NYT Supports Private Student Loan Bankruptcy Reform, Protects Financialized Dept. of ED

After trashing for-profit universities, the New York Times editorial, “Relief for Student Debtors” adds this:

It had long been the case that federally backed student loans were protected during bankruptcy proceedings. That is reasonable, since those loans were backed by taxpayer dollars and flexibly structured so that borrowers could receive deferment in tough times and resume payments when their finances improved. The country has a compelling interest in making it as difficult as possible for student borrowers to elude payment for federal loans.

Sort of. Congress extended the “undue hardship” exception on federal student loans into perpetuity in 1998. Before then, the law required people to wait seven years before discharging federal student loans. Even then, the exception has always been a solution in search of a problem. Default rates in the late 1970s never reached 1% when it was first enacted. Contrary to the Times’ belief, the bankruptcy restrictions obscure the fact that the government has a far more compelling interest in (a) ensuring consumers have purchasing power (economic growth), and (b) using its money towards productive purposes, which is the inherent problem to government lending because it is by definition taking on a greater risk than the private sector is willing to. Otherwise, normal banks would be making the loans themselves.

As a result of this “crowding-out per se,” the government tries to protect its inherently high-risk investment by changing the bankruptcy code, but that makes borrowers debt zombies, which runs contrary to the purpose of increasing their productivity through education. So the government sways the opposite direction, creating hardship deferments and income-based repayment programs, but then it starts losing more money on the loans while universities live high on the hog until at some point, tuition increases so high that the Direct Lending Program could be replaced with a cheaper, more effective national university system. The New York Times Editorial Board does not understand the Hegelian ouroborous Congress spawned by financializing the Department of Education. I suspect it will take a few more years until it and other mainstream media do.

In other news…

I eschewed the news on Hurricane Irene and favored the National Hurricane Service’s reports.  The whole time the government predicted it’d be a severe tropical storm by the time it hit NYC, so I wasn’t terribly worried–mostly annoyed that Bloomberg shut down the subway system. On Sunday I strolled around and found a bar near my home that had this to say:

Now tropical cyclones talk to me through drinking establishments.

The Lemmings Are All Right: Richard Matasar Responds to David Segal

Anyone who read last weekend’s New York Times piece, “Law School Economics: Ka-Ching!” by David Segal should also take the time to read NYLS dean Richard Matasar’s response, “Law School Cost, Educational Outcomes, and a Reformer’s Agenda,” on NYLS’s website. Matasar keeps his cool and provides the written pieces he sent to Segal before the article’s publication. Today’s special is what exactly caused NYLS’s large class of 2009.

Segal:

[NYLS] increased the size of the class that arrived in the fall of 2009 by an astounding 30 percent, even as hiring in the legal profession imploded.

Matasar:

For the prior 3 years our yield rate—the percentage of students who received offers, who accepted those offers, and enrolled—had been relatively steady. From 2008 to 2009, however, the yield rate increased by 10 percent, meaning that even though we accepted fewer students than the prior year (approximately 150 fewer), 170 more students enrolled. While we can’t say with certainty why this happened, we can look to the economic downturn, the opening of the new building which was receiving rave reviews, and the fact that we were coming off of a record high bar pass rate of 93.6 percent as reasons why more applicants chose to come. Again, enrollment can be very unpredictable.

So: Segal argues the 2009 1L bounce was deliberate and reckless on NYLS’s part; Matasar counters that it’s not NYLS’s fault people were clamoring to go there for its building, high bar passage rates, and law school’s low opportunity cost.

Except they weren’t.

Aside from the fact that the economic downturn translated to only a slight bump in law school applicants, NYLS saw none of this. Indeed, according to Official Guide data NYLS suffered a 25% applicant drop in 2009, complicating the story.

Instead of cobbling together an HTML table, here’s a screen capture of NYLS’s incoming classes from 2004 to 2010 according to the Official Guide.

So full-time applicants dropped 28% and part-time applicants 11%. Segal didn’t research this, and Dean Matasar has no reason to tell anyone. At some point in 2009 NYLS’s admissions office must have realized there was a problem, and it altered its acceptance strategy accordingly.

Starting with part-time students, it looks like Segal is right: NYLS deliberately accepted more applicants predicting they would matriculate. For full-time applicants, one might think that by extending fewer offers than in previous years, NYLS was expecting a smaller incoming class, but that wasn’t what it did. Bear in mind the “Offer %” was 10% higher than in previous years despite the lower numeric acceptance rate. Had it accepted 45% of its full-time applicants, with 20% matriculating, it would have an incoming class of 306, similar to 2006, which was an unusually low matriculation year for NYLS.

When a drop in applications occurs, the quality of the applicants (LSAT & GPA) drops as well. The bell curve contracts and shifts rightward towards zero. Looking at the full-time class of 2009, I characterize what happened to NYLS as a “downshift.” NYLS had to compromise accepting students with lower-than-usual credentials against under-enrolling its incoming class. It accepted 212 fewer applicants, but it inaccurately predicted the matriculation yield. Consequently, Matasar is right to the extent that NYLS didn’t predict the willingness of people who got B’s in college to go to NYLS over those who got B+’s.

I suspect geography explains the downshift. The only other law schools in New York State that accepted the kinds of students that NYLS did in 2009 were Albany, Syracuse, and Touro. Albany and Syracuse are mid-state, and Touro is beyond Gatsby Country on Long Island, making it more attractive to New Jersey-based applicants.[i] In 2009 NYLS accidentally discovered that it is in a prime location to serve the market for B-average prospective law students. In 2010, NYLS adapted again by accepting its usual number of part-time applicants, roughly, but it reduced its numbers of offers despite a slight increase in full-time applicants. Its matriculation yield was still 10% higher than before 2009, but the incoming class largely recovered to median B+ college students, though the high-end GPAs were slightly lower. It will be interesting to see what happens to NYLS in fall 2011. However, of the 2,000 or so fewer NYLS applicants in 2009 and 2010, some of them may have realized a law career would not be available to them if they went to NYLS.

The good news that Segal missed and Matasar declined to mention is that not all lemmings jump.

---

[i] Supposedly West Egg is a parody of Great Neck, which is northwest of Central Islip, but it was a good line so I couldn’t pass it up.

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).

Links Head Soup—Even More Media Coverage on Law Schools

There is really a lot of press on law schools this week! HomelessLawyerPostingFromLibrary found three good ones (Lawyers Against the Law School Scam, “Is There Blood in the Water?”).

(1) Razib Khan, “The ‘Law School Scam’ Media Bubble,” in Gene Expression (Discover Magazine)

Khan jokes that not only is there a law school bubble but there’s also a bubble in legal education media coverage. I like how he characterized the problem, and he appears to give credit to scambloggers:

As it is, law schools, and higher education more generally, has a other-peoples’-money problem right now. At some point the music will stop, people will be left holding the bag, and the bubble will burst.

The fact that the mainstream media is now devoting so much time to the issue is a good sign that there’s a change in the offing. Outrage and disillusionment has percolated out far enough socially that this is a story that many people are interested in.

Which leads us to one of his cites:

(2) David Segal, “Law Students Lose the Grant Game as Schools Win,” in the New York Times

The only time I called law school a “scam” was an old reference to Kaplan’s Concord Law School, and even that was based on a newspaper article’s characterization of its business practice of targeting returned U.S. soldiers for online legal education. Reading Segal’s latest piece (he must really be enjoying this topic) on enticing students with scholarships they’re highly likely to lose after only one year makes me wonder.

As with all things on legal education coverage, even this one is old news. Back in late 2008, Elawrence’s Blog published a post titled, “The Law School Scholarship Scandal.” A few law students accused St. John’s University law school not just of offering merit scholarships that its students had a good likelihood of losing, but that St. John’s even packed its merit students into the same sections to “curve out” even more of them, hoping they’d continue anyway paying sticker price.

(3) Steven Harper, “Debt Loading,” in The AmLaw Daily

Speaking of calling law school a “scam,” Harper used the F-word.

Fraud can be overt–by commission–or it can occur by omission when there’s a duty to speak. Revealing good facts can create an obligation to disclose the bad ones. Greater candor won’t stop the flow of talented applicants to law schools. Nor should it. The legal profession is still a noble calling. But it has also become a way for some educational institutions improperly to persuade the next generation to mortgage its own future–literally. [emphasis added]

Okay, he didn’t use it directly, but it’s still in context. I also take the emphasized portion to mean that Professor Harper doesn’t think transparency alone will solve the problem.

Some call it the next big bubble. If it bursts, I’m not sure what that will mean. Because of statutory revisions in 2005, bankruptcy doesn’t discharge student loan debt unless the difficult “undue hardship” test is met. The era of big bailouts has passed, so that’s an unlikely solution as well.

Legal education rakes in a lot of money, but nothing like the $8 trillion housing bubble, though there’d be lost revenue and jobs in law schools, casebook publishing, and related supplemental learning services (Kaplan, BarBri). To preemptively broaden the scope of the debate: Legal education IS NOT the canary in the coalmine. Quite the opposite, it is your lead miner keeling over due to lung rot. Why? Because professional education is a double-down bet for college graduates with unmarketable degrees. Given the high youth unemployment and student debt levels, you can see that young Americans are out of economic options.

Perhaps we’ll see a new growth industry in the revival of an ancient concept: debtors prisons. Law school deans who lost sight of their true obligations to their students and their profession should run them–without pay.

Harper’s statement about debtors’ prisons allows me to add some value from HomelessLawyerPostingFromLibrary, this time it’s an off-Broadway play I saw last week:

(4) Laurel Haines, Future Anxiety, directed by Jim Simpson at the Flea Theater, New York

Set in a melted-down Eaarth, Haines’ play conveys a deep pessimism towards humanity, part Futurama and part Deep 13. While the play could’ve used a touch more poignancy, its humor and tempo reminded me of the Minneapolis improvs I went to while in high school. In Haines’ future, the Steven Harpers of the world don’t just get debtors’ prisons: they get a government (such as it is) agency called the “Collections Bureau,” which sends agents to debt defaulters’ homes to arrest them and then ship them to Hong Kong as slave labor. That probably won’t happen in our world, but to respond to Harper’s earlier point on the bubble: the bank bailout for legal education creditors is already in place. Law students and taxpayers get stuck with the bill. Will universities get off scot free? No idea.

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.

Quick Link–Albany Law School’s Tuition Hike Is Newsworthy

Adam Sichko, “Albany Law Plans Tuition Hike, Pay Freeze,” in The Business Review

Usually when a law school announces a tuition hike (like Stanford’s) I ignore it because it’s not newsworthy. This time though, the law school is raising tuition but *gasp* freezing professors’ pay. According to SALT’s 2009-2010 salary survey, Albany’s law professors do fairly well: Assistant/Associate/Full professors made $96,600/$102,600/$138,500 respectively. The increase is more a shift because the school is taking in fewer applicants, which is good, though I still doubt the legal market will be good enough 3.5 years from now to justify $41,570 per year plus tuition increases over the next two years for applicants. I don’t know how healthcare costs can be mounting for people in this income bracket (I do know it’s a national phenomenon due to our rent-seeking healthcare system), and library resources can’t really be that useful. I’ve always been under the impression that tuition hikes were more a function of U.S. News rankings feuding than reasonable cost of living adjustments and maintaining a passable library. Nonetheless, while I see these changes as cosmetic, it’s interesting to note that one law school is not behaving business as usual.

White Light/White Links—US News Dumped Its Second Tier?

I didn't take Real Analysis in college, but in my universe there's an integer b'ween 1 and 3 called "2".

I think it’s a bug with the website.  See for yourself.

(1) Debra Cassens Weiss, “After a Blogger Questions ‘Rankings Malpractice,’ US News Makes a Secret Change,” The ABA Journal

More importantly (and this is old news I did not know from last May), US News will change its formula for automatically penalizing law schools that decline to report their “employed at graduation” data.  Before, some’d game the rankings by only reporting “employed at 9 months,” which US News would then dock by 30 percentage points to guess at their “employed at graduation.”  Law schools with an employment gap greater than 30% were better off not reporting “employed at graduation” data and benefitted accordingly.

Why is this important, especially when yours truly likes all things statistical yet wearies at US News’ law school rankings?  According to TaxProf, the number of ABA-accredited law schools declining to report their employment stats has doubled over the last half-decade to 74, just shy of 2 in 5.  Given that the labor market value of a juris doctor comprises the bulk of its benefit to the purchaser, law schools’ employment data and compensation matter vastly more than location, class size, and everything else that Angel at But I Did Everything Right! pointed out yesterday.  Even though Law School Transparency successfully lobbied US News to publish all the disaggregated employment data it collects from law schools, especially the crucial “Graduates whose employment status is unknown,” it won’t help if a growing number of law schools simply refuse to submit their data.  As the legal sector employment problem worsens, we can expect employment data nondisclosure to increase despite calls for transparency.

However, contrary to how I thought the rankings worked, it appears US News does qualitatively penalize schools for not supplying sufficient data.  What it means by “RNP,” or “Unranked,” I don’t understand.  Hopefully the changes in the nondisclosure penalty will reverse the trend in opacity.  I doubt it will.

(2) Holly Ragan, “Law School Student Debt Crisis,” in Lexis Hub for New Attorneys

Ragan discusses the law school tuition bubble.  Here, I learned of St. John’s University’s clever ploy of pooling scholarshipped students in the same courses and then forcing them to compete on a curve.

(3) “Columbia University Announces Three-Year JD/MBA Program,” in FindMba

Others have reported on this, but it’s important to note that the student opting for this three-year JD/MBA still pays the same tuition required for the four-year program.  The student saves a year, but what does the university get?  The same money for fewer instructors.

The Village Green Preservation Links—NYLS Dean Writes on the Tuition Bubble

New York Law School Dean and President Richard A. Matasar, “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?” [bad link!] in the New York State Bar Association Journal

Typically, law school deans’ presence on this blog highly correlates to face-palmed criticism.  Dean Matasar ups the ante by not completely ignoring the reality of the tuition bubble.[i][ii] I say “not completely” because he tethers himself to two assumptions that I wish were true but probably aren’t: (1) That prospective law students are well-informed, and (2) that uncertainty of legal education’s ROI makes it too soon to tell whether we should be discouraging people from going to law school.  If you can find a copy (or politely ask me to violate all copyright in the name of knowledge and scan it and e-mail it to you) it’s actually a very good read.

(1) Regarding students’ information, he writes:

[O]ne 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…Law students are not ignorant.  Today they have access to more information than ever, information that is tested daily in the blogosphere for accuracy, which is producing even greater transparency about law schools and employment.  Students do not ignore costs.  (21)

[Disturbingly, there] is a widespread belief that students are intentionally misled into thinking that they all will receive whatever employment they seek; that they could have a BigLaw job if they want one.  Given the pervasiveness of stories of law firm layoffs, popular law-debunking sites that catalogue the plight of law school graduates, the straightforward warnings that senior students give to applicants, and even honest communication from law schools to applicants, students today know, or should know, that banking on a BigLaw job is risky. (24) [My emph’]

Do 0Ls really “know” this??  Recently, Heather Diersen and Frank the Underemployed Professional, upon assessing the masses of unemployed and disenfranchised JDs, both concluded they do not.  There are multiple explanations for why people defy what Dean Matasar knows or thinks everyone should know by now—0Ls and 1Ls: (i) believe the economy will recover for them in 2013+, (ii) suffer from cognitive dissonance, (iii) fear the stigma of quitting, or (iv) believe they should take one thing at a time (first your torts exam, then worry about your job hunt).  I don’t think Dean Matasar considered these possibilities.  I can see why he wouldn’t want to.

(2) On legal education’s ROI:

The return on investment is not merely a short-term measure; it depends on lifelong earnings as against alternative paths, discounted by the opportunity costs of delaying entry to the workforce.  It is simply not possible to know in advance whether the long-term financial return on a legal education will pay off until a number of years have passed…However, I have no doubt that the value of a legal education will continue to erode in the years ahead, especially if the price of that education continues to rise at a higher rate than the expected return on that investment. (22) [My emphasis]

Partially agree.  Yes, it looks bad right now for most contemporary law grads and prospective students.  It may turn around, and I hope in 15 years reformers and blamers can chuckle about their career arcs.  But I think Matasar misunderstands the point: We calculate ROI because we’re uncertain of a choice’s outcomes.  We place our bets based on the best information we have, and even if it turns out we’re wrong, at least it won’t be because we misunderstood the risks.  Right now, law school is a certain risk, and graduating into unemployment remarkably impacts one’s life earnings.  Nondischargeable student debt makes it worse.  Discussing risk reminds me of Herwig Schlunk’s crucial footnote 16, justifying his high discount rates for a legal education’s ROI requiring a six-figure starting salary in most cases:

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 vicissitudes of corporate down-sizing.  And so on.

Matasar acknowledges these risks, for later he writes:

Many students will ultimately end up in non-law jobs.  For some students, like those in part-time programs, this may have been the goal to begin with; they seek law degrees to enhance their roles with current employers.  For others, it reflects disenchantment with a profession they may erroneously have chosen.  And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer. (24) [My emphasis]

We can add the following risks to Schlunk’s footnote: municipal bankruptcy, misguided federal downsizing, and inability to break into the profession beyond contract work as Down By Law discussed extensively in its third podcast.  Given all these risks, we can tell that law school has a lower ROI than Matasar (and everyone else) would like due to the legal economy’s volatility.  I sympathize with these two assumptions (and I’d be happy if Matasar knew something I didn’t), but I don’t think people are well enough informed.  Nor do I think the ROI is as high as he does.

To add some value, perhaps now is the time to wonder how the bubble will pop.  This question is significant because we already know the American legal education system is unsustainable (my spread is 1-3 years for the bubble popping, place your bets in the comments), but how it pops will tell us what kind of new equilibrium will emerge.  My meaning will be clearer below.

As I see it, the bubble can pop in one of five ways:

1. Internal Reform.  Law schools or the ABA turn course.  This is unlikely; law schools cannot self-terminate.

   

2. Bankruptcy Reform.  Once Congress realizes >$850 billion in student loan debt will never be paid down, it’ll remove the undue hardship exception from all student loans, and the Department of Education will refuse to loan money to heavily indebted students.  Prices drop; schools close.
3. Title IV Reform, “The Apocalypse Option”.  Congress or the Department of Education realize universities are sucking taxpayer dollars out of the treasury, overinvesting in themselves, raising tuition, and then demanding higher student lending caps to cover the self-inflicted costs.  The federal government either slashes the caps, or it switches to an equity-like human capital contract system such as Robert Reich’s 10% of 10 years’ income proposal.
4. State Government Intervention, “(Chuck) Newton’s Gambit”.  State governments realize the dangers, jettison ABA accreditation in favor of their own stricter standards, require employment disclosure by higher education institutions, close schools, sue them, or directly regulate them.
5. Run on the law schools, aka “Scam Blogger Victory (V-SB Day)”.  Enough 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 US News’ top tier schools, and if they’re rejected, they go back to their jobs at Target.  Law schools fail or drop prices.

Matasar believes in a combination of V-SB Day and the Apocalypse Option:

• Some schools will continue to prosper charging high tuition (at least for a while); others will not.
• Lower priced alternatives to the current model will certainly evolve; non-U.S. law schools will become viable competitors in training U.S. lawyers; some schools will fail; others will adjust…(20)

The demand for legal education will decline at high-priced schools whose graduates are having difficulty repaying their loans.  The federal government, the only remaining lender, if at all rational, will respond: perhaps by restricting the amount of credit to students of such schools, requiring an equity contribution by those students, requiring co-signors, or increasing the interest rate for their loans.  Alternatively, the Department of Education (aka the “Bank”) as the regulator of higher education might respond by issuing regulations requiring schools to reduce their costs, justify their price increases, or otherwise alter their model…Like any other market, as economic barriers to entry are lowered, we should expect lower cost and more efficient providers to enter the legal education field.  (22-23)

I used the term “equilibrium” above, meaning the concern isn’t when the bubble starts to pop but what the next era of legal education will look like, and how long it’ll take to get there.  V-SB Day alone is dramatic, but it reforms the system by causing schools to close.  Given that the legal profession would probably function just fine with near-zero new law graduates for at least several years (depending on how bad the oversupply situation really is & the timing and manner of any economic recovery), reformers don’t see an end in sight for a lo~ng while.  Nor does the BLS, for that matter.  Here’s the rub: a run on the law schools is just that, a run, which depends on the information 0Ls have.  Years later, some may irrationally believe law is a worthwhile investment again and submit their applications, reinflating the bubble.

By contrast, the other solutions check against law school tuition.  For Bankruptcy, unlike every banker and Congressperson, I staunchly believe debtors are honest people who want to pay down their loans and won’t cheat the system.  The Apocalypse Option or Newton’s Gambit force tuition down, and in the human capital contract context, a law school that currently produces tri-modal outcomes (BigLaw, LittleLaw/NonLaw, & TentLaw) won’t be feasible until unemployment vanishes.  When it does, though, legal education will be bubble-free.  Yay!

We don’t want partial solutions that end up failing again.  Why?  Because I’d like to not be writing about this when I’m older and grayer.

The lesson I take from Matasar’s article is that until this new equilibrium emerges (or at least the economy returns to full employment), law school’s ROI will worsen.  If his predictions are right and legal education will transform to a market-responsive system, current graduates won’t have the skills in demand.  In other words, the “lost generation” would be better termed the “abandoned generation.”  Matasar blithely accepts this.  Repeated from above, “Many students will ultimately end up in non-law jobs…And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer.”  As the legal profession begins to understand the need for change, reformers will have to stake a position that clearly advocates on behalf of involuntarily unemployed attorneys and their student debt, if they wish to have any credibility.

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[i] For example, Matasar casually dismisses (& more concisely than I did) everything Valparaiso dean Jay Conison told Heather Diersen a few weeks ago:

The American Bar Association regulatory regime has been built over many decades and includes many requirements that increase education cost, like requiring job security for faculty members, librarians, and deans; requiring a significant physical plant; requiring three years (give or take) of law school; requiring an undergraduate degree; or limiting the number of classes that can be taken online.  Recent proposed changes that mandate law schools to announce, measure, and improve their outcomes and offer particular types of skills classes, while desirable, will not lower costs.

[ii] I should say Matasar and NYLS are not bucking the system.  NYLS charges $46,460 per year in tuition and due to unfortunate circumstance shares New York City with seven other law schools, many of which are better regarded regardless of what others say about NYLS’s sophisticated curriculum.  I have seen no evidence that under Matasar’s stewardship NYLS has reduced its ecological footprint, and Third Tier Reality criticizes him for chairing the board of Access Group, a “non-profit loan service provider.”  That said I don’t want to discourage law school deans from using their prominence to say things against their interests—so long as they subject themselves to the inevitable outcomes.

NUMBERS CRUNCHED! The ABA’s Number of Attorneys per State and per Gross State Product

[GREETINGS. IF YOU FOUND THIS POST BY SEARCHING FOR "NUMBER OF ATTORNEYS PER CAPITA BY STATE", THEN PLEASE CLICK ON THIS LINK TO THE PERMANENT PAGE CONTAINING THOSE DATA. (I STRIPPED THIS POST BECAUSE IT WAS OUTDATED.)]

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Bonus Links: Buffalo Law School’s Tuition Increased, & Blog Tells New Lawyers to Fuel the Bubble

(1) Matt Pitts, “Massive Tuition Increase for UB Law Students,” from WGRZ

SUNY’s Board of Trustees approved a tuition increase of 9% for in-state students and 20% for out-state students.  To be fair, annual tuition is under $30,000 even for out-state students, which is, like, two-thirds the cost of tuition at an NYC area school.  Presumably, with a lower cost of living in Buffalo, the breakeven starting salary would be lower too, though you know I’m skeptical there will be many jobs for these graduates.

Aside: if you’re one of those law school die-hards, going to a public school and making sure you have residency before you go isn’t the worst plan.  Buffalo’s in-state students pay a mere $17,000 annually in tuition, which is fairly close to what typical law school tuition would be had it cleaved to inflation (~$14,000 I think).  This is a good idea if you are willing to open your own practice or work in rural New York, but it’s better than paying $50,000 per year to a school that has no better access to the job market.