Month: October 2011

2010 Law School Grad Debt at $3.6 Billion

A reader recommended I calculate total law school debt for 2010 grads. How? By taking the number of grads from each law school in the Official Guide and then multiplying them against the average debt levels and the percentage of students taking on debt in U.S. News and World Report’s rankings. Why this isn’t in the Official Guide is beyond me. These data can tell us quite a bit, and it’s only part of some research I’ve been doing.

First, a caveat: U.S. News isn’t complete. It excludes the Puerto Rican law schools, which as I’ve written before are their own unique disaster. It’s also missing a few points. So, for University of Phoenix, Harvard University, and Appalachian School of Law I used the average percent of graduates with debt (85.1%). For Florida International, I duplicated Florida State’s debt numbers and percent with debt, same for Indiana-Indianapolis from Indiana-Bloomington, and Widener-Harrisburg from Widener-Delaware. I also found La Verne’s and Widener-Harrisburg’s number of graduates from their websites as the Official Guide misprinted Widener-Delaware’s data for Harrisburg’s (shows how no one reads the Official Guide), and it excludes La Verne because it had lost its accreditation.

After slapping this into a spreadsheet, here’re a few factoids.

(1)  The average 2010 public law school graduate had $53,661 of debt at graduation; for private school grads it was $79,699. The average overall law student took on $97,306 (yes, the overall average is greater than the public/private ones).

(2)  2010 public law school grads incurred $951.8 million in debt; private graduates $2.669 billion. Total law school graduate debt was $3.621 billion in 2010.

(3)  The average public law school gained $12 million in debt from 2010 grads (median 10 million, standard deviation $7,710,185); that’s $22.8 million for private law schools (median $19.6 million, standard deviation $13,699,205). Here’re the dispersals.

And here’re the top 20 law schools by total graduate debt. For public schools the list isn’t too surprising. For private schools, though, it’s an interesting mix of prestigious and not-so-prestigious law schools. Some of it is high cost and some of it is large enrollments. However, I can’t ignore how much of an outlier Cooley is, so I included the z-score’s on the right of the table. The z-score measures a data point’s distance from the mean, and it’s measured in standard deviations. Cooley’s 4.72 tells us it is way out there.

# PUBLIC SCHOOL TOTAL PUBLIC GRADS’ DEBT (2010) Z-SCORE
1 California-Hastings 35,570,896 3.05
2 Michigan 35,510,278 3.04
3 Virginia 34,631,340 2.93
4 Indiana (Indianapolis) (Est.) 31,571,512 2.53
5 California-Los Angeles 28,055,645 2.08
6 Baltimore 26,128,664 1.83
7 Texas 23,974,030 1.55
8 California-Berkeley 22,810,122 1.40
9 Temple 20,771,127 1.13
10 Indiana (Bloomington) 20,695,707 1.12
11 Minnesota 20,487,209 1.09
12 Penn State 19,684,105 0.99
13 Maryland 19,049,364 0.91
14 George Mason 18,726,770 0.87
15 Florida 18,699,633 0.86
16 Rutgers (Newark) 17,373,648 0.69
17 Wisconsin 16,589,299 0.59
18 North Carolina Central 15,495,257 0.45
19 Oregon 15,462,409 0.44
20 Houston 15,323,970 0.42

**********

# PRIVATE SCHOOL TOTAL PRIVATE GRADS’ DEBT (2010) Z-SCORE
1 Cooley 87,410,308 4.72
2 Georgetown 68,060,738 3.30
3 Harvard (Est.) 58,024,861 2.57
4 American 53,397,546 2.23
5 New York University 49,767,194 1.97
6 New York Law School 48,762,544 1.89
7 Florida Coastal 47,445,152 1.80
8 Suffolk 47,203,984 1.78
9 George Washington 45,084,600 1.63
10 Fordham 43,865,940 1.54
11 Loyola Marymount (CA) 43,621,657 1.52
12 Columbia 42,031,490 1.40
13 Brooklyn 37,970,649 1.11
14 Pacific (McGeorge) 36,806,108 1.02
15 Stetson 36,236,370 0.98
16 John Marshall (IL) 35,749,033 0.94
17 Miami 35,670,595 0.94
18 South Texas 35,593,309 0.93
19 Catholic 34,665,333 0.87
20 Cardozo 34,165,228 0.83

I have more to say on aggregate law school debt growth, but that’s for a separate post.

[UPDATE: Here’s the post, “THE LAW SCHOOL DEBT BUBBLE: $53 Billion in New Law School Debt by 2020.”]

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Consumer Credit Update (2011 October)

It’s the fifth business day of the month, which means the Federal Reserve has updated its G.19 Release, its estimate of outstanding consumer credit. One problem the U.S. economy faces is that nonrevolving consumer credit is growing faster than the economy. While the G.19 Release doesn’t quantify how much nonrevolving debt is student debt, it is very likely that most increases in that category are attributable to the Direct Loan Program’s student loans because of high tuition and the near impossibility of discharging student debt in bankruptcy. All figures are billions of dollars, and all percentages are annualized. Link here for my ongoing analysis of increasing nonrevolving debt relative to GDP and Direct Loans projections.

This month, the Fed revised the second quarter 2011 numbers again. These are seasonally adjusted.

2011 Q1 2011 Q2 r 2011 Q2 r
Total 2,421.5 2.2% 2,442.5 3.5% 2,442.5 3.5%
Revolving 792.8 -3.7% 795.9 1.6% 795.9 1.5%
Nonrevolving 1,628.6 5.1% 1,646.6 4.4% 1,646.6 4.4%

Not much of a change. Here’s what we get for August.

2011 Q2 r 2011 July r 2011 August p
Total 2,442.5 3.5% $2,454.4 5.9% 2,444.9 -4.6%
Revolving 795.9 1.5% $792.3 -5.4% 790.1 -3.4%
Nonrevolving 1,646.6 4.4% $1,662.1 11.3% 1,654.8 -5.2%

So there’s a seasonally adjusted drop last month in consumer debt. Good.

As for holdings of nonrevolving debt, government holdings account for nearly all the growth of nonrevolving credit as well as the largest annualized increase. These numbers are not seasonally adjusted and do not sum together; annualized increases are mine.

July (revised) August (preliminary) Numeric Change Annualized Increase
Total NRV 1,652.6 1,661.7 9.1 6.8%
Government 385.7 391.8 6.1 20.7%
Commercial Banks 491.3 492.5 1.2 3.0%
Finance Companies 432.7 434.1 1.4 4.0%
Credit Unions 186.6 188.7 2.1 14.4%
Savings Institutions 37.0 37.3 0.3 10.2%
Nonfinancial Business 44.7 44.9 0.2 5.5%
Pools of Securitized Assets 74.5 72.3 -2.2 -30.2%

In non-seasonally adjusted terms, nonrevolving debt still increased, and government-held debt is still growing the fastest, though not as fast as July when it grew at a 64.1% annualized rate. According to the BEA, real economic output grew at a 0.4% in Q1 2011 and 1.3% in Q2.

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

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

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

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

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

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

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

I. ScamLaw Misses the History of the Scam Blog Movement

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

II. ScamLaw Misses Other Academics’ Discussions on the Topic

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

III. Horizontal and Vertical Perspectives

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

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

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

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

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

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

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

(1)  There are no sacred cows:

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

(i)  We need lawyers

(ii)  Lawyers are expensive

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

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

(v)  Public law schools can make inexpensive lawyers

(vi)  We have lawyers

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

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

(2)  There is no free lunch.

Behold the Law School Tuition Bubble’s mantra:

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

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

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

IV. Vertical Solutions

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

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

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

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

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

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

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

And they will be heard.