Give Credit Where Due

Rachel M. Zahorsky, “Law School Closings and Changes to Student Loan Bankruptcy Laws May Be Ahead, Says Former Dean,” ABA Journal.

Former law school dean at Nebraska and Houston, Nancy Rapoport, favors bankruptcy reform for student debtors. This is important because law professors are usually more interested in discussing the need for reforming legal education for new students than addressing the debt problems of recent (and not-so-recent) graduates, to say nothing of current students. I’m not sure if this is because they think the issue is simple—that everyone should realize the debt should be dischargeable or if they think this isn’t their problem. The ABA, for its part, frequently proclaims “IBR for everyone,” and hopes that the government doesn’t notice how much law schools cost it.

A few thoughts:

(1)  I haven’t done comprehensive research, but there have been some cases in which people were able to discharge their student loans despite the “undue hardship” exception, contrary to the single technical case Rapoport mentions. That doesn’t mean it’s readily doable, but it’s either making a gamble on filing an adversary proceeding or a scorched earth strategy of sequential Chapter 13 filings. The tougher call is advocating for bankruptcy reform for those who are up to their eyeballs in debt but are still able to pay on it without serious reduction in their living standards. I suppose we’re fortunate we don’t have to worry about that? Not much of a benefit if you ask me.

(2)  I like how she puts it, “Even if [the graduate employment statistics] were true at the time, they aren’t now.” Sure, the statistics probably pass internal and external validity tests, but are they relevant to what applicants want to know? I’d say no.

(3)  I like how the first day of the American Bankruptcy Institute’s meeting on reforming Chapter 11 included Congresspeople sounding alarms on student debt. How many corporations have education debt?

(4)  Rapoport believes that only a few schools at the bottom of the hierarchy will close. I think she bases this on what information the applicants get, which suggests that many schools that should close won’t.

(5)  This passage: “You have to balance that against- This is the government’s money for the most part; they really like getting paid back, and they don’t want to create a moral hazard where people- What used to happen is you’d go to medical school and you’d get $400,000 of debt, you file for Chapter 7 and you walk off clean. They don’t want that anymore, but there has to be a happy medium, and I keep thinking of the show Northern Exposure, where the doctors go into these underserved areas, and they work off their debt. If there were a way to work off the debt for the government, maybe that’s a compromise, but what’s not viable anymore from any perspective, is going to be people running around with this kind of debt that will haunt them for the rest of their natural lives.”

If the government wants to play private sector bank it must play by private sector rules. When I max out a credit card gambling in Las Vegas, or if I mismanage a company into the ground, the law says to my creditors that they’re sophisticated parties and they should’ve known better than to loan me money, not to mention that it might not be my fault that I may’ve lost the ability to pay down the debt. However, this is America, where we love our banks so much that we don’t think they should be burdened with those pesky things that make capitalism work, like “risk.” Thus, if you don’t want medical students to discharge $400,000 in student loan debt, don’t lend it to them. Now, that hasn’t happened since the 1970s, it certainly wasn’t six figures of debt, and it was exceedingly rare. Rapoport should’ve mentioned that.

As for Rapoport’s happy medium (Northern Exposure, great show), rural America doesn’t require hundreds of thousands of lawyers. Moreover, those lawyers need to be paid for their work. Even if we subsidize legal aid—and we should!—that’s not going to put the government that much further ahead.

Finally, too often we think of solutions for excessive student debt, specifically government debt, as a free lunch to debtors. We have to come up with a “fair solution!” Both sides must compromise! Aside from what I said above about government reaping private sector benefits without paying the costs, the problem is that this is still too narrowly construed. Government’s purpose is to maximize national income, not revenue. When people claim that the government is “making money on student loans,” even if we assume its accounting rules work (and I don’t, nor does the CBO), it’s not! Really! If the government borrows at 0.5% and lends at 3.4% or 6.8%, the interest is money that’s not spent in the real economy, which means people aren’t employed, and—watch this—they don’t pay income taxes. There’s a real sacrifice here, trading revenue for national income, and it’s not worth making. That doesn’t mean the government should cancel all debts it’s owed, not that doing so would reduce any non-debtor’s standard of living one bit, but it does mean that these compromise solutions and happy media aren’t genuine compromises.

March 2011: Economists Discover Tuition Increases

It’s really not as glamorous as it sounds. The main impetus for the discussion is the November election. Candidate Obama said:

“We’re putting colleges on notice: you can’t assume that you’ll just jack up tuition every single year … If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”

Meanwhile, candidate Romney responded to a question about college tuition by a high school senior who, as far as I’m concerned, is the frontrunner for the “millennial of the Year” award:

“Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And, hopefully, you’ll find that. And don’t expect the government to forgive the debt that you take on.”

Paul Krugman—an economist I like but who has so far ducked the student debt question and does so again here—lays into Romney.

“For the past couple of generations, choosing a less expensive school has generally meant going to a public university rather than a private university. But these days, public higher education is very much under siege, facing even harsher budget cuts than the rest of the public sector. Adjusted for inflation, state support for higher education has fallen 12 percent over the past five years, even as the number of students has continued to rise; in California, support is down by 20 percent.” (“Ignorance is Strength,” New York Times)

Here’s what he’s talking about, from Digest of Education Statistics data.

Since the early 1980s recession, there’ve been two broad humps in tuition increases, caused by cuts in state subsidies to public universities, coinciding with the next two recessions. I have two problems with Krugman’s characterization of the situation.

(1)  Cost is important, but spending is more important (in the long run). Digest data indicate that our 4-year public undergraduate institutions have increased spending per student by 5.5 percent between 2003 and 2008. I wish I could find longer term data easily, but I’m guessing it’s grown as public universities have tried to keep up with private ones. For instance we see this in legal education where state law schools like Michigan charge $46,800 for residents and Virginia $44,600 as well. These law schools are public in name only and should be treated as such.

(2)  The problem of subsidizing state schools boils down to whether the state needs the graduates and whether they stay in the state. Sure, adjacent states often have reciprocity agreements, but that doesn’t do a whole lot of good if jobs have moved south and west over the years or if the degrees provide questionable value to the state. Again in legal education, last week I questioned the point of public law schools. There isn’t much demand for new lawyers, and they’re not bound to staying in the state anyway, which is actually an argument for state rather than national accreditation for public law schools. Worse, even if we were to take the moderate view that some public legal education is necessary, some states have far more public law schools than they need, e.g. Ohio, which has five public law schools out of nine total.

We can contrast Krugman’s editorial with an article by Alex Tabarrok (“Tuning in to Dropping Out,” in the Chronicle of Higher Education)

“Our obsessive focus on college schooling has blinded us to basic truths. College is a place, not a magic formula. It matters what subjects students study, and subsidies should focus on the subjects that matter the most—not to the students but to everyone else.”

Tabarrok (who, let’s be honest, also has a badass name) is right, though I prefer comparing education to the mushroom power-ups from Super Mario, which I never really played because I’m not into console games. We can observe Mario growing when he eats the mushroom, but we never know what properties in the mushroom cause his gigantism. Same holds for education: it correlates to higher wages, but there’s no reason to believe that classroom learning directly causes this.

…Which leads us to our last economist, Robert H. Frank, who argues that taxing higher incomes will reduce the motivation of people to go to college based on salary outcomes via prestige:

“We might consider taking more direct aim at the component of tuition inflation that is attributable to growing salary gaps. Raising taxes on top salaries would be a good idea for American society in general, and not just for higher education. It would not only shrink the effect of salary disparities, but would also generate some much-needed revenue.” (“The Prestige Chase Is Raising College Costs,” in the New York Times)

I’m not sure if low income taxes on the wealthy is the precise cause of income inequality, but Frank, who, like Krugman, avoids discussing student debt, is right. If we actually cared about creating living wage jobs for productive young people, then college would be one path for people who are a good fit for it and not a toll booth on the road to “the middle class.” Spending and costs would drop accordingly.

In the meantime, we still have the candidates’ comments. Romney, like all spiteful Republicans believes that debt should be permanent, which makes sense since he’s a member of the class that carelessly lent the money and believes living wages and full employment are optional. With direct loans he’s not, as the tax burden has been shifted from him to poor people. The joke, if there is one, is on him. Obama’s solution to joblessness is to double-down by sending everyone to college and then throwing them into Income-Based Repayment. He’ll be able to get it both ways: college education remains sacrosanct in American ideology and no one goes broke because of it. Policy solutions that include everyone and offend no one are essentially political Enron accounting: the CFO lifts the problem from the books in the hope that it solves itself before catastrophe strikes. Except it does, leaving Obama’s successors to clean up his mess after he’s retired.

Good luck to Romney’s high school student until then.

(Fine, here’s some Mario…)

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!)

Discredited Cooley Arguments Just … Won’t … DIE!

Today’s installment of law school zombie arguments comes from none other than Nelson Miller, dean of Cooley’s branch campus in Grand Rapids, who asked for an editorial slot on The Careerist, operated by Vivia Chen, who writes, “[H]e wanted to present a view that’s ‘data-based.’” Miller then presents data that are wholly irrelevant.

Data shows that the recession affected lawyers less than others, and that lawyer employment prospects remain strong. According to the U.S. Bureau of Labor Statistics, lawyer unemployment rose from 1.1 percent in 2007 to 1.9 percent in 2008 and 2.3 percent in 2009 but fell to 1.5 percent in 2010.

Now, my ego isn’t bruised if people decline to read my refutations of Cooleyist arguments here on the LSTB, but, well, I mean. Dude. The Careerist is owned by American Lawyer Media, which not two months ago published a very direct refutation of Dean Miller’s same arguments that lawyer unemployment data are useful to tell us anything about law school’s value. *sigh*

One the bright side, Dean Miller drums up a few new claims to refute, so don’t call Bruce Campbell just yet.

From 2000 to 2010, the economy created another 123,000 lawyer jobs while adding only 7,000 unemployed lawyers. Employed lawyers grew by 39,000 from 2007 to 2010 across the recession.

These numbers should immediately raise alarms. One sentence earlier, Dean Miller states that 1,040,000 lawyers worked in the U.S. According to ABA data, between 2000 and 2010 (11 years), 455,529 people graduated from an ABA law school. That means 332,529 lawyers would’ve had to’ve left the field in the previous decade, or 32 percent turnover. I’m no labor expert, but that sounds high for an industry that requires entry costs of three or more years of formal education and much debt.

But my favorite part is when Dean Miller says:

Negative media has discouraged applicants from pursuing a law career path that holds good employment prospects. Law school applications usually increase during economic downturns and decrease in periods of economic growth. Indeed, during the recession, applications rose 3.8 percent for the fall of 2009 and 1.5 percent for the fall of 2010. However, with a recent onslaught of negative publicity, national applications for the fall of 2011 nosedived. The preliminary figure is down 9.9 percent.

I’ve only seen one other law school dean say something like this: Larry Kramer of Stanford University in an alumni letter posted on Inside the Law School Scam. The argument is a dizzying shift from law school faculty and admissions personnel saying that the recent drop in applicants signifies that all the greedy Millenials who apply for the “wrong reasons” and would be awful lawyers no matter what the circumstances are now deciding against going to law school, and that now only those who are pure of heart (and are therefore destined for greatness) are applying. Nevertheless, I’m surprised when the dean of Stanford essentially says scam bloggers and journalists who see blood in the water are depriving America of its vitally necessary legally educated workers. When the Dean of a Cooley branch campus says the same thing? Not surprised.

Yet the core question is not what is good for lawyers or new law graduates … lawyers and their firms contribute substantially on their own to the national and global economies … I strongly suspect that we will continue to need them in a world that every day grows more complex, sophisticated, challenging, and uncertain.

No, the core question is what’s good for student debtors and taxpayers. Law schools create debt that taxpayers will be forced to cover, and law schools cost the economy in terms of labor output. We will not need new layers to handle the more complex world because contrary to popular perceptions the world is not becoming more complex. The vast majority of the U.S.’s GDP is and ever will be domestic consumption. The volume of international trade we have today is due to China undervaluing its currency and the U.S. borrowing money to overpay its own healthcare system, cut taxes on rich people, and spread democracy by invading other countries. Will we need more specialized lawyers? Very likely, but not even close to 45,000+ per year.

I used some strong language when discussing Cooley’s “Report One,” but I stand by it: Dean Miller is either “willfully misleading readers into believing the legal profession will provide jobs for law students,” or he is “irresponsibly ignorant.” Today, I’m guessing it’s the latter.

Two Quick Comments on David Segal’s Portrait of Richard Matasar

(1)  Law schools cannot self-terminate.

I suppose it’s safe to say that when NYLS dean Richard Matasar stepped down, I was easier on him than David Segal is in today’s NYT piece, “Law School Economics: Ka-Ching!” My personal opinion that I realized after I published my piece is that if you want to be a reformer who acts against your own interests, you must show some noblesse oblige. That means you do not criticize your peers’ practices while making half a million dollars off your students’ debt. You take a voluntary pay cut to show that you are serious, and you make enrollment cuts like Albany Law School supposedly did over the last decade. If you get ousted, you go back to teaching. At some point one must be willing to lose for one’s principles. Matasar’s ineffectualness/perceived hypocrisy never surprised or shocked me. To me it’s obvious that non-Ivy League law schools have no hope of internal reform without losing their place in the U.S. News rankings and by consequence access to high LSAT-scoring applicants, for they should realize by now that the legal education system has over-expanded and will certainly contract. If they’re not going to make symbolic gestures personally, reformers at lower status law schools might as well save their breath and tell the board of trustees that it’s time to close up shop.

(2)  Demand for legal education and demand for lawyers is not the same thing. One must fall.

Segal writes:

[T]here’s no business like the business of law school. The basic rules of a market economy — even golden oldies, like a link between supply and demand — just don’t apply. Legal diplomas have such allure that law schools have been able to jack up tuition four times faster than the soaring cost of college. And many law schools have added students to their incoming classes — a step that, for them, means almost pure profits — even during the worst recession in the legal profession’s history.

It should be clear: demand for lawyers is separate from demand for law degrees, and the ABA’s goal of law as an elite profession contradicts its concurrent goal of law as a democratic profession open to the masses (especially minorities, which is the ABA’s biggest insecurity). That’s the basic problem, and as J-Dog opined before taking a blogging break, the irreconcilable conflict entails the solution: Either:

(a)   A Gorbechev figure takes over at the ABA and initiates law school accreditation perestroika that circumvents antitrust concerns: minimum LSAT score requirements, mandatory experience in a legal position, or mandatory undergraduate course streams. Such reforms would smash the legal education system, and enrollments would fall to what they were in the 1960s. Law remains a selective, elite profession.

(b)  Water down legal education requirements (especially the costly wasteful ones) to the point that nearly anyone can get a law license provided they meet certain minimum criteria. Law becomes a democratic profession.

Until some kind of formal change is adopted, expect more legal education volatility: wary applicants, warier bondholders, and defiant law school behavior (like Vermont’s increasing its tuition and LL.M. students to compensate for declining JD enrollment).

Pew Research Center Irresponsibly Overvalues Law Degrees

Pew Researchers analyzed the ROI of higher education using Census data (the American Community Survey (ACS)) and cost data (National Center for Education Statistics (NCES)) and published their findings in a piece titled, “Is College Worth It?” (chapter 5, The Monetary Value of a College Education).

On the ROI of a four-year college degree, it states:

[T]he analysis finds that the typical or average high school graduate with no further education earns about $770,000 over a 40-year work life. The typical worker with a (two-year) associate degree earns about $1.0 million, and the typical worker with a bachelor’s degree and no advanced degree earns about $1.4 million.

[T]he monetary return to college is influenced by a variety of factors, including type of college attended and major field of study … [W]ork-life earnings tend to be much higher for undergraduate majors requiring numerical competencies (computers and engineering) than other fields of study (education and liberal arts). In regard to costs, some colleges and universities have much higher tuition and fees than the typical in-state public institution.

Here’s its 2009 “Mean Earnings by Age”:

Does the sudden drop in professional degrees' values for younger people concern anyone?

The Pew Research estimates for work-life earnings are based on the current patterns of earnings differences by education in the most recent census data … Many economists would surmise that the future course of the financial returns to schooling in part depends on how many young people pursue and complete college. If college-educated workers become relatively less scarce, the financial returns to college might decline.

We’ll return to this degree supply problem very shortly.

To the Pew researchers, college educations are like magic mushrooms for Mario. By their very nature they make you bigger and insure you against injury; therefore, eat them as quickly as possible to ensure maximum benefit. The “power-up” perspective is internally and externally valid, but its causal arrows are wrong. Nothing inherent to college education makes people better workers, unless they’re gaining substantive knowledge both unlearnable on the job and not taught in high school, such as international relations theory for state department officials.

As Richard Vedder puts it, in “From Wall Street to Wal-Mart: Why College Graduates Are Not Getting Good Jobs,” the higher ROI of college degrees over high school degrees isn’t from increasing demand for college-educated workers; it’s from increased supply:

It is our view that the problem is NOT that employers are demanding more education, but rather that educators and public policy makers are producing more degrees, giving employers a large pool of applicants, and demands for the higher credential (e.g., bachelor’s degree) are instituted to narrow the applicant pool to a manageable size. Other things equal, on average, college graduates are somewhat smarter, more disciplined, and perform better academically than non-graduates. The probability that a prospective employee will be successful vocationally is traditionally enhanced by obtaining a degree—independent of whether the individual “learned” much while in college. This is a classic example of what the French economist Jean Baptiste Say said over two centuries ago: supply creates its own demand (Say’s Law). (9)

Memo to Mario: the mushroom doesn’t make you bigger; it’s just an indicator that you’re bigger than anyone who didn’t eat it. Additionally, Vedder claims the Bureau of Labor Statistics informs us that one-third of college graduates are working jobs that don’t require them. The Pew’s “power-up” perspective of higher education concedes that bachelor’s degrees aren’t priced to reflect their labor market value:

The typical worker with a bachelor’s degree in a liberal arts field and no advanced degree earns an additional $0.48 million over 40 years compared with a high school graduate who has no further formal education. Unless the degree is obtained at a very expensive college and university and no grant aid is received, it is highly likely that the added earnings will exceed the costs by a comfortable margin.

Thus, unlike Vedder who sees the problem in terms of excessive government support for higher education, Pew sees it as a marginal problem: Some colleges are overcharging some people, but that’s bad pricing on colleges’ parts and bad buying on students’ parts. It doesn’t falsify the idea that college education is inherently worthwhile, so provided people don’t overpay for their degrees, they’ll earn an extra $480,000 by reading the Theaetetus because doing so magically makes them more productive workers. I feel it was worthwhile for me personally, but I can’t speak for anyone else who sat through my senior Plato seminar. Nor can I say that the value of my philosophy degree is helped by the presence of those held by people who read the later dialogues, didn’t understand them, didn’t enjoy them, and couldn’t find work because there’s an oversupply of non-technical bachelor’s degree-holders. (Fret not; I was able to put my East Asian Languages and Cultures degree to use straight after college. Take that, humanities bashers!)

When discussing professional degrees, the Pew resurrects the law degree bottleneck argument. If college degrees are Mario’s mushrooms, juris doctors are Yoshi:

Law Degrees. Law degrees (J.D. or LL.B.) are far and away the most popular professional degree conferred, and work-life earnings estimates suggest that they have a sizable earnings benefit relative to the costs of acquiring the law degree. Consider a young person with a bachelor’s degree with an undergraduate major field of study in social science/law. The NCES tuition figures indicate that the out-of-pocket cost of three years of law school after aid will average about $75,000. Again, foregone earnings trump this, as a worker with a bachelor’s degree in social science/law will forego about $32,000 per year (or a total of $96,000) to pursue law school. The added work-life earnings gains from having a law degree likely exceed the $170,000 costs by several-fold. The 2009 ACS does not allow us to estimate the work-life earnings of workers with a law degree. The work-life earnings of workers with professional degrees are $2.6 million, far in excess of the $1.4 million work-life earnings of a worker with a bachelor’s degree in social science/law. The $2.6 million figure of professional degree holders might overestimate what a worker with a law degree will make over a 40-year work life, because it includes the earnings of workers with medical degrees (at the same time, the $2.6 million figure also includes the earnings of religious workers with theology degrees). But a reasonable expectation is that the added increment to work-life earnings from having a law degree far exceeds the $170,000 cost of acquiring it. (Chapter 5) [Emphasis LSTB]

Of course, if you tell this to a law school dean, he’ll jab a finger in your face and snarl that people shouldn’t go to law school just for the money. Greedy 0Ls! Harrumph! (But the bottleneck argument is valid; get good grades; borrow responsibly.)

I confess I never actually owned a Super Nintendo and suck at console games.

Does three years of law school cost $25,000 per year on average (if we pretended that tuition never increased (*HA*!))? In the 2007-2008 school year (which the NCES used) it kinda did … if you brute force average all the law schools’ tuitions, including resident and non-resident public school tuition. According to the LSAC, here’s enrollment and average tuition data from 2008-2009, and my research on 2009-2010 thrown in for fun:

Type	2008-2009 Enrollment	2008-2009 Tuition	2009-2010 Tuition
Private (119)	96,832	$35,743	$37,274
Non-Resident Public (80)	48,465	$30,413	$32,710
Resident Public (80)		$18,472	$19,580

So actually, two-thirds of all law students pay north of $35,000 per year for their law degrees, on average, though in the Pew’s favor, the opportunity cost of a law degree is negligible in a recessed economy. However, its own tuition chart suggests calling the JD’s value into question. It lists law school as a third more expensive than its next nearest peer, medical school.

The “reasonable expectation” of recouping the $100,000+ tuition and living expenses—which excludes interest on the student loans necessary to purchase the degree and uses an irresponsibly low discount rate of 4%—is not substantiated by the Bureau of Labor Statistics.

Job prospects. Competition for job openings should continue to be keen because of the large number of students graduating from law school each year. Graduates with superior academic records from highly regarded law schools will have the best job opportunities. Perhaps as a result of competition for attorney positions, lawyers are increasingly finding work in less traditional areas for which legal training is an asset, but not normally a requirement—for example, administrative, managerial, and business positions in banks, insurance firms, real estate companies, government agencies, and other organizations. Employment opportunities are expected to continue to arise in these organizations at a growing rate.

As in the past, some graduates may have to accept positions outside of their field of interest or for which they feel overqualified.

Feel overqualified? Or are overqualified? I think the BLS is being generous here, and the versatile juris doctor argument speaks more to Vedder’s invocation of Say’s Law and attorney overproduction than a reason to go to law school. In the past, I calculated that more than 40% of America’s ABA JD-holders were not employed as attorneys or judges in 2008. That doesn’t mean they’re underemployed (legislators, government officials, businesspeople, etc.), but a high non-lawyer rate suggests that the degree doesn’t contribute to higher work-life earnings than a bachelors degree ($1.2 million according to Pew).

Since Pew brought up medical degrees, let’s look at doctors’ contribution to the $2.6 million professional degree work-life earnings:

Physicians and surgeons:

Job prospects. Opportunities for individuals interested in becoming physicians and surgeons are expected to be very good. In addition to job openings from employment growth, openings will result from the need to replace the relatively high number of physicians and surgeons expected to retire over the 2008-18 decade.

Job prospects should be particularly good for physicians willing to practice in rural and low-income areas because these medically underserved areas typically have difficulty attracting these workers. Job prospects will also be especially good for physicians in specialties that afflict the rapidly growing elderly population. Examples of such specialties are cardiology and radiology because the risks for heart disease and cancer increase as people age.

Dentists:

Job prospects should be good, because younger dentists will be able to take over the work of older dentists who retire or cut back on hours, as well as provide dental services to accommodate the growing demand.

Optometrists:

Job prospects. Excellent job opportunities are expected over the next decade because there are only 19 schools of optometry in the United States, resulting in a limited number of graduates—about 1,200—each year. This number is not expected to keep pace with demand. However, admission to optometry school is competitive.

Veterinarians:

Job prospects. Excellent job opportunities are expected because there are only 28 accredited schools of veterinary medicine in the United States, resulting in a limited number of graduates—about 2,500—each year. However, admission to veterinary school is competitive.

This isn’t a fair sample of all the professions on my part, but you get the idea: In no way should prospective law students expect to earn anywhere near $2.6 million over forty years like doctors do. The wage premium for lawyers might exist for people who went to college for dirt cheap, gain substantial experience in the legal field, and get a free ride to a highly regarded law school. But even people in that advantageous position will lose nothing if they wait for the law school bubble to pop before going.

I credit Pew with pointing out that much of the “college premium” a bachelor’s degree provides over a high school education has increased due to the depreciation of high school educations. That, however, does not imply increased demand for college-educated workers. Rather, it reflects increasing income inequality, the overvalued dollar wrecking the U.S. export market, and “free trade” policies that haven’t resulted in corporate boards of directors being replaced with their cheaper Japanese equivalents.

I’m not nearly the methods grandmaster I wish I were, and I don’t doubt the authors of the Pew Research Center study calculated everything right, but they didn’t falsify Vedder’s accusations of credential inflation, and they deserve admonishment for overvaluing law degrees.

A Less Gilded Past: The SmallLaw Dead Pool

[****THIS RESEARCH IN THIS POST HAS BEEN CONSOLIDATED ON THIS PAGE. PLEASE LINK TO THAT INSTEAD.****]

“A Less Gilded Future,” in the Economist [H/T JETs with J.D.s]

Opening with the tale of Howrey’s passage to the BigLaw Dead Pool, the Economist tells us:

Though Howrey was the only big firm to collapse-

***sound of needle scratching record***

Only big firm to collapse?? The BigLaw Dead Pool lists six others that failed since 2005. Let this sloppy error set the tone for tonight’s post. Permit me to begin again.

Though Howrey was the only big firm to collapse, the forces that destroyed it hit the whole profession hard … Clients became keener to query their bills—and to demand alternatives to the convention of charging by the hour, such as flat, capped or contingent fees. Small and innovative firms began obliging them, and big firms increasingly felt forced to follow suit … All this took a toll on the labour market. After a dozen years of growth, employment in America’s law industry, the world’s biggest, has declined for the past three years.

First of all, the U.S. is the third largest country on Earth by population, the largest by GDP, and it uses a common law system unlike nearly everyone else who uses civil codes. We should expect it to have the largest legal labor market. Try harder Economist.

Reading the article, you would think that the legal sector’s problems only began in the last decade:

Trends that were not part of the recession will not disappear with the recovery. Some will even strengthen. William Henderson of Indiana University points out just how good and how long a run lawyers had. Spending on legal services grew from 0.4% of America’s GDP in 1978 to 1.8% in 2003. The legal business grew four times faster than the economy. Now, Mr Henderson says, a “hundred-year flood” is hitting the profession. [Emphasis LSTB]

This chunk is a mess, yet where have I seen that italicized portion before?

Oh God, no. Please, no. *Ungh…*

Jack Crittenden’s, “A Wise Investment,” in the National Jurist (37).

I’m swear I’m that guy from Alien/Spaceballs.

Note to the legal profession: Any data also appearing in that Jack Crittenden article should first seek the LSTB’s wise counsel.

There are four problems with the italicized passage, to say nothing of the “good and long run lawyers had,” which I’ll get to.

1). The numbers are flat out wrong. According to the BEA, they are 0.8% (1978) and 1.5% (2003). More accurately, they’re 0.83% and 1.47%, respectively. So instead of a 350% increase in “percent of the economy,” we’re talking about 77%. Not the same thing.

2). Two data points does not a trend make. Unlike ABA President Stephen A. Zack’s recent frivolous comparison of law graduates per capita between 1990 and 2009, there is absolutely in no way a gentle trend connecting the legal sector of 1978 to that of 2003. This is what happened.

It’s fitting that The Economist chose 2003 as the target year: the legal sector’s percentage of GDP was the same as it was in 1992, the year before the legal sector contracted relative to GDP.

3). Legal services are more expensive than ever before! If we’re going to be comparing the size of the legal sector to the overall economy over time, at least take inflation out from the nominal GDP and use real value added with 2005 as the base year. The BEA obliges.

Nominal = Real (Quantity changes) + Deflator (Price changes (not CPI, but close))

Whoo! I cannot say I expected that! Incidentally,the BEA has a legal sector deflator series (1977-2009) for anyone else who is approaching Peak Nerd.

So in 1978, the legal sector’s real output was 2.01% of GDP; in 2003, it was 1.55%, a 22.9% contraction. In 2009 it fell to 1.37%, a record low as far as we know.

4). Growth is measured in stuff. So explain to me why we should we care about the legal sector’s percent of GDP? Gentlemen, we have the nominal value added and the deflator, so let’s just look at the damned raw output already.

If I knew nothing about the American legal sector and you showed me this graph, I would say that with an R_­² of .8822 it’s f’ing volatile. I would not, for example, characterize the run that lawyers had as “good,” or “long.” Instead, I would say that this is an industry that has been undergoing serious structural changes since it fell into stagnation in the 1990s. I suspect that non-Biglaw suffered badly during these years.

Return to this statement: “The legal business grew four times faster than the economy.”

I simply have no idea where this comes from. It is nonsense.

Even if we assume the Economist’s fantasy legal sector were true we get this:

	1978	2003	Percent Growth	Annual % Growth
GDP Nominal	$2,293.8 billion	$11,142.1 billion	385.7%	6.5%
Legal Sector Nominal	$19.1 billion	$163.5 billion	756.0%	9.0%
Economist’s Legal Sector	$9.2 billion	$200.6 billion	2,080.4%	13.1%
GDP Real (base, 2005)	$5,677.7 billion	$11,840.7 billion	108.5%	3.0%
Legal Sector Real (base, 2005)	$114.2 billion	$183.35 billion	60.6%	1.9%

Only if we divide the ludicrous 2,000% figure by GDP growth do we get a fivefold number, but nominal total growth over that time period was actually twice as fast as GDP, not four times as The Economist claims. Looking at real value added, we find very much the reverse: GDP outgrew the legal sector by 1.58 times annually.

Longtime readers have seen this story before.

I have no more will to quarrel with anything else the Economist says aside from its exclusive focus on Biglaw, whose contribution to the legal sector output is unspecified. I credit it for pointing out that American lawyers have unilaterally adopted free trade in some legal services while everyone else is protectionist. Not that anyone goes to law school to do doc review.

However, those wishing to talk about “structural changes” to the legal sector and “hundred-year floods” should at least get their facts right. Things haven’t been gilded for a long while, and the real story hints of a much eerier SmallLaw Dead Pool, unacknowledged by the profession and concealed by the law schools.

.

.

.

Okay, fine here’s your damn deflator.

There, happy? Hey … the cost of legal services has outpaced prices in the rest of the economy. No shit. I hope quality has improved or else things will get even worse.

Dead by Dawn: Law Schools & Law Students per Capita (1960s-2010)

I recently exhumed Jack Crittenden’s March 2010 bottleneckus maximus piece defending the legal education system, “A Wise Investment?” in The National Jurist. Rereading it shows just how badly he misinterpreted the data he gathered, and rather than dismember all his zombie arguments like I’m Ash from Evil Dead II, I’ll limit myself to his mischaracterizations about law schools and law students per capita. I’ve looked into this in the past, but this post will be more thorough. Why is this relevant for contemporary legal education’s ills when yours always is throwing the 240,400-between-2008-and-2018 number at his readers?

(1) Crittenden explicitly argues that the problems new attorneys face are recent in origin:

Law schools were not producing more attorneys than the market could bear prior to the recession, and experts expect most to still land full-time legal jobs. (36)

Reading this makes me fear that we killed the bottleneck argument but couldn’t bring ourselves to dismember its corpse. We buried it…God help us. We buried it in the earthen floor of the fruit cellar! (Violent and possibly NSFW)

Have I told you recently how much I cherish Bruce Campbell?

(2) I really, really, enjoy graphing and animating stuff.

Let’s begin.

It turns out the Census Bureau doesn’t actually have a single site containing annual resident population estimates going back through the decades. I pieced them together from here, here, and here. I highly doubt the Census Bureau includes Puerto Rico in its annual estimates, so this will be inaccurate but precise. That said, from the outset, I trust that Crittenden’s following chart is accurate. I do criticize its inconsistent x-axis though.

Here’s what Crittenden says about it:

“[T]here are fewer law schools today per U.S. resident than at almost anytime in the past 45 years [1965]…The numbers are not much different when you compare the number of students to population. There are currently 5.0 law students for every 10,000 Americans. In 1975, there were 5.42 law students for every 10,000 Americans.” (33) (emphasis added)

As you can see, 1965 and 1975 differ greatly in law school years, and Crittenden shouldn’t’ve put the two together. The problem, though goes deeper. What accounts for this sharp rise in law students per capita in the mid-1960s?

Glad you asked.

Let’s start earlier. Lemme show you law schools per capita, including all non-ABA law schools (ex. JAG school and correspondence schools) because they’re critically important. The biggest problem in researching all law schools, law students, and tuition, is that there’s no centralized authority to give us this info. The ABA gets a ton of shit for its schools’ employment data, but no one has a clue what’s going on in the dozens of non-ABA or California-accredited/unaccredited law schools, including the ABA-renegade Massachusetts School of Law. Incidentally, this was the first thing that crossed my mind when Sen. Boxer sent her letter to ABA president Stephen Zack. She should’ve cc’d the California bar while she was at it.

Here’s what we get:

Verily, the number of law schools per capita has dropped over the decades, but note the bump that started in the late 1960s for later. It’s also worthwhile to see that the drop hasn’t been consistently distributed nationwide. Check out this animation of law schools per capita by Census Divisions, which sets white to the national average in 1960.

The Pacific (really California) is crammed with law schools (though I *think* the non-ABA ones’ enrollments tend to be smaller), but just look at New England! LOOK!! It’s the only Census division that gains law schools per capita above the 1960 average while others shed them. I predict that many New England law schools will close in the near future.

(* I confess that I excluded Cooley’s three branch campuses (founded in the 2000s) from all these calculations. Including them wouldn’t've thrown the East North Central states into the red but it would lighten its blue hue. I believe the ABA counts its branch campus students in its national enrollment calculations, so the distortion should be minimal. I’m also unsure if Cooley’s Ann Arbor campus has received ABA accreditation yet.)

Here’s an absolute growth graph:

If you squint, you’ll see that the ABA appears to pull law schools into its orbit starting in 1950. This next one is more illustrative, but beware that the y-axis starts at 68%.

Whenever the percent of ABA-accredited law schools drops, it means new law schools are being established, as law schools never leave the ABA system. The 1970s saw a wave of law school creation, as did the 1990s, but most of those were non-ABA California ones.

Sadly, the ABA collects law school enrollment and graduation data only going back to 1964, I divided them by the resident population as Crittenden does, though I think he counts all law students; I only count JD-candidates, fearing the LL.M.s are forsaken.

Given that law school has always taken three years for full-time students, and given that some are part time (16.5% in 2009, and they’d be double-counted or more in subsequent years) and some drop out, in your typical academic year the ratio of enrollments to graduates should be somewhere above 3.0 but probably under 4.0. The ABA system of 1964 had obviously just accredited some non-ABA law schools and was “spending down” their enrollments. There was another spike in the late 1960s. However, beginning in the 1970s, enrollments per capita never drops back to 3.0 per 10,000 residents. It may have even been lower before 1964. Now, your inner Professor Crittenden may say, “Look, the number of law students per capita has always been around 5.0. Either you’re just detecting relative ABA growth ‘at the expense of’ non-ABA schools, or it accredited some big law schools.”

My reply: Between 1968 and 1976, the ABA accredited 23 law schools, and most of them were founded after 1960 if you compare their accreditation years and foundation dates, so the ABA’s growth came from the absolute law school growth and not from relative growth as it did pre-1950. As for the “big law schools” hypothesis: in that same period enrollments grew from 61,084 to 111,047 (no law schools were accredited in 1976, yet enrollments grew by 6,000 nonetheless). That’s more than 2,000 students per “big law school” compared to 442 per school at the others. As of today, only Cooley has that kind of capacity, and that’s after opening three of branch campuses in the last decade. Here’s what the ABA system looks like if we set 1964—one of the last three years ABA enrollments per capita was below 3.0—to one:

The monster we’ve unearthed in the fruit cellar isn’t so much the strain of law schools that opened recently or have been proposed by brain dead university officials and other elites; rather, it’s the few dozen that opened in the 1970s and the enrollment surge that accompanied them. The most parsimonious explanation for this is that despite the Vietnam War, which I think affected enrollments in 1969, the ABA system in the early 1970s grew, I believe, due to the Higher Education Act’s new student loan program and a sincere desire to make legal services more affordable to the masses. I wonder if anyone asked if it was really necessary.

ABA Journal: “Should Law Schools Ban Anal Probing?”

…is what Debra Cassens Weiss would’ve titled her ABA Journal post instead of, “Are Laptops Too Tempting? Most 2Ls and 3Ls Doodle for More Than Half the Class, Study Finds,” had she total workplace autonomy and a ribald sense of humor. Her post reminds me of one of my favorite Kids in the Hall sketches in which Dave Foley and Kevin McDonald play “greys” who abduct humans and anally probe them because their distant alien leaders will it.

Why is this relevant? Read on.

Consider St. John’s School of Law professor Jeff Sovern’s study of laptop use in law school, “Law Student Laptop Use During Class for Non-Class Purposes: Temptation v. Incentives.” As we should expect, Professor Sovern determines that students with laptops don’t pay a whole lot of attention in their classes. He concludes that laptops should be banned in upper level courses because students realize that their job prospects are less tied to their grades than when they were 1Ls. (2)

As always with law professors wishing to declare laptops in class odious to legal education, we’re required to assume the following argument is valid without question:

Laptops distract students from otherwise necessary classes. If you take away the laptops, students will focus more on the lecture and get more out of class.

Recognize, though, that we’re not talking about student performance—just whether the students are distracted. They could very well be getting the same grades had they not shown up at all, provided they’re evaluated on a term paper or final exam. Sovern notes that conundrum yet elects against pursuing it.

“St. John’s has an attendance policy…Consequently, students who are unwilling to miss class but who are not interested in paying attention may show up and surf the web, thus inflating the level of distraction when compared with other schools where uninterested students may simply skip class.” (5)

The “whys” here are important, so let’s follow them:

Why are students watching Kids in the Hall YouTubes in class?

Because they’re bored.

Why are they bored?

Because they have no incentive to pay attention.

Why do they have no incentive to pay attention?

Because by their 2L years—to say nothing of their 3L years—employers no longer care about them because they weren’t top5%mootcourtlawreviewrequired after their first semesters, but the school requires them to show up anyway.

What should we do about it?

Ban the laptops.

It’s unfortunate that Sovern adopts a rational choice approach to the laptop problem yet still impliedly condescends to law students as though “adults” wouldn’t behave similarly, e.g., “Allowing students to have laptops is like placing beer in front of alcoholics.” (22). True, law students are rational, but not because they’re lazy, gluttonous millennials following the path of least resistance by reading the AV Club’s “Whatever Happened to Alternative Nation?” series instead of pondering Dillon’s Rule vs. the Cooley Doctrine, which, incidentally, is relevant to those concerned about the constitutionality of Midwestern state governments taking over financially distressed municipalities, purging their elected officials, laying off their workers, canceling their union contracts, and then terminating their services. Rather, law students are rational because their classes are formalities. Such is the bizarreness of the law school tuition bubble. With the DotCom bubble, buying tech stocks didn’t take three years; with the housing bubble, homeowners enjoyed living in Las Vegas McMansions before tearing out the copper pipes and selling them for cash the week before their evictions. With law school, students borrow money to sit in classes employers don’t care about, unless they rally academically in their 2L and 3L years.

Law professors wedded to rat choice theory are stuck with two solutions to the bored student: either become an engaging lecturer (which worked with my local government law adjunct) or alter the incentive structure of law classes. The Scylla: learning to teach when one lacks the energy or dramatic flair; the Charybdis: changing how students are evaluated, i.e. more Socratic method, quizzes and papers, which require more grading and takes effort. Is there no other option, Odysseus? Sovern shies away:

“This study has found that many students are significantly distracted in law school classes. If educators required upper-year survey classes to meet the 85% attention threshold established by the creators of Sesame Street, the upper-year classes studied in this paper would have been cancelled.” (23)

“Resisting the temptation” of the goldmine comparison between legal education and the Children’s Television Workshop, why NOT simply cancel the classes? I return you to our Canadian comedians:

Alien McDonald: “Do you have a better plan than our great leaders?”

Alien Foley: “Yes I do. I do have a better plan. My plan is that we don’t travel 250,000 light years, we don’t abduct any humans, and this is the best part: We don’t do any anal probing.”

Alien McDonald: “Oh, great plan! Do you realize how many people Intergalactic Anal Probing employs??”

Let’s contextualize the dialogue:

Rat choice prof: “Do you have a better plan than the ABA?”

LSTB: “Yes I do. I do have a better plan. My plan is that we don’t require students to sit through 45,000 minutes of classroom instruction, we don’t force them to show up because of mandatory attendance policies, and here’s the best part: we don’t charge them excessive tuition for doing so.”

Rat choice prof: “Oh, great plan! Do you realize how many people law schools employ??”

LSTB: “Thousands, but if they can’t do a better job than apprenticeship programs and distance learning, then they should be eliminated.”

Rat choice prof: “Commence anal probing!!”

LSTB, upending the table: “CRAP!”

Rat choice prof: “My minions! Stop him from reaching the escape pods!”

LSTB, firing as he flees: “Eat laser, you damn dirty greys!”

**Sound of escape pod releasing**

Let’s replace the typical law professor’s anti-laptop argument with what’s really happening:

Students allow laptops to distract them in class because they realize the marginal benefit of rapt attention is too small to impact their employment prospects. Without laptops, they would find other ways to entertain themselves through 45,000 minutes of ABA-mandated classroom instruction. The LSTB recommends doodling.

 

They're after me...The GREYS!

Will Fewer LSAT-takers Mean Lower Tuition? (All the World Wonders)

James B. Levy, “December LSAT test-takers drop 16.5% from last year; first time test-takers down 22%,” in Legal Skills Prof Blog

J-Dog, “LSAT, Law School Applications Down 10+% Year-over-Year” in Restoring Dignity to the Law

Knut, “Are They Finally Paying Attention?” in First Tier Toilet !

In the light of this disturbing picture, one might expect that law schools are facing an imminent market collapse – declining applications, few students willing to take on financial risk, the need for significant internal cost savings, price cutting, and other similar measures. Surprise, surprise, surprise! The demand for legal education has remained strong throughout the economic downturn. Applications at many schools are at record levels. Enrollment has been solid, with many schools recording historically high yields of new students. –Dean Richard Matasar, New York Law School, October 2010

Surprise, surprise, surprise! Despite the profoundly countercyclical nature of legal education, demand at the LSAT boundary is dropping. First-time test-takers we would expect to be signing up to take the exam are opting out. In October 2010, 54,345 people (-10.5% from 2009) took the exam, and in December 2010, 42,096 (-16.5% from ‘09) took it. LSAC even reports applications are down 12% for Fall 2011.

Although the number of test-takers has only dropped to 2008ish levels (whatever that means for the market), the question is: Will tuition drop already?

If the number of new test-takers has dropped and the number of repeat takers is up, then the overall number of people in the game has dropped from the previous year or two, shrinking the applicant pool. The only comparison I have is from Astronomy (wha??), the eliminationist Drake equation to test the possibility of extraterrestrial life (that’s similar to terrestrial life).

N (new law school students) = College Degree-Holders * Proportion of Test-Takers * Proportion of Subsequent Applicants * Proportion of Accepted Applicants * Proportion of Subsequent Enrollments

Obviously over-stylized, we really need only look at enrollments, but those data aren’t available yet. So the question we can ask is: assuming decreased Test-Takers leads to decreased Enrollments, will that lower tuition?

Hmm. Not across the board. Bear in mind that the “Proportion of Test-Takers” includes repeat takers who want a better score. This suggests that the distribution of scores for Fall 2011 applicants will shift rightwards towards 180, assuming that anyone who did badly twice in a row is less likely to apply at all than anyone who did badly in the past but did better in a retake—a fair assumption.

This phenomenon occurs every year, but it'll be more pronounced in the future.

From this I believe that U.S. News’s top-tier schools will see more applicants and better overall incoming classes than they have in even the recent past. On that level, law schools that have been able to collect high LSAT scorers will cement their positions and end up competing with schools receiving similar applicants. Schools accepting lower-scoring applicants will have to make do with what they get. Incidentally, one hopes that the smaller, stronger applicant pool will diminish claims by legal professionals that under-motivated applicants are pursuing law degrees for the “wrong reasons.” (Not that I was ever persuaded by them to begin with, but…)

For the near future, I predict a three-tier law school distribution will emerge: law schools will be top-tier, average, or left behind.

Left Behind: These schools will be the most likely to close due to low enrollments, and in the meantime they will see sharp reductions in tuition to function.

Average: These schools will sputter, their tuition increases will plateau and retiring (voluntary or not) tenured faculty will not be replaced. If they are still nonperforming, they’ll also fail.

Top-Tier: Tuition will continue rising as these schools compete with one another provided applicants continue to believe they are good investments.

The real question returns to this blog’s premise: what is the ROI of a law degree? If the investment cost drops, then the return need not be so high. If the return rises, then the investment isn’t so onerous. In our world—a world in which blogs called First Tier Toilet ! warn potential applicants that top-tier schools are a risk—we can tell that many of the Left Behind and Average schools will not survive no matter how much they cut tuition. I also suspect that surprising numbers of graduates from top-tier schools will still find themselves in debt without gainful legal employment. When the return is zero, the degree is still nonperforming. We need only wonder how rotted out the legal education system is.

The Law School Tuition Bubble predicted this back in October, calling it “Scam Blogger Victory”:

0Ls figure out that a large number of law schools are nonperforming, send their applications to either far cheaper alternatives or do-or-die to U.S. News’s top tier schools, and if they’re rejected, they go back to their jobs at Target.  Law schools fail or drop prices.

The perverse problem with “V-SB Day” is that it’s not a solution to the problem (beyond the 0Ls it saves from debt and unemployment) but an interregnum. Worse, since I made those predictions it occurred to me that while reduced law schools is certain and preferable, it doesn’t entail immediate reform. Part of what makes the system so dysfunctional is the large number of nonperforming law schools behaving as Super Law Schools, which I mock as those in landlocked states offering Admiralty Law course streams. As the number of law schools decreases—absent reform—reform becomes more difficult. In other words, obsolete pedagogy becomes further entrenched, course offerings continue to underprepare students for practice, and tuition remains too high. The better law schools absorb the latent success of the failed law schools and as a result they become more powerful and can demand better OCI opportunities from employers. So what we’re seeing isn’t the beginning of the end but the end of the beginning.

It’s like Highlander, but with your tax dollars and students’ futures.

Now if I can only work Zardoz into the LSTB.