissitudes of corporate down-sizing. And so on.

I add that governments cut budgets too. The reality is that as of now a legal career is not a long-term career choice such as medicine or dentistry—two industries that create a shortage of practitioners unlike law.

Finally, in substance the data will never be an accurate sample of any given class. It will always skew toward those stable employment and decent salaries. Even if non-responses are included, they would still be insufficient for prospective students to base a career choice.

Legal practice is specializing

[T]he legal marketplace is not a totally free market, because it is regulated in a number of ways. One of these regulations restricts the use of specialty status by lawyers. In Peel v. Attorney Registration and Disciplinary Commission, the Supreme Court permitted lawyers to call themselves “specialists” but permitted ethics rules to require additional restrictions to prevent the term specialist from being misleading. This has had a chilling effect on the growth of legal specialties in the United States. Although the legal profession will probably never follow the path of the medical profession and limit practice in specialty areas to certified specialists, lawyers are moving inexorably in the direction of specialization. Gary Munneke, “Requiem for a GP: End of an Era” (12)

Pace University Law School Professor Gary Munneke wrote an excellent article in the February issue of the New York State Bar Association Journal (I can send copies for those desiring) describing the decline of general practitioners. He made a few points relevant to legal education that I’ll expand on.

[The decline of general practitioners] will place greater pressure on law students and recent graduates to make specific career choices at an earlier time than they have in the past…[N]ot all lawyers will provide services directly to clients; many solo and small firm lawyers will work with other organizations, both inside and outside the private practice of law, to complete discrete legal tasks. These contract lawyers will perform outsourced work from law firms and law departments on a project-by-project basis. They will compete with off-shore outsourcers for this work. (13-14)

Who decides to go to law school with this type of career in mind? How does law school prepare utility outfielder attorneys?

Munneke gives us the vestigial GP:

[T]here may be room for a primary care lawyer, who sees clients when they are legally injured and refers them to a legal specialist who can serve their needs. Such a lawyer could be funded by referral fees from the specialists, because we do not have an insurance system that pays the primary care professional as medicine does. The primary care lawyer would have to be trusted by people in the community, possess a broad general knowledge of legal problems, and maintain contacts with a wide variety of specialists in order to make the right referral in the right circumstances. (14)

This career requires experience and business contacts—not things you find in typical law students.

Above, Munneke argues that the bar’s ambivalence about viewing law as a business will inhibit specialization. I think legal education provides far greater resistance: three years, mired in 19th century curricula, oriented towards general practice, and ostensibly designed to prepare people for a generalized bar exam.

What does specialized legal practice mean for transparency’s efficacy? Until the bar certifies specialties and allows shorter, tailored education, law schools’ employment data won’t be very helpful to prospective law students looking to move into specific careers. We also know from the outset that it’ll be too expensive because tuition will pay for an over-generalized education that students wouldn’t be fully using.

Transparency will lead to the “optimal level of lawyer overproduction”

Law schools will continue to over-enroll applicants. It won’t be as bad as it is today thankfully, but they will all believe that they’ll be in the 95-98% who are employed as lawyers nine months after graduation. Those 2-5%, or whatever unemployment level people would be willing to accept, wouldn’t just vanish. They would still have student loans on degrees they can’t use. They also wouldn’t stop seeking work in the legal labor market, which would suppress wages. The question we have to ask ourselves is why should we force unemployed graduates to subsidize the educations of the employed ones? Why should we allow law schools to justify continued access to student loans on the belief that creating unemployable lawyers is necessary?

Tuition will only drop to reflect the median starting salary

Similarly, transparency would do great damage to today’s overvalued legal education, but because some practice areas are more lucrative than others, tuition will only drop to whatever the median graduate earns. Not only will unemployed graduates be subsidizing the employed ones, but the underemployed graduates will be subsidizing the better-employed ones. Again, we’d be allowing the law schools to blame their students for their suboptimal career outcomes rather than using a fair way of financing legal education whether by Macchiarola and Arun’s 10-year put option on student loans or by human capital contracts.

Eeyore Law Students

There’s a possibility that beyond the cognitive biases that people lob against prospective law students—what I see as the “If only the applicants weren’t so stupid!!” lament—it may be that people are going to law school despite knowing the outcomes won’t be good. Demosthenes of America wrote a depressing post titled, “The Eeyore Lemming,” noting people who go to law school not because they expect salaries or employment security, but because it gives them a backup identity. The Last Psychiatrist arrived at the same conclusion.

A Modest Proposal

It’s due to these reasons that we need to supplement transparency’s incomplete solution with the fantasy of J.K. Rowling’s sorting hat. Not that I’m the world’s biggest Harry Potter fan, but wouldn’t it be better if, from the beginning, we simply put a stinky, hideous, lice-infested hat on people’s heads and told them to their faces that they’d end up in certain legal fields and not others, or that they’d be unemployed after spending three years (really four, if we include the LSAT/application year) of their lives? So long as legal education fails to specialize along practice lines and adopt a reasonable financing mechanism, law school will still vastly favor the sellers over the buyers.

In seriousness, the law school problem didn’t come about because prospective law students lacked transparent employment statistics; rather, it came about because the federal government unflinchingly lends as much money to law students as the law schools charge while simultaneously publishing BLS reports stating there are too many law students. Of course, it’s politically easier for law schools to blame their students for lacking clairvoyant Muppet-esque headgear than it is to blame their benefactors’ loose lending policies; otherwise the government would cut their funding. One wonders if Senator Boxer—to say nothing of the transparentists—understands this.

Task Force to NYSBA and Law Schools: More Debate + Transparency Please

Instead of the clichéd approach of finger-pointing between and among law schools, employers and the bar, the Task Force recommends an approach in which the various sectors and stakeholders work together to undertake the professional formation of young lawyers. [Report from the NYSBA Task Force on the Future of the Legal Profession, Page 38]

On Friday, the New York State Bar Association’s (NYSBA) Task Force on the Future of the Legal Profession published its report on the NYSBA website. Unlike your typical ABA committee, the Task Force wasn’t crammed full of law school deans along with token general counsel; only five of fifty-eight members were law faculty, including New York’s legal education prognosts, Prof. Rachel Littman of Pace and Dean Richard Matasar of NYLS. This is as real a deal as you’ll get from a very large non-integrated state bar association.

Excluding the executive summary, the Task Force devoted about two-fifths of the 102-page report to legal education and lawyer training, and it has some worthwhile ideas like mandatory mentoring. Skipping to the meat on pages 66-67, it appears the Task Force finds plenty of poo to fling around. I’ll itemize my response:

Helping New Lawyers Form a Professional Identity

IV. Attending to the National Debate Regarding Law School Debt

Recent commentators within and outside legal education argue that the current structural and business model of law schools is no longer sustainable. These commentators call attention to the burden our current economic model places on unsuspecting law students while law school administrators point out the stranglehold that U.S. News & World Report’s criteria and rankings have on law school finances.

(1)  I find it hard to sympathize with the law school administrators’ hatred of U.S. News. Law schools’ core business is training lawyers, not earning a magazine’s approval.

(2)  Whenever someone says “X” is unsustainable, I take it seriously, whether it’s someone warning about an $8 trillion housing bubble or someone mistakenly thinking the national debt is going to wipe us out. Such claims demand prompt, correct responses. So, the NYSBA Task Force’s shoulder-shrug at people claiming the legal education system is unsustainable confuses me. If true, the Task Force should be sounding the alarm before thousands of students matriculate to New York’s fifteen law schools this fall. If not, the Task Force needs to say why not.

Escalating law school tuition, drastically increased student debt, and the high probability that most debt-burdened law graduates will not quickly obtain high paying employment has not only created an economic nightmare but a real moral and ethical challenge for law schools and the profession. [Emphasis original]

(3)  Spot on. Watchya gonna (recommend the NYSBA) do about it? Answer further down.

Law schools must continue to examine the real cost in human terms that flows from new graduates carrying such large debt loads and ensure more realistic financial expectations for those entering law school by providing more transparency in employment data. However, a balance needs to be struck. Law schools cannot afford to be saddled with additional, costly regulatory requirements, nor should applicants from disadvantaged economic or diverse social backgrounds be discouraged from entering the profession in the attempt to create “realistic expectations.”

(4)  “Continue to examine”? The truth is that no matter how much a law school frets over its debt-burdened graduates, it took on none of the financial risk—not just the information risk that transparency attempts to equalize—but the financial risk of its graduates’ failures. Law schools aren’t going to examine “the real cost in human terms” any more than they already do. Either their graduates are employed or they’re not, and law schools get paid from current law students not former ones.

(5)  I’m not here to do the transparency people’s work for them, but as far as I know, they just want the raw data law schools already collect and transmit to NALP made directly available to applicants. This is not a “costly regulatory requirement,” especially if a magazine can have a “stranglehold” on their finances.

(6)  The “economic or diverse social backgrounds” stuff is a red herring for a few reasons:

  1. The deans of the non-ABA-accredited Massachusetts School of Law tout they can do the job of a private law school for $15,000 per year. I’m not here to do MSL’s work either, but it’s contradictory—not to mention confusing—for the Task Force to claim that law schools are strapped for cash appeasing U.S. News and then lament how we need the poor and the diverse to pay as much as law schools feel like charging to enter the profession.
  2. “Realistic expectations” does not mean patronizing the poor and the diverse: why would they want to enter a profession that doesn’t provide them with upward mobility or meaningful social visibility? Why would they want to jump into an “economic nightmare”?
  3. If law schools were so concerned about the profession’s accessibility, I wholeheartedly invite them to change their business model from unlimited federal debt financing to equity investment such as human capital contracts. Law schools could be paid from ten percent of their graduates’ incomes for ten years after graduation. What would that do to those law schools that care more about their U.S. News ranking than providing a valuable education? To quote Michael C. Macchiarola and Abraham Arun, “If a school doubts its own value proposition, it might think about becoming an unschool; and we will all be better off…No one should be overly sympathetic to the plight of these schools; expensive, lower-tier schools in their current form never represented a good deal for non-upper income students to begin with.” [129-130]. Ouch.

At the same time, law firms that decry the lack of practice-ready law graduates need to examine whether their own hiring criteria are based on elitism or fundamental lawyering ability and skills. For example, do large-firm employers request interviews with those law students who have excelled in clinical experiences, or do they simply emphasize more heavily those who have the best GPAs from the most prestigious institutions or who have law review credentials?

(7)  I suspect the Biglaw example is another, albeit unintentional, red herring to distract us from the oversupply problem. It’s one thing for employers to capriciously hire graduates based on pedigree when others are demonstrably better (theoretically the market would correct for their incompetence), and I suspect this happened until the recent past. It’s another thing for employers to use credentials to filter hopelessly large stacks of resumes to save time. Here’s something for law school administrators to internalize as they’re being choked by U.S. News: Legal employers don’t need you; they are under no obligation to hire all of your graduates no matter how qualified they are, and if you fail, as I predict many will, you will not be missed.

Yes, that's actually what Stanford said to justify its 5.75% tuition increase for Fall 2011.

 

The Task Force’s recommendations aren’t bad (the uniform bar exam and psychometric testing are good ideas [page 69]), but it’s all you’ll get from an authority without power. As for what the Task Force thinks the NYSBA should do about its “economic nightmare and moral and ethical challenge for law schools and the profession”: participate in the debate and ask the law schools to be transparent.

V. Support Appropriate and Realistic Entry Into the Profession

15. The Task Force recommends that NYSBA closely monitor the issue of law student debt. The issue of debt, combined with the decreased hiring due to the economic downturn, has a tremendous impact on the future of the legal profession. NYSBA should play an active role in all aspects of the national debate regarding law school debt and full disclosure of tuition costs and job prospects, including working cooperatively with other entities to develop ways to reduce the impact of student debt on the future of the legal profession and to promote greater transparency regarding the cost of legal education and prospects of employment.

18. All law schools should provide accurate and meaningful information to entering and current students regarding the job market, career options, and their placement of recent graduates both at the J.D. and at the LL.M level. Self-reported information should be audited and include data concerning recent graduates hired by private sector employers, including size of firm, starting salary, type of position (e.g., partnership track, staff attorney, temporary, other), geographic location of employer, substantive area(s) of practice, and diversity, particularly at the leadership and equity-partner levels. [Pages 71, 72]

I’d like to see the NYSBA play an active role in the national debate regarding law school debt.

If you can’t tell whether I’m being sarcastic, the good news for you is that I can’t either. Bar association heavyweights have had plenty of time to educate themselves on the law school debt crisis, and while the Task Force should’ve mentioned Income-Based Repayment as an alleviation, there really isn’t a lot left to debate. No one seriously believes law schools are undercharging their students, aside from law schools like Stanford recently. Nor does anyone seriously believe demand for legal services will increase rapidly to accommodate all the juris doctor-holders who want to enter or desire reentry to the profession.

As for transparency, I’ll say it again: law schools must take on the financial risk of their graduates’ failures not just the information risk. Even with full transparency post-bubble, there will still be underemployed law graduates whose tuition effectively subsidizes the educations of their successful classmates. Admittedly, I’m more partial to human capital contracts than Macchiarola and Arun’s 10-year put option, but the effect would largely be the same. Changing the financing mechanism actually makes transparency easier as it would be a natural function of law school revenue collection.

After listing some more admirable recommendations (I don’t mean to belittle them, but I can only write so much), the Task Force backstabs its readers’ in the dignity:

VII. Work With U.S. News & World Report

21. The Task Force recommends that NYSBA meet with representatives of U.S. News & World Report to discuss current methodologies and to proposed changes to the U.S. News methodology that are aligned with improvement to the profession outlined in this Report. [Page 73]

Bob Morse accompanied by his merry half-dozen subordinates create nationwide rankings for all of higher education. Such is his power that the NYSBA Task Force feels it’s necessary to negotiate with him over his ranking methodology. Of all the players who least deserve a seat at the table when discussing the Future of the Legal Profession, it’s a magazine, yet the Task Force thinks the NYSBA has some kind of leverage over Bob Morse. It does not. U.S. News will keep doing what it can to sell magazines, and Bob Morse has no interest in the legal profession’s future beyond his own and his employer’s valid profit motive. If his rankings have a “stranglehold on law school finances,” it’s because law schools can raise tuition indefinitely without bearing any risk for failing to provide value. Paragraph 21 indicates that the Task Force doesn’t want to consider that.

I didn't know U.S. News looked like this either.

 

The New York bar’s situation isn’t enviable. New York should be infamous for increasing its number of law schools by 50% during a period of economic and demographic decline in the 1970s and 1980s, and there’s no evidence suggesting that the newer schools are remarkably good at exporting graduates elsewhere, though CUNY is unusually cheap and Cardozo has a good reputation considering it’s, like, four in law school years. New York’s thirteen private law schools are all over the average in cost, though some of them are very well regarded, and living expenses are very high. New York’s law schools, especially the disreputable ones in the southern part of the state, are ticking tuition time bombs. The Task Force wants the bar to avoid the “clichéd finger-pointing between and among law schools, employers and the bar,” but it won’t. Put simply, the Task Force can’t suggest numerous changes to lawyer training without taking a concrete opinion on the legal education system’s sustainability. Thus, it seems pretty clear that those pointing fingers at the law schools are right.

The Law School Tuition Bubble: Tuition Increases Law School-by-Law School from 2005 to 2011, Part 3

[Read Part 1 (the setup) and Part 2 (the data)]

Now is the time for modest changes in current federal student loan programs to increase the amount that law students may borrow. –Carolyn Lamm, former President of the American Bar Association, “Law School Educational Debt Has a Manageable Solution.”

And modest changes President Lamm received. Many if not most students can now finance a legal education solely by federal loan money and then elect to go on income-based repayment until the loan is forgiven in either 10 or 25 years, though I’m not an expert on the program nor should its existence embolden prospective law students from discounting law schools’ high costs. The consequences of the oversaturated legal profession and obscenely high tuition levels fall on taxpayers.

Don’t misread me. IBR is a boon to law students who would’ve faced pitiless collectors and poverty. The problem, though, worsens: no force, aside from law students, prevents law schools from raising tuition indefinitely. In the 2010-2011 school year, private law school tuition is on average $37,273.86, with a median of $37,630. In five years, the mean will increase by 23.27% to $49,946.79, and in ten years, mean private law school tuition will reach $54,807.59, which is 45.65% more than students pay today. Only hyper-inflation justifies this kind of expense, and due to state funding cuts to legal education, public law schools will likely rapidly grow to match private law schools’ costs.

The only sincere justification for current law school prices is access and diversity. Lamm states in “Statement of Carolyn B. Lamm, President, American Bar Association
Re: Government Accountability Office Report on Issues Related To Law School Cost and Access
”:

The ABA is committed to ensuring that the cost of attending law school does not become an increasingly insurmountable barrier for many individuals. We are mindful of the importance of making legal education as accessible to as broad and diverse a community of students as possible. In that respect, the ABA urges Congress and the Administration to lift the cap on federal loans to finance law and other professional schools so that all students with talent and desire can attend law school—not only those of economic means.

If accessibility were the problem, why not modernize the ABA’s accreditation requirements? For example, distance learning would obviate the need for expensive teacher-scholars cold-calling students. Or, why not relax the library requirements? These measures would greatly reduce law schools’ costs.

Frankly, I don’t buy legal educators’ claims that we just need to allow students to borrow more and pay back less. It’s time for the ABA and law school faculty to accept the truth that law schools must internalize the risk of their graduates’ failure if the profession is to retain any dignity.

Solutions:

Allow me step back for a moment to discuss my beliefs, as I think they’re relevant. I don’t think law school administrators are con artists who cackle to themselves and twirl their moustaches when the bursar’s office reports that the loans came in. Law school deans would be thrilled to report (and are in the handful of lucky cases) that their graduates landed jobs so prestigious and lucrative that the ROI isn’t in doubt. I should also add that I cherish many of my instructors, I don’t blame them for any of my problems, and I don’t delight in knowing that many will suffer professional setbacks when the bubble bursts. I enjoyed learning from them.

For poly sci junkies out there, I’m an institutionalist, so I think we can separate the institutions’ behaviors from their constituents’. Thus my beliefs take inspiration from practitioner Chuck Newton: law schools are federal debt addicts. And like hard drug addicts they promise the moon to prospective students just to get their next fix. Their governing sin isn’t greed, but a weird combination of gluttony and vanity, and as a result I look on them with mixed feelings of disappointment and pity. What I want to feel, though, is resolve. Resolve to push the law schools into rehab. We must force them off the drug cold turkey.

I can think of three alternatives to the debt financing system we have that will resolve the problem:

(1)  Options

Michael C. Macchiarola and Arun Abraham, “Options for Student Borrowers: A Derivatives-Based Proposal to Protect Students and Control Debt-Fueled Inflation in the Higher Education Market,” Cornell Journal of Law and Public Policy, Vol. 20, 67-138 (2010).

The idea here is, after 10 years if graduates have earned less than they and their law school predicted, the graduates can exercise put options and the law school will forgive a portion of the graduates’ debts. The article is a worthwhile read, and I looted it for some sources. I freely confess I haven’t read it in detail, but I’ll give some thoughts as this is a novel idea to me.

I have three problems: First, the put option assumes the law school will exist to forgive the tuition in the future. I predict many law schools will close or drastically contract in the next several years. Similarly, unless the law school hedges itself (either with its own option with another party or insurance) an economic downturn could cause a “bank run” on the law school after 10 years. Second, I think legal education should be more closely tied to a legal career because the judiciary’s legal education requirements have made legal services an un-free market in most states. Some students have no hope of law careers, and the put option assumes that the juris doctor had some positive impact on the graduate’s earning power at all. Moreover, it doesn’t account for the opportunity cost of attending law school. Third, this may have to do with what Macchiarola and Abraham define as “creaming,” but it’s possible that a law school could internally hedge itself by predicting that the students who do well will have compensated for the ones who have not. Again, law is not a free market; therefore, its guardians must ensure that students have a fair chance at gainful employment that puts their education to productive use. I don’t want legal education to be more financialized.

(2)  Human Capital Contracts

I’ve written on the pros and cons of these before. Essentially, we switch from debt to equity. Benefiting private law schools in particular, graduates pay nothing up front, but then pay 10% of their incomes for 10 years back to the law school. I’m somewhat fond of this option, though it has its drawbacks. Read the link for more.

(3)  Vouchers, Free Education, PayGo, or No More Law Schools

This solution does away with the financing and simply concedes that human capital is either a free lunch to be repaid with increased economic productivity and higher taxable incomes, or it’s something people must pay for on their own. Law could become an exclusive domain of the wealthy, but then again I’m unsure the student lending system ever democratized it. Vouchers could be given to prospective students who demonstrate clear talents. Everyone else would have to save money and pay as they went.

The outside benefit of doing away with the law schools is that it looks at legal education as a product, and like all products, improvements in productivity make them cheaper over time. Reducing the barriers to legal labor market entry may make obtaining a law license a simpler affair—closer to becoming a notary than a physician—but along with specializing the profession along practice lines (more a credential system rather than a licensing one), this may be the best solution. Dovetailing with a modernized accreditation system, distance learning, shorter education, etc., the fact that passing a bar exam doesn’t require nearly as much effort as law school does suggests that this solution’s time may have come.

Conclusion

Regardless of the route the profession takes to reform, it’s important for the ABA to do two more things that I believe it will resist. First, even though it’s a political issue, the ABA must advocate for student debt reform, especially because its carelessness has allowed too many of its own constituents to fall into permanent poverty. Second, and I suspect it really doesn’t want to do this: the American Bar Association must apologize to the legally educated and to the public for failing to prevent these problems from arising.

A New Year’s Resolution for Law Students: Organize.

Today, American law schools are like factories that no force has the power to slow down — not even the timeless dictates of supply and demand.

So writes David Segal in his epic New York Times article on the crisis facing the legal profession.

He’s wrong, though analysis pieces obviously aren’t the place for serious advocacy (and he did generously direct me traffic; welcome to the LSTB, readers).

There is one force that can slow the bubble down.

Law students can assert their collective power against universities to reduce tuition, demand refunds, excuse needless staff, slash faculty salaries, shrink successive incoming classes, and whatever else they think is necessary.  If they’re really bold they can demand their schools decline all federal loan funding and switch to a human capital contract system.  If university officials don’t budge, they can start a walkout or a sit-down strike.  Law students don’t have much of a future as middle-income Americans, and for their own sakes, they need to stop thinking like ones.

So law students, here’s a breakdown:

There are Cons, and I’ll list ‘em first:

  • Student protests like these probably violate school policies and local laws, and if you opt for the more dramatic sit-down strike you might get arrested or expelled, tear-gassed at worst.  I doubt you’ll be beaten unless you’re violent.  Then again, what do I know?
  • If you fail a semester for not showing up, you’ll have to retake courses, which means paying more tuition.  Expulsion means you get a partial education and no degree.  Perhaps there’s hope you can transfer?  Your loans will be due immediately and you’ll be ineligible for income-based repayment.
  • You’ll lose your campus health insurance, campus employment, possibly campus housing, and other benefits.

But the Pros!!

  • Most importantly: law schools are weaker than they ever have been and ever will be.  Perhaps this sounds counterintuitive to you, and if it does I suspect that impression comes from watching law schools and the ABA bumble towards reform.  But remember, this is a bubble: the jobs aren’t there and tuition can’t go up forever.  Law schools know their business models are unsustainable and that their students aren’t likely to have a future in law practice.  By organizing now, you reap the benefits of the tuition bubble popping before anyone else.  You get nothing after you graduate.
  • Law schools rely on their reputations to sign on new students, and student strikes are not good PR.  No sir.  You may be surprised how quickly administrators respond to a strong bargaining strategy.
  • University administrators are used to individual students acting out, but they don’t have experience dealing with protests.  And they *want* to appear to be on your side.  Many instructors wouldn’t cross a picket line either.  They also know that if large numbers of 1Ls and 2Ls don’t show up or pay tuition for the next semester, they don’t get paid.  They’ll risk a reduced salary over unemployment.
  • Law schools depend on students for their income, and law students can’t be quickly replaced the way factory workers can be.  In the long run, even transfer scabs won’t prevent the tuition bubble from deflating.
  • Better tactics: threats of lawsuits, outcomes transparency advocacy and blogging about law schools’ pathologies are not and will not reduce your student debt or tuition by one cent, though they get the ball rolling.  At best, these can discourage prospective students from applying to law school.  Unfortunately, they don’t receive consistently positive media coverage.  Often students and graduates with legitimate concerns are called angry, bitter, self-entitled whiners—even by their peers.  Tragically, even experienced professionals’ voices aren’t being heeded while others are silent.  People won’t side with fake hunger strikers or individual students anonymously demanding refunds.  However, the public will side with student bodies against deans earning quarter-million dollar salaries off their tax dollars.  The media won’t be able to ignore the students’ positions when they’re collectively asserted.  You’ll also find out who’s on your side and who isn’t.
  • Similarly, you aren’t alone.  Tens of thousands of indebted graduates ahead of you will stand with you.  They are a constituency waiting to be mobilized.  You’ll get the credit for doing so.
  • Even if you end up unemployed, degreeless, and approaching default, your odds of getting work are no better than they would be if you finished law school.  I risk muddying the waters with this point, but some people would rather hire a troublemaking law student than a generic unemployed JD-holder.  Politicians will take student debt more seriously and will court student union leaders rather than hand you a stack of fliers come next election.
  • Second most-importantly: if you’re in your mid-twenties, things are looking bad for you.  You’re job/income prospects aren’t very good no matter how much of an “entrepreneurial creative hustler maximus” people say you should be.  All this despite the fact that young, educated people should be the most productive members of society.  As a student, you have more power with your peers than you will competing with them on the job market.  Indeed, you may even be at the height of your personal power.  Now’s the time to use it.
  • Third most-importantly: A student movement has potential beyond your tuition and debt.  If you disagree with how the government views foreign military adventurism, global warming, lack of affordable healthcare, income inequality, immigration, and anything else you’re passionate about, now’s the time to make yourselves heard.

In the 1970s, American college students gathered the resolve to protest the expansion of the Vietnam War into Cambodia, some losing their lives at Kent State.  Will you stand up for your own financial security?

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