Day: 2011/01/24

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

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

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

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

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

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

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

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

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

Solutions:

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

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

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

(1)  Options

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

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

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

(2)  Human Capital Contracts

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

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

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

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

Conclusion

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

The Law School Tuition Bubble: Tuition Increases Law School-by-Law School from 2005 to 2011, Part 1

As a member of a learned profession, a lawyer should cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work to strengthen legal education. – Wisconsin Rules of Professional Conduct “Preamble: A Lawyer’s Responsibilities,” ¶6, (WI SCR Chapter 20)

Introduction

Last May, I started the Law School Tuition Bubble for two personal reasons. One was to maintain my writing skills while I was unemployed (and ironically I found work around the time I started writing). The other reason was to contribute to the legal profession. At the very least, I could fulfill the Wisconsin Bar’s directive: reform the law and improve legal education. This blog fulfills that requirement.

My goal was to keep the candle alive on the supply side of the issue. Other reformers focus more on the demand side, gathering better graduate employment statistics and then transmitting them to prospective law students. Coverage on legal education’s ills has crested into the public’s knowledge over the last several months, but the tuition increases that animate the problem and their connection to the nondischargeability of student debt in bankruptcy, whether protected by income-based repayment, frequently appear as an afterthought.

I often run across quotes like these:

Tuition costs at law schools accredited by the American Bar Association have doubled in the last nine years. Total inflation during that same period was less than 25 percent. –Dean Michael Coyne, Massachusetts School of Law (non-ABA)

It’s always given as a statistic, even by the ABA. More sophisticated writers will distinguish between the causes of tuition increases in public versus private law schools. But it’s always a statistic. Somewhere someone has the spreadsheet with all the law schools’ tuition increases on it. I looked myself and it’s impossible to find it on the Internet.

So I built it myself.

Literature Review

As always, every discussion of the tuition bubble requires distinguishing a bubble from what I call a bottleneck. Law school staff (and sadly even progressive economists whom I agree with over just about everything else) look at the problem in terms of the economy. Every industry is doing badly, they will say. It’s just “cyclical” unemployment. Assumedly, as the economy improves, lost generation attorneys will be reabsorbed. In the meantime, unemployment remains high, the country is saddled with detritus of an $8 trillion housing bubble, and the federal government refuses to intervene on debtors’ behalves. Worse, structural problems plague the legal sector, too many attorneys chasing too few jobs, even if the economy reached a new normal.

You need not take my word for why I believe the bottleneck argument is false. Students, you are now enrolled in the Law School Tuition Bubble’s eponymous graduate-level seminar. Here is your syllabus culled from the Internet. I think that’s fairly comprehensive. If readers would like to add anything, let me know, and Professor LSTB will assign it.

  • “Competition for job openings should be keen because of the large number of students graduating from law school each year,” and, “Job Outlook: About as fast as the average employment growth is projected [for lawyers], but job competition is expected to be keen.” Bureau of Labor Statistics, “Lawyers,” and, “Judges,” Occupational Outlook Handbook, 2010-2011 Edition.
  • The ratio of attorneys per capita has risen from 1:695 in 1951 to 1:264 in 2000. Jason Dolin, “Opportunity Lost,” California Western Law Review, Vol. 44, 219-255 (2007).
  • The legal field has not grown along with the rest of the economy. Amir Efrati, “Hard Case: Job Market Wanes for U.S. Lawyers,” The Wall Street Journal, September 24, 2007. [I believe this article is slightly crisper than David Segal’s recent and noteworthy New York Times piece.]
  • Over the last twenty years, the distribution of graduate starting salaries gas shifted from a common mode of $30,000 per year to a bimodal distribution with a minority of graduates (about 25%) earning more than $160,000 and 34% of graduates earning between $40,000 and $65,000. NALP only reported 19,513 salaries in this stark 2009 graph. No one knows what the remaining 25,000 law graduates are earning, if anything.
  • ABA records indicate that around 1.4 million juris doctors have been conferred in the period between 1968 and 2008. By contrast, the BLS reports 759,200 people employed as lawyers and 51,200 people employed as judges (total 810,400). No one knows how many people entered the field via non-ABA accredited law schools, especially in California, nor does anyone know if the remainder of those with ABA law degrees are gainfully employed or even if their law degrees helped them get their current jobs. No one knows how the employment situation is since 2008.
  • The ABA also collected data from state bar authorities reporting 1,180,386 attorneys licensed and active within their jurisdictions as of 2009. No one has explained the gap between the ABA’s numbers and the BLS’s.
  • The ABA’s MacCrate Report, published in July 1992, finds that law schools mostly do not adequately prepare law students for practice. Things have not changed since then.
  • Using comparable back-of-the-envelope calculations, Fluster Cucked independently arrived at similar conclusions.
  • Shilling Me Softly diligently reports the growth in Legal Process Outsourcing.
  • Practioners: Jerry Kowalski informs readers that law jobs are down to 1991 levels. The Legal Dollar provides similar analysis.
  • Growing numbers of law professors, likely too many to track, publically agree on these issues to varying degrees: Professor Bainbridge, Richard Sander, Steve Harper, Maimon Schwarzschild, Bill Henderson, Herwig Schlunk, Christine Hurt (whose article helped inspire this blog), and my favorite on the subject Brian Tamanaha +1.
  • Dean Richard Matasar of New York Law School has long predicted the end of easy federal money to law schools. Richard Matasar, “The Rise and Fall of American Legal Education,” New York Law School Law Review, Vol. 49, No. 2, 465-504 (2004-2005); “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?New York State Bar Association Journal, October 2010, 20-26.
  • On the good news side, the Law School Admissions Council (LSAC) reports fewer LSAT takers in 2010 than in the previous year. Assuming legal education is highly countercyclical, this may indicate that the reform movement is successfully discouraging people from going to law school when it has a low return on investment.

Your three-page critical reviews are due next week.

So what?

What’s the benefit of knowing law schools’ tuition increases severally if we know them jointly? Shouldn’t hypotheses accompany research? Yes. The data I have collected tell us nothing we don’t already know. Although, all we can find easily is the post-aggregated statistics. Partly, this is an exercise in ensuring this blog lives up to its name. Those of you who want a tuition bubble, here is your tuition bubble.

More importantly, I think the statistics disconnect people from the reality of the crisis. Older practitioners can compare what law schools are charging today to what they paid. Younger graduates can see how much tuition has increased since they’ve left (even my recent successors’ fates sadden me). Students can envy what their recent predecessors paid, and hopefully prospective law students can grasp the bigger picture, especially since they don’t really know what they’ll be paying until they’re asked to pay it.

Data Collection Methodology:

I’ll explain how I gathered the tuition data autobiographically to explain the scope of the project.

I started collecting the data from U.S. News’s website, which gave the 2009-2010 school year’s tuition (with a few exceptions). Then came the hard part: finding the pre-2010 tuition data. At first, I went to law schools’ websites and went through the Wayback Machine, but this proved frustrating and took too much time. Then I made a breakthrough. The LSAC maintains data reported by law schools to the ABA going back to the 2004-2005 school year. I downloaded all 970 pdf files, 80.2 megabytes in all, and will provide them to those who don’t want to go through the LSAC themselves. Finally, to gather data for the 2010-2011 school year, I visited every law school’s website, seeking its tuition data.

Most of what I learned from the data-collection experience occurred while sifting through the websites. I can’t imagine too many other people having done this, save Nando from Third Tier Reality. It usually took only two clicks to find a law school’s current tuition, unless it was available via a pulldown menu. However, applicants trying to assess next year’s tuition are out of luck (except University of Hawaii, which estimates its 2011-2012 tuition). Law schools’ sites are well-designed. Eerily like a for-profit university, finding out how to apply for or obtain financial aid is far easier than finding the law school’s actual cost. That prospective law students can’t finance their own way through law school is usually taken as a given, not as a problem. How current students are given notice of tuition increases, I know not.

Notes on the Data:

The critical rule in empirical research is accuracy and precision. Accuracy refers to the degree to which the observations accord with the actual measurements, and precision refers to the reproducibility of the observations. These data are precise to the extent that one can look over the three sources and compare them, and I’m pretty damn good at data entry so I doubt there’re any mistakes. As to accuracy, because the data come from three distinct sources, they may vary. I’ll go into them.

  • The LSAC data come directly from the ABA, and for the first five years, they should be consistent unless stated otherwise. For instance, sometimes, I conclude that a law school’s semester tuition is reported instead of its annual tuition.
  • U.S. News data are reported by the law schools to the magazine. I doubt they differ from what the ABA reported in the LSAC data. When the LSAC publishes its law school reports for 2011, I’ll reenter those into the 2009-2010 school year.
  • Law School websites are far different from the other two data sets. Often readers may find that tuition dropped in the 2010-2011 school year over the 2009-2010 school year. This is not evidence the bubble is deflating! Rather, I took the bald tuition statistic the law school published and excluded fees whenever possible. Law schools are very inconsistent in how they measure fees. Some include them in tuition, others separate them, and still others itemize them. Law schools are very much like airlines, which pay a tax based on fares, so they add numerous, sometimes vague, fees (e.g. a “9/11 Security Fee”) to retain income. By separating tuition from fees, law schools appear cheaper than they actually are. As a result, when the 2012 edition of U.S. News is published this year, I will update these data as well.

I’ve organized the data by state in alphabetical order, noting whether the school is public or private. Along with the tuition, I also calculated the percent increase over the consumer price index according to the Bureau of Labor Statistics. This is not the place to discuss whether you think headline inflation is more relevant, or if you think CPI doesn’t mean anything anymore because the government switched to hedonic measurements in the last several years. More inflation is actually a good thing for those with massive non-dischargeable debts.

For private schools, a little treat for you. Using the regression coefficient for each law school’s tuition increases, I projected what the law schools’ tuitions will be five and ten years from now. Unsurprisingly, it’ll get absurdly expensive in the future. Note: I’m assuming tuition is increasing linearly rather than exponentially. If it’s growing exponentially, which may in fact be the case, then the problem is nightmarishly worse. I may recalculate the predictions using exponential regression after the next LSAC/U.S. News publishing cycle gives me an opportunity to update the data, which should be before the summer. So remember, what you see is a conservative estimate.

In Part 2, I share the data.