It’s Only Links ‘n Roll

It’s been ages since I’ve done a music-themed links page, but a bunch of little news items have popped up that are undeserving of full-article treatment.

Beth Akers, “How Income Share Agreements Could Play a Role in Higher Ed Financing,” The Brookings Institution, October 16, 2014.

When we last (and first) met Beth Akers she was trolling the student debt crisis, but now she’s doing some good advocacy with “income share agreements,” a novel term for what I’ve seen referred to as human capital contracts. It’s just replacing debt with equity for financing higher education, but it shifts the risk (and the rare windfall) away from the students. Unfortunately it hasn’t come up often in recent debates, aside from the University of Oregon’s decision to investigate using them. The fear was that human capital contracts would lead to an “adverse selection” problem as with health insurance: People in majors with the best job prospects will prefer to pay full tuition while those with the worst prospects will take the equity route, leaving the funders (the university in Oregon’s case) broke. Adverse selection is really a problem for universities that don’t sell lucrative degrees, so I’m not sure it’s really the problem at all.

Rashmi Rangan and James Angus, “Time for a state-sponsored law school in Delaware,”, October 12, 2014.

Remember the University of Delaware’s scheme to build a public law school? Well, Rangan and Angus don’t. The idea was first floated in late 2010, but several months later the university’s feasibility study produced some bad news: The project would cost $100 million and the law school would run at a $165 million operating deficit for ten years. Nothing about the rising wages and job vacancies for attorneys in Delaware. I guess those folks didn’t have the nerve to predict an attorney shortage that would have to be remedied with foreign lawyers like Indiana Tech did.

Rangan’s and Angus’s arguments for a public law school boil down to (a) the population of two of its counties is growing and (b) the school’s graduates would go into public service. Again, nothing on unfilled attorney positions and rising wages. Delaware would probably get a lot more out of a $100 million expenditure by funding legal aid clinics throughout the state.

Dean Baker, “Quick Note on Heavy Babies and GDP Accounting,” Beat the Press, October 16, 2014.

Baker writes:

I have always thought that for purposes like constructing cost-of-living indexes, we are best off just pulling out the money we spend on health care and measuring the price increases of non-health care consumption against the income we have left over after paying for health care expenses. This would treat spending on health care like a tax. If we want to then incorporate changes in our health into our assessment of living standards then we look directly at outcome measures (e.g. life expectancy, morbidity rates, self-rated health conditions), not the volume of health services we are consuming.

We could say the same thing about higher education costs, mutatis mutandis, given that there’s no evidence it increases national income yet we’re told it’s crucially necessary for “competitiveness.”

Kate Lao Shaffner, “Five Questions With … Altoona Mayor Matt Pacifico on walking routes, property taxes, and downtown struggles,”, October 14, 2014.

Altoona is a rare example of a municipality that has chosen to take advantage of Pennsylvania’s split-rate property tax system to implement land value taxation. In a Q&A with the city’s mayor, Matt Pacifico, though, he seems to think it “didn’t work.”

I think when we decided to go 100 percent Land Value Tax, it missed the mark on what it was intended to do. It was supposed to motivate homeowners to want to improve their dwellings without seeing their property taxes go up from the city, but a lot of homeowners in the city are unaware of how it works. So I don’t think it was properly promoted. For instance, you could build a $3 million house on a two acre parcel of land, and you’re only taxed by the city on the value of the land, and not the structure on it. However, the school district and the county still tax you by the structure, so it can be very confusing. If those two taxing bodies were also able to tax based on LVT, then it could have the right effect, but they are not.

This is a pretty muddled statement. On the one hand, Pacifico acknowledges that the effects of LVT have been hampered by concurrent property tax systems the city has no control over that still tax structures, but on the other hand he seems to think that the primary point of LVT is to stimulate home remodeling. I’d hazard that people don’t think much about property taxes when adding patios to their dwellings but do think about them when building new structures from scratch.

Pacifico isn’t alone, for even Altoona’s city council is going to investigate the results of the tax shift. Superficially, however, I think Altoona’s LVT been more successful than Pacifico believes. A 2011 article in the Altoona Mirror described residents calling the city asking why their property taxes had fallen—and land speculators complaining about their bills. Most persuasively, a study of the final phase of Altoona’s tax shift found that most parcels would receive a tax cut while most would see a hike if it shifted back to a flat property tax. Generally, the switch to LVT decreased revenue from residential parcels while increasing it from commercial parcels. Consequently, on an in personam basis, the findings should be that LVT has cut taxes on the majority of middle- and lower-income households and raised them on land owned by the wealthy.

Nevertheless, I hope that the investigation explores the effects of LVT on the land use of commercial properties and absentee or vacant parcels. Here’s hoping the results are both good and clearly presented.

Changes to Law School Standards Eliminate Waste

…Is up on The American Lawyer.

Truth be told it’s been up there since Thursday but I didn’t realize it. Whoops. Anyway, enjoy.

Less Debt, Fewer Defaults, and More IBR

…Is everything you needed to know about last week in the world of federal student loans.

We have The Wall Street Journal‘s Morning Editorial Report … um … editorializing on the “Surge in Student Debt Forgiveness.” The whole article is subscription required, but it appears the WSJ is continuing its biased reporting on IBR by sloppily characterizing it as a loan-forgiveness program rather than a program whose intended purpose is to reduce monthly payments. That’s not to say I don’t think IBR will cost the government a lot of money or that the average amount borrowed is high enough to indicate that a lot of these debtors borrowed Grad PLUS loans, but this is pretty shrill. Like, how dare an income-based repayment program base people’s repayments on their incomes? What’s next Social Security securing society from old people starving to death in the streets??

On the other hand, we have The Washington Post, which does a much better job of pondering why student loan defaults are dropping. IBR is part of it, as is slightly better job outcomes for graduates. It even concedes that college graduates are finding jobs that don’t require their degrees. Clearly the author has not gotten the memo on occupations.

Finally we have an article by … me. This very post you’re reading. Recently, the Department of Education released its fourth quarter report of total student loan volumes by institution. The slightly good news is that last year the aggregate disbursement fell below $100 billion.

Aggregate Federal Loans Disbursed (Current $)

The bulk (43 percent) of the $5.9 billion decline is in unsubsidized Stafford loans to undergraduates, and 37 percent were due to subsidized Stafford loans (which now go only to undergraduates). The rest (1/4th) is due to unsubsidized Staffords to graduate students. Grad PLUS loan disbursements grew by half a percent. Can’t win ‘em all, I guess.

As for the amount disbursed per recipient (in current dollars, for loan limits aren’t inflation-adjusted and that’s the benchmark to measure changes against), most of the loan types saw negligible declines, indicating that either fewer people are taking out federal loans or fewer Americans are going to college.

Meanwhile, since the Internet tells us that Thomas Jefferson School of Law is in trouble, I figure it’s time to check in on those freestanding private law schools. TJSL isn’t alone, it just hasn’t managed to find a public university to socialize it yet (see WSJ, there’s your Social Security quip!). Western State fused into Argosy University two years ago, but I heard that was a long time coming. Texas Wesleyan is now Texas A&M, and some of the formers’ graduates want diplomas that say they went to the more reputable latter. Chalk one more up for the signaling hypothesis. Finally, the University of New Hampshire (formerly Franklin Pierce Law Center) is in fact now the University of New Hampshire. Go figure.

Oh, and how could I forget: Thomas M. Cooley is now affiliated with Western Michigan University.

I’ve heard rumors of other mergers going on among the FSP law schools, but that’s four that are adapting to the new world. TJSL just happens to be dealing with its fiscal problems by having a fiscal crisis.

There’s more to be said on this, but I figured I’d leave you with a chart comparing the average amount borrowed per recipient of federal loans at each of these law schools to their total costs for full-time students according to the Official Guide.

Average Amounts Borrowed Over Full-Time Costs at FSP Law Schools (2013-14)

I draw your attention to the fact that at none of these schools can a full-time law student cover his or her tuition with just unsubsidized Stafford loans. (Also, it seems that some law students are cleverly borrowing more than the annual loan limit allows. Hm.) At the average FSP law school last year, 87 percent of students took out Stafford loans; 70 percent borrowed Grad PLUS loans.


Japan’s Law Schools Should Take Lessons From Their American Counterparts

Oh Yomiuri Shimbun, why must you blight the Internet with such nonsense in your editorials on legal education?

[T]he number of lawyers employed by local governments and business corporations has not increased as much as anticipated. A large number of people are unable to find jobs after passing the bar exam.

Some law schools have been increasingly inclined to withdraw from their field of education in recent months. The move has accelerated since last autumn, when the education ministry said it would curtail grants-in-aid to law schools whose graduates perform poorly on the bar exam.

There was a time when law schools bloomed, with their number peaking at 74. But the number of law schools accepting applications for admission next spring is expected to decrease to 54. It is only natural for law schools to quit if their students do badly on the exam.

Clearly Japan’s law schools’ mistakes aren’t emulating the U.S. system but not emulating it enough. Employing the strategies used by U.S. law schools could really make a difference at these institutions because over here, we’ve internalized the following lessons. When graduates don’t pass the bar or don’t find jobs, do the following:

(1) Capture the accreditation system and calibrate it so that if graduates from all schools fail the exam at about the same rate, the schools keep their accreditation. You’re not over-enrolled if you’re just average.

(2) Blame the magazine rankings. (Don’t worry if they blame you back, you both make your money on the (prospective) applicants. It’s just part of the business.)

(3) Shake down your alumni to finance a new, gratuitous, state-of-the-art law school building. That’ll show ‘em.

(4) Blame your graduates for being greedy, entitled, and unwilling to make the tough sacrifices, like opening practices in rural areas. Lots of people in Shikoku need lawyers.

(5) Alternatively, blame your graduates for moving too far from the school and trying to make money where the jobs are, like Osaka perhaps. After all, it’s not the school’s fault for enrolling too many students for the local market; rather it’s the students’ fault for wandering too far from where their degrees have any signaling value.

(6) Advertize your school’s discounted tuition thanks to senior students who are asked to pay full freight courtesy of unlimited government loans. (Japan has those, right?)

(7) Complain that the press and the blogs don’t use any facts—because they don’t.

(8) Use Pyrrhonian skepticism to dismiss government employment projections showing that there is no need for your graduates’ professional labor.

(9) Notwithstanding (8), point to the imminent wave of retiring lawyers whose positions will need to be filled.

(10) In case Abenomics fails, waive away any predicted productivity increases in legal services, low household incomes and formation rates, the apparent income elasticity of demand for legal services, and predictions that the economy is going to stagnate for many years to come. Do not waver: The backlog of graduates will clear!

(11) Claim that your graduates are easily finding jobs after the employment data are collected. Disregard the findings of longitudinal studies like After the JD in the U.S., which found that graduates who enter the profession in good years frequently leave law practice several years later due to massive attrition.

(12) Throw out marginal product theory, the law of diminishing marginal returns, and the sheepskin effect and argue that your school’s degrees are “versatile,” ensuring that graduates will get an earnings premium in any occupation besides law practice because all schooling increases earnings for all positions regardless of the skill required.

(13) Ask rhetorically, “What else will intelligent young people do?” Obviously law is the answer.

(14) Plead that your school is virtuous because it enrolls minority students who do poorly on exams. It doesn’t matter if they never enter the profession or can’t service their debts. (They have IBR in Japan, right?)

(15) Use the crash in applicants to encourage people to apply. After all, it’s not like everyone will seriously heed this advice and make it self-defeating.

(16) U.S. law schools haven’t tried this yet, but yous should: Insist that the profession’s licensing rules are so restrictive that they prop up prices for lawyers’ services, which is why so many of the highest earners in the country are lawyers. Therefore, anyone who graduates from your law school is a lucky ducky. If anything, the country should allow foreign-trained lawyers to practice as it will drive costs down.

(17) And if all else fails, compare the number of attorneys per capita in your country or region to others because that’s an obvious measure of lawyer shortages. Duh.

So Yomiuri Shimbun and all Japanese law schools, the problem wasn’t adopting the American model; it’s not adopting it all the way.

Don’t Go to Law School: International Edition

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

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

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

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

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

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

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

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

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

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

Slate Thinks LSAT-Takers Are Clairvoyant

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

I will keep this quick.

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

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

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

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

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

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

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

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

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

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

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

For instance, we have expanding faculties:

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

(Source: Official Guide, author’s calculations)

We have lots of internal grants and scholarships:

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

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

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

Percent Employed by Status (NALP)

(Source: NALP)

We have a decline in legal sector labor productivity:

Legal Sector Labor Productivity (2005=100)

(Source: Bureau of Labor Statistics)

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

Median Full-Time Law School Tuition (2013 $)

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

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

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

Revealed preferences, people. Revealed preferences.


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