Month: April 2012

Give Credit Where Due

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

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

A few thoughts:

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

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

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

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

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

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

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

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

The Verdict Is in on the Lottery, Why not Law School?

Jenn Ladd, “Law School Letdown,” the Baltimore Sun.

The article isn’t bad, but the tagline is:

“With a hefty price tag and a shrinking number of jobs, is law school worth all the effort? The verdict is still out.”

The Sun, though, is in sort of a bind. Often local newspapers will only consider their state’s law schools’ plights. Sure, Maryland has only two law schools, both public, but adjacent D.C. has six, nearby Virginia has several, and Pennsylvania does as well. Sure the local schools probably have a leg up in posting grads in government positions, e.g. prosecutors and public defenders, but in the private sector, the two schools’ grads have to compete with the swarms that Georgetown releases into the wild each year.

Still, the two schools’ charge a lot less, but the article finds that the students magically graduate with six figures of debt, much more than triple the tuition. In fact their grads are around the national average, which might be due to Grad PLUS loans generous extension to full living expenses.

This prompts the question: Is the verdict still out?

Nope, it’s in. The only people I endorse going to law school are those who’ve worked in the field already, have minimal opportunity costs (e.g. they’re working part-time anyway), and are offered a full tuition waiver. That’s it. No one else should go. That doesn’t mean there won’t be some people who come out ahead without a scholarship, or that somewhere in the seats of today’s law schools are future legendary jurists, but it does mean that ex ante, those legendary jurists are better off not taking the risks.

The reality is that law schools have no idea what the medium-term value of a law degree is. When they do, there’s nothing stopping them from providing self-serving information. Take LawProf’s recent post on NYLS, which despite winning a dismissal of the lawsuit filed against it still gallingly implied that its graduates did better four years after graduation. The bottleneck argument and the versatile J.D. are alive and well, but note that nothing in the new 509 Standard precludes a law school from doing this. They can publish damning evidence of where their graduates are nine months out and then cover it up with a biased sample of what slightly older grads are doing. Hopefully fewer people will believe them anyway, but it’s another hurdle for informing applicants. As for very long-term data, we can suspect that a third of 1970s grads from non-elite law schools had left the profession. It’s probably significantly higher today.

Since the odds are so bad, why not view law school as the lottery and treat it as such? Perhaps it wouldn’t be as interesting to read about.

‘What the Numbers Don’t Say: Law School Applicants Are Getting Older, Not Dumber’ on the Am Law Daily

What the Numbers Don’t Say: Law School Applicants Are Getting Older, Not Dumber

So I saw the first Softies show in 12 years. It was a real treat. I was so inspired that I started banging chords on my guitar. Then I realized that Jen Sbragia has something I don’t: talent.

But when it comes to spreadsheet charts on the other hand … here’s some original research on the Am Law Daily.

And for music, no one knows sorrow like Rose Melberg:

*****

Bloomberg Casually Slaps Law Schools, Uses Some Misleading Facts

Josh Block and Janet Lorin, “Law School Debt Exceeds $100,000 Amid Jobs Shortage,” Bloomberg.

I have to say this has been a weird week for media coverage on law schools. On the one hand they’re somewhat more critical of law schools and show a willingness to research some facts, but on the other hand, they’re making pretty clear factual errors. For my part, yes, I like being an ass and pointing out their flaws. The LSTB is not inspired by Beat the Press for nothing. Then again as much as I enjoy criticizing legal education, I want the media to be accurate. This Bloomberg piece follows spiritually from the Slate/Reuters piece from earlier this week.

Law school graduates are leaving college with an average of $100,433 in debt at a time when new lawyers outnumber legal jobs, according to a survey from U.S. News & World Report.

Is “college” debt undergrad or law school debt? If it’s undergrad, it’s quadruple the $25,000 figure we see bandied about. If it’s law school debt, then it’s probably accurate but not by the methodology the authors use. U.S. News provides the average debts of law schools’ graduating classes. Taking the average of this is not the same as lining up 44,000 people’s debt figures.

This decade, U.S. law schools will produce four times as many new lawyers as there will be jobs for them, according to the U.S. Bureau of Labor Statistics.

This one made my eyes bug out. Then I realized that Bloomberg is only looking at net jobs, not net jobs plus replacements. That means it’s only double the number of graduates. Also, there will certainly be fewer than 440,000 ABA law school graduates by 2020. It won’t match supply to demand, but it will be significantly fewer. 35,000 graduates per year is still too many but better.

Average tuition and fees for private law schools have jumped 73 percent since 1999 to $35,743 in 2009, an American Bar Association survey shows.

This figure ignores inflation. Average private law school tuition actually grew by 34 percent. Still bad, but this is a pretty big mistake.

Ultimately, while I’m glad media are taking a critical eye towards legal education–especially discovering the BLS–they shouldn’t do it so flippantly. It reduces their credibility and makes them look partisan when they’re not supposed to be.

Slate (Reuters, Really) Sees Law School Deans as Tragic Figures

Reynolds Holding, “Law School Deans Could Use Some Econ 101,” in Slate, Reuters Breakingviews.

I’ve found Slate has become increasingly less readable over the last several months, so as punishment I’m going to beat up on it for republishing this piece.

“Tuition at the likes of Yale and Stanford keeps rising faster than inflation, despite a dwindling supply of aspiring lawyers.”

This is a composition fallacy. Yale and Stanford have titanic reputations, allowing them to place their graduates during recessions with far less difficulty than other schools. It might not be easy, but they’re not the Midwestern School of Law or the Roger Taney Law Center. Thus, far more people apply to them than they have seats available, allowing them to raise their prices. It’s the mid-tier schools that should worry. Also, Yale only increased its tuition by 0.3 percent over inflation last year. Not saying that’ll continue, but just saying.

“For all their sophisticated skills, legal educators still haven’t mastered the law of supply and demand.”

Oh they have. They make lots of money compared to what they’d make as lawyers and probably as judges too. This is mastery of Rentier Economics 101.

“After the dot-com bubble burst in 2000, for instance, the number of law school applicants soared some 40 percent, reaching a peak of almost 99,000 in 2004.”

These numbers are just plain wrong. In 2000, there were 74,550 applicants and in 2004 100,604 applicants. That’s a 35 percent increase. Not that this is a huge, argument-crushing error, but hey, getting basic numbers wrong is just poor form.

“But in the recent downturn, applications to many professional schools have been about as scarce as jobs.

While MBA and other graduate programs show signs of renewed popularity, law schools are still suffering.”

I don’t know what this means. There have been plenty of applicants to law schools, at least in 2009 and 2010, just not as many as in 2004. This is weird because usually people make the reverse argument—that everyone and their mother applied to law school during the recession because they were all greedy lemmings who thought it was a golden ticket to blah blah blah blah. Now apparently, no one applied. Also I’ve seen no evidence of a shortage of med school applicants.

“Part of the problem is the high price of legal education. Tuition has quintupled at private law schools since 1985, averaging nearly $40,000 last year, according to the American Bar Association.”

Yeah, if you don’t adjust for inflation. It’s only grown 2.38 times in real terms. It’s still excessive, but again accuracy is important.

“The institutions are victims of their own success.  They began attracting hoards of students in the mid-1990s when firms were splashing out $160,000 annually to first year associates.”

The hoards came in the 70s, and the $160,000 salaries are within the last decade, not the mid-1990s, but oh, shame upon you law school deans! If only you understood the science of economics, but instead, you got greedy. Shame, shame, shame. My finger is wagging. Since your salaries aren’t likely to be clawed-back, I condemn you to your lower-upper class lifestyles. What was that? Are you destitute law graduates complaining about your debts? Well, just go to a networking event or something.

Sure, someone could write a play about a tenured professor at a fourth rate private law school who suddenly realizes his or her students wind up as debt peons. That’s tragedy, but it’s already being done by an actor who was an admissions hustler at a for-profit college (called, incidentally, For Profit). Those who are in denial or law schools as institutions? Wouldn’t be quite as entertaining.

“It isn’t rocket science, but law schools seem quicker to understand torts than simple economics.”

Or they figured out how to game the taxpayer-subsidized student loan market. Wittingly or not, if that puts them ahead of legislators and bar authorities, I don’t see why we should view them as tragic figures.

Next on Slate:

Can I stop reading Slate now? I feel I’ve put in enough hours.

Those of You Who Wanted Transparency…

The ABA’s website has updated its “Legal Education Statistics” page with a link to “2011 Law School Placement Data.” Readers can look at each law school’s placement numbers individually or download it all in a spreadsheet.

I haven’t been keeping too much track of the changes to the 509 reporting requirements, but I think these data are part way between the older standards and the newer ones. In other words, there’s no “Employed – JD Advantage” category, but the ABA is tracking how many graduates were employed by their law schools as of February 2011 or whenever nine months after graduation is.

Here’s the briefest of overviews.

I avoid diving too much into graduate placement data, mainly because (a) other people are a lot more interested in them than I am, and I don’t duplicate other people’s work, (b) it’s only for one point in time, and I’ve never really been a fan of “grad plus nine months” as being a particularly useful indicator to the long-term value of the juris doctor when available macro-level evidence tells me it’s low, and (c) I—and hopefully everyone who reads this agrees with me—have no clue what the ABA means by most of its terms. Big example: “short-term” and “long-term” employment. Like, those long-term employees at 501+-lawyer law firms could be receptionists. Hell, they might be making better money than the 1,183 solo practitioners or 5,681 in “business & industry.” Who has the final say on whether their job is short-term? The grad? What’s to stop the law schools from just making the numbers up? (Diligent readers will notice that Pontifical Catholic and Inter American had only one graduate between the two of them, not that the ABA appears to care.)

As for me, I’m patiently waiting for the first law schools that get caught gaming the new transparency requirements, e.g. by employing one another’s graduates and counting them in “Academia” jobs rather than “Law School/University Funded Short-Term” positions.

Fewer Quality Law School Applicants in 2012

The LSAC updated the “members only” section of its Web site recently, which for some reason is available to all who deep link to it. Of interest is its “ABA Fall 2012 Applicant and Application Counts,” which it updates weekly. As of March 30, 60,693 people applied to law school, 91 percent of the total compared to 2011. That’s a projected total of 66,696 applicants this year, or 335.2 applicants per law school, clearly below the record low of 346.8 in 1985.

As for which law schools feel the impact, the LSAC is coy.

Currently there is one school with an application volume increase of 40% or more, while 17 schools show a volume decrease of 30% or more. 29 schools show an increase in applications, while 167 show a decline and 2 show no change. A more detailed breakdown of school increases/decreases is shown below:

Increase of 100% or more: 1
Increase of 50% to 99%: –
Increase of 40% to 49%: –
Increase of 30% to 39%: –
Increase of 20% to 29%: 1
Increase of 10% to 19%: 11
Increase of 1% to 9%: 16
No change: 2
Decrease of 1% to 9%: 34
Decrease of 10% to 19%: 76
Decrease of 20% to 29%: 40
Decrease of 30% or greater: 17

Applications to private institutions are down 13.5%, while applications to public law schools are down 13.8%.

I’m betting that the law school with double applicant growth is UC-Irvine because it was provisionally accredited only last year. I think the LSAC is counting Widener as one law school as well.

One quarter of the law schools are seeing an applicant drop of more than 20 percent, but the real prize is the distribution of applicants by their highest LSAT score, which the Current Volume Summary only started tracking this year.

It’s pretty clear that the law schools will fight harder for quality applicants going forward as many predicted. Many of those who received high LSAT scores chose not to apply, and depressingly, those who have the lowest scores are still available. This development prompts two thoughts: (1) All those law school deans who say that only the truly dedicated are now applying to law school better not whine about their incoming classes’ credentials. (2) I criticize the LSAT and standardized testing as much as anyone else, but you really have to wonder who from the low end is applying now and why. Are the low-end applicants going into part-time programs at public law schools? How many of them will pass the bar?

Finally, this is an unprecedented reversal, but it’s not a “market correction,” and it’s certainly not “the bubble popping” as I’ve seen it described elsewhere. Market corrections occur when people can base their decisions on accurate information. Here, there’s still (and ever will be) insufficient accurate information as to the long-term value of the J.D., and 60,000+ people in 2012 think that they’ll be among the 440,000 who will get 212,000 lawyer positions of varying quality. This is why I deliberately titled my previous Am Law Daily piece, “U.S. News Data Show 2011 May Be Beginning of End for Law School Tuition Bubble,” not that those who cited it noticed.

Sure, it’ll be impressive to see programs close in the next few years, but it’s not like there’re only 35,000 applicants. As it is, there are still way, way, way too many people applying to law school. The majority of the matriculants will not work as lawyers in dignified 40-year careers no matter how better prepared they are or even if they paid slightly less than their predecessors, and few will rise to more prominent positions, e.g. the judiciary. Apparently a year’s worth of New York Times articles saying as much wasn’t sufficient to debunk the 20th century definition of “upward mobility” that law schools continue to sell their applicants.

Did I mention that GRE administrations were at a record high in 2011 now that MBA programs are accepting them?