Simkovic and McIntyre Respond to My Am Law Daily Article

“‘Million Dollar Degree’ Authors Answer Harper, Leichter,” The Am Law Daily, August 29, 2013.

[UPDATE: I did decide to write a response. Part I can be found here.]

I’ve been eagerly anticipating Simkovic’s and McIntyre’s rebuttal for a while now, and I can say that I’m OUTRAGED that they didn’t give me credit for not “throwing in a few disparaging remarks to boot” as Harper did. How could they have not acknowledged that??

Anyway, I’m on the fence about publishing a rejoinder—not because I don’t expect it to convince the authors or anyone else that proving causation requires eliminating all other potential causes (like signaling, zorpqaq in law schools’ water). No, the problem is that the authors’ response was so frivolous—and, frankly, boring—that it’d waste everyone’s time to put too much effort into it.

On the other hand, I’m starting to think that “labor economics” as the college premium crowd practices it is a pseudoscience. Given any criticism and they ferociously respond that they’re measuring a “premium,” or that the higher average earnings demonstrates the need for higher education “Period,” as Wonkblog said a few days ago. The researchers rarely ever try to investigate what aspects of higher education increases earnings. NO! It’s an irreducible, sacrosanct, black box phenomenon, like the E-meter auditing devices they use in Scientology.

It’s surreal.

Okay then, I’ll just go out and pay twice as much for a new car that’s the same quality as it would’ve been thirty years ago. No problem there; it’s better than a rickshaw!

Wonkblog Confused on Two-Year-Instruction Legal Education

In a confusing article titled, “Obama thinks law school should be two years. The British think it should be one.” The Washington Post‘s Wonkblog tries to weigh the merits and costs of reducing law school to two years.

First of all, the recent commentary on the topic might be unclear, but there’s a difference between a two-year law degree and changing the third year to a clerking experience. In the former, students pay for two years, graduate in two years, and hit the market in two years. In the latter, students pay to study in school for two years, pay to work for a year in exchange for experience, credits, and potential future job opportunities, and then get their J.D.s. I believe President Obama’s comments referred to the latter, not the former. As far as I can imagine, the president’s proposal still requires law students to pay their law schools for the third year, almost certainly wiping out any monetary benefit students obtain and not reducing their debt.

(There’re other options, like an accelerated two-year J.D. program, which crams the same amount of coursework from three years into two at the same price, or merging a year of college with a year of law school—which is cheaper in total higher education cost—but is otherwise no different from the current system.)

That having been said, the Wonkblog article tries to navigate the proposals to restructure legal education like they’re Scylla and Charybdis when it’s actually in deep, calm waters. Here are four points I think it’s making:

(1)  Apprenticeship doesn’t work.

From February 2007 to February 2013, the California bar exam was taken 82,154 times, and only 43 of those (0.05 percent) were attempts by people in the apprentice program [LSTB: sample size problem?]. The pass rate for non-apprentice test-takers was 50.5 percent; for graduates of ABA-approved law schools, it was 60.2 percent. For apprentices, however, it was 27.9 percent. That may be because those who take that track are just less capable than those going to law schools, but it could also suggest that apprenticeships aren’t great preparation.

No, it suggests that people choose their path to the bar based on their aptitude for doing well on standardized tests, not whether law school increases the likelihood of bar passage. In terms of opportunity costs alone, someone who tends to do very well on standardized tests (the LSAT) is probably much better off going to an ABA-accredited law school than apprenticing. Elite ABA law schools broker prestigious entry-level positions to their students. (The calculus probably work differently for non-trads.)

The California example is instructive because it shows that even when given alternative licensing options, which in many cases are probably much better for the types of students who attend non-elite ABA law schools, employers or lawyer job applicants decline to cut out the law school middlemen. In short, it’s neither an accident nor a weakness with apprenticeship that people who do well on the LSAT apply to law school rather than work their way into the profession. The problem is that the ABA system offers students a nationally accepted credential and more employment opportunities at a significantly higher price.

(2)  Reducing class time introduces a thorny problem of what courses must be cut due to the rigid requirements of ABA accreditation standard 302. For instance, students won’t be able to take electives that help them specialize.

The problems with this concern are (a) specialty courses don’t create jobs, and (b) bar exam-fare courses can probably be taught more rapidly to people who are good at taking standardized tests.

(3)  Shortening the amount of instruction time will reduce students’ opportunities to learn practical skills.

So it matters what exactly we’d be trying to solve by cutting the third year of law school. If the goal is to make legal education more practice-based, there are ways to do that while preserving the third year, and those ought to be compared to on-the-job training alternatives.

Here I think Wonkblog is simply confusing the two-year J.D. with the restructured-third-year J.D., which, it should be added, won’t create jobs.

(4)  The cost/benefit problem of law school is overstated because the J.D. premium is large, and Grad PLUS loans plus IBR make law school affordable. Nevertheless, it’s probably better to eliminate the graduate-level legal education entirely because it works (for unstated reasons) in the United Kingdom.

And if the goal is to reduce the initial cost of law school, that’s a solution to a problem that’s much less severe than many make it out to be. The returns on law school are in the hundreds of thousands of dollars over someone’s life, and between limitless grad PLUS loans and income-based repayment, financing the initial investment is getting easier.

…

Maybe the answer isn’t cutting the length of postgrad law degrees, but getting rid of them.

I don’t think Wonkblog understands the argument in  “Growth in a Time of (The Economic Value of Law School) Debt” by Reinhart, Rogoff, Simkovic, and McIntyre. Its entire point is to justify the time and money spent in law school and cannot be interpreted to advocate shortening it to the undergraduate level. (And I thought those of us who “make out the initial cost of law school as a problem” are the ones who supposedly didn’t read “Economic Value” and understand its subtleties…)

“Economic Value”‘s pure human capital formation theory of legal education argues that law school increases earnings in itself because all higher education increases earnings in itself, implying that reducing law school by a year or to the undergraduate level will reduce the “premium” to legal education. Getting rid of postgrad law degrees is a fine idea, but according to Simkovic’s and McIntyre’s theory, it will cut lawyers’ earnings and cost society the enormous benefits of the added years of law school instruction.

Like the authors of “Economic Value,” Wonkblog has never heard of signalling theory in higher education. Otherwise, it would realize that the problem is that so long as (a) employers have no incentive to cut out the law schools, (b) applicants believe they don’t have better options, and (c) we have the odious Grad PLUS loans (which Wonkblog apparently fails to realize enables tuition price increases), then restructuring legal education will neither reduce student debt nor create jobs.

Obama Favors Law Graduate Underemployment, Poverty Wages

Okay I’m just being a jerk. Here’s the video from The Washington Post and the transcript:

This is probably controversial to say, but what the heck. I’m in my second term, so I can say it. I believe for example that law schools would probably be wise to think about being two years instead of three years. Because by the third year- In the first two years, young people are learning in the classroom. In the third year, they’d be better off clerking or practicing in a firm, even if they weren’t getting paid that much. But that step alone would reduce the cost for the student. Now, the question is, can law students- Can law schools maintain quality and keep good professors and sustain themselves without that third year. My suspicion is that if they thought creatively about it, they probably could.

I didn’t realize that law schools were so powerful that a first-term president would feel reluctant to advocate for two-year law schools. Curbing the Grad PLUS Loan Program is also apparently off the table.

The problem, though, is that ABA law schools don’t have a say on the 58,000-minute curriculum, 45,000 of which must be in the classroom. However, if the proposed accreditation changes I discussed recently go into effect, it’ll be “83 credit hours, 64 of which must be in courses that require attendance in regularly scheduled classroom sessions or ‘direct faculty instruction.'” If 15 of those 64 credits can be completed by distance learning, which means hitting the mute button on your PC and banging 15 credit hours’ worth of chords on your guitar, that leaves 49 credits that must occur in the classroom. If that’s 12.5 credits per semester, that sounds like two years in class and one year out. So, maybe law schools in the future can pull this off.

Changing the third year to clerking, a topic I don’t think I’ve discussed, isn’t necessarily going to be cheap for students. Law schools can use their market positions to charge students for firm placement, wiping out any monetary gains to the students.

Can law schools maintain quality and professors? Who cares as long as the students are paying for the privilege of working for a federal judge or prestigious firm? There might be a push to shut down schools that can’t place students, but many will just charge students to work for school-funded positions, or worse, they might offer firms kickbacks for employing their 3Ls.

Okay, I might be unfairly cynical, but if we’re hoping the market, which has worked so well until now, will equalize the number of law students with the number of 3L pseudo-articling positions, then the best result could just be cheap labor for firms and judges, then ejection from the profession for the majority of graduates who don’t make the cut. If elite clients are less willing to pay elite firms top dollar for grads today, then I doubt they will for 3Ls.

Relaxed Accreditation Rules Unlikely to Reduce Law School Tuition

Karen Sloan, “Law Schools Gain Greater Autonomy,” The National Law Journal, August 19, 2013.

The [ABA Council of the Section of Legal Education and Admissions to the Bar] moved to eliminate the tenure requirement for doctrinal faculty and deans, make it easier for students to take online courses, get rid of the minimum faculty size rule, and create a clearer path for schools seeking variances from the accreditation standards, among other changes.

The proposed changes to the accreditation rules can be found here (PDF), but be warned, it’s a huge number of changes and I’m mostly going to take Sloan’s word on the contents. If the ABA House of Delegates passes them, though, the question is whether law schools will lower their tuition and diversify their offerings.

I doubt it. For example, Sloan writes:

[T]he council voted to eliminate a rule requiring law schools to maintain at least one full-time equivalent faculty member for every 30 students and preferably one for every 20 students — under the theory that determining the actual size of a law faculty is overly complicated, given the number of adjuncts and part-time professors. Additionally, law faculties have grown significantly in size over time and most schools are already well below that 30-to-1 ratio, the council reasoned. The consensus was that a rule spelling out the minimum size of a faculty is no longer necessary.

In other words, law schools chose more professors over reduced tuition. If anything, the council should have put in a maximum ratio to prevent law schools from hiring needless faculty. To refresh your recollection, here’s what the ratio looks like today:

(Source: “Student Faculty Ratio” (PDF))

Other reforms, like increasing the amount of distance education students are allowed to take, are unlikely to reduce costs either. Students are paying for the law degree’s signaling value—not the marginal cost of learning various legal doctrines, which can be done with an Internet connection or one of those book thingies. The only real question is whether some law schools (especially the for-profits) will try to reduce faculty to skim more off the top for deans (and shareholders) while increasing the sticker price.

One change that might help law students is the council’s decision to eliminate the rule limiting full-time law students to working only 20 hours per week. Although the council did so because the old rule is unenforceable, in better economic times it means that law students might work instead of binge on Grad PLUS loans for living expenses.

So why is tuition unlikely to go down with changes to the accreditation rules? Because they don’t really bear on cost. In 2009, A Government Accounting Office report (PDF) concluded that the ABA’s accreditation standards, while annoying, weren’t driving law school tuition increases. Citing interviews of law school deans (who, admittedly, might be full of it), the report placed the blame on increased demand for clinics and fighting over rankings. I’d bet the clinics are really a part of the rankings feuding and not an independent factor.

In short, the ABA is doing the equivalent of proposing relaxing some needless building code restrictions in the hope that housing prices will stop increasing, but sudden rises in the cost of housing comes more from land values than demand for capital. At best, the landowners will build leaner buildings but still charge more for them.

One might object and say that with applications dropping marginal law schools will have to innovate or die. I have two responses: First, some of those schools will die no matter what they do; it’s just a question of how long it takes before the Grad PLUS loan tap is shut off. Second, more importantly, I’m not concerned about the marginal law school—i.e. the last one left standing—I’m concerned about the behavior of the first law school left standing. With Grad PLUS loans plus IBR (and the off-chance that the cancellation tax penalty will be removed in the future), how much can elite schools charge before people won’t go? Will the Supreme Court justices of the next generation comment on how they felt the day IBR canceled the law school debt they had no chance of repaying? How many professional school graduates will engage in unconscionable, but predictable, IBR tax evasion?

Those are the real questions about where all this is going, and while I’m welcome to being proven wrong and find that law schools trim their prices as they “innovate,” I don’t predict it will happen because if they wanted to employ only one professor for every 30 full-time-equivalent students they would have done so by now. Nevertheless, if the House of Delegates passes its rules, my hypothesis will be put to the test.

The ‘Middle Class’ Is Ideological santorum

Today’s treat is courtesy of Jillian Rayfield, “Santorum: Term ‘Middle Class’ is ‘Marxism Talk’,” Salon, August 16, 2013.

In a rare moment, I agree with Rick ‘Google Problem’ Santorum about the term “middle class,” but for the exact opposite reasons. In the video in the link, the former senator says:

“Since when in America do we have classes? Since when in America are people stuck in areas, or defined places called a ‘class’? That’s Marxism talk. When Republicans get up and talk about ‘middle class’ we’re buying into their rhetoric of dividing America. Stop it. There’s no class in America, and call them on it. America is a place where everybody has the opportunity to succeed. We believe in everybody. We are the party that values the dignity of every human life. Not them.”

Okay … I’ll just call 2016 for the Democrats right now, save for the exceptional candidate meltdown. Wake me up when a real presidential election comes along. (Cue the Rumpelstiltskin Rip van Winkle jokes.)

The Salon article notes that Santorum (I’m giggling immaturely as I write this) has used the term “middle class” in the past. Hypocritical? Only if he doesn’t repudiate his previous uses and doesn’t use it again. Is it nonsense? Oh heavens yes. Someone (one-two-three not it!) should tell Santorum that Marx doesn’t really write about the “middle class” all that much. For my first foray into textual analysis, here’s a lazy breakdown of modifiers to “class” in the Communist Manifesto. (I’m not going to do this for Das Kapital, and yours truly will only reread The Gundrisse if Rick Santorum pays him to.)

Class (nouns only) – 94

Working class – 32

Ruling class – 13

Middle class – 5 (“manufacturing middle class” – 1, “industrial middle class” – 1, “lower strata of the middle class” – 1, “lower middle class” – 1)

Bourgeois class – 4 (“petty-bourgeois class” – 1)

Oppressed classes – 2

Suffering class – 2

Revolutionary class – 2

Industrial classes – 1

Lower class – 0

Upper class – 0

…And for a bonus:

Bourgeoisie – 87

Proletariat – 64

Proletarians – 12

Class antagonism (Adj.) – 12

Class struggle (Adj.) – 8

But you get the idea: Marx was more concerned with the “working class,” which he uses synonymously with the proletariat, than the “middle class(es).”

By the way, I didn’t use this post as an opportunity to reread the Communist Manifesto, but I do agree with “applying all rents of land to public purposes,” (this is in 1848, 31 years before Henry George published Progress and Poverty) and “free education for all children in public schools. Abolition of children’s factory labor.” I damn sure have no interest in joining an “industrial army, especially for agriculture,” much less “abolishing the distinction between town and country by a more equable distribution of the populace over the country.” Lord of the Rings fans might find the hyper-industrialist Marx in the wizard Saruman, who pillages the environment to levy his orcish army. I suspect this was not accidental on Tolkien’s part.

Back to the topic: Although Santorum’s right to associate class conflict with Marxism, I wouldn’t say that the history of society is a history of (economic) class struggles. There’ve been plenty over gender, race, ethnicity, and others, but Republicans who agree with Santorum about “middle class” are itching to lose another election if they want to run another Willard Mitt 47-percent-of-the-country-are-cheaters-but-we’re-not-the-ones-dividing-America Romney candidate who tells destitute Americans that they live in a classless society.

Santorum is, however, correct that “middle class” is an ideological term, not an analytical one. As I see it, the broad swath of Democrats, liberals, and economists use it for the following reasons:

(1)  Describing people as belonging to the “lower class” is insulting, even if it’s logically implied by phrases like “hollowing-out the middle class.”

(2)  They’re terrified the Rick Santorums of America will call them Marxists if they refer to the “working class,” so they use “middle class” instead. (Gee, that worked well.)

(3)  “Underclass” means “urban blacks, Latinos, miserably poor people, immigrants, Indians, prisoners, and people who default on debts,” which don’t resonate with white suburbanites, who are a more powerful, swingier voting bloc.

(4)  They delusionally believe we can have a society in which everyone can get the college education necessary to entrepreneur the next killer startup. Don’t worry, it’ll totally pay off the student loans, and all those low-paying retail jobs can be filled by immigrants.

(5)  They are neoliberals who refuse to distinguish between earned and unearned incomes (especially many Americans’ owner-occupied real estate speculations), preferring instead an arbitrary, politicized, progressive income tax that invariably crushes the poor. Some of them even favor consumption taxes.

As you can imagine, I think “working class” is the best alternative. Henry George uses it 20 times in Progress and Poverty, and he and Marx hated each other so there’s a defense to being wrongly labeled a Marxist. Then again, no one should worry about being labeled anything by Republicans, but that’s a different problem.

“Working class” is descriptive of where people’s incomes come from. Someone who’s income primarily comes from real estate or intellectual property speculating is not in the working class. Similarly, people who work in uncompetitive labor markets, like supply-restricted professions (doctors), heavily subsidized occupations (law professors), and corporate executives who decide their own compensation packages are not in the working class. They are in the rentier class. People who own significant capital assets, or instruments like government bonds are in the capitalist class, but that’s not necessarily a bad thing, as Marx would have it.

People who’s income comes from their labor, on the other hand, are in the working class, and that includes people who own their own homes but haven’t amortized their mortgages. Those people are renting their homes from banks but have an option to buy. Anyone who expects to depend heavily on Social Security and Medicare/Medicaid are in the working class. One can argue over the edges and exceptions, but the core of the working class is the return to labor as a factor of production, which is an analytic fact—not an ideological bromide like “middle class.”

Thus, when Democrats, liberals, and economists talk about “rebuilding the middle class” (Robert Reich springs to mind), they’re at worst shilling for neoliberals or at best shooting themselves in the feet because it sounds like for every five people who must logically belong to the lower class, only four “middle class” positions can be created.

There is no fundamental law requiring the social surplus to be distributed along a bell curve. Prosperity for everyone is possible. “Middle class” is ideological santorum and should be treated as such.

n < 60,000

LSAC, “Current Volume Summary”

Final applicant count: 59,426

Final application count: 385,358

Importantly, the change in applicants in 2013 over 2012 is less than the change in 2012 over 2011: -8,531 applicants this year versus -10,924 last year. This suggests that the applicant plateau might be approaching. Maybe -6,000 next year and not -10,000. The number of applications, however, has plummeted, which means the number applications per applicant has dropped as well. Since young people tend to send out more applications than older people, it’s probably them.

Indeed, the projected final applicant count was much lower back in January (~54,000, which is -9.0 percent from 59,426), meaning the number of applicants “accelerated” into in the cycle. Behold:

You can see the same thing happening in 2012 and 2011. People whom we would’ve expected to send out many applications early in the cycle aren’t doing so. Conversely, in 2010, the final estimate in March was high, which indicates fewer people applied than were expected. This was when the applicant nosedive began.

Still, the early-year variance has been quite pronounced in the last three cycles. It could be law schools shifting their application deadlines further back, or it could be a “swap” in applicants, like, for every two younger applicants who’re bailing, another older one is taking his or her place in April.

Oh, and lest you agree with a handful of law professors’ rationalizations, the number of applicants isn’t down because the economy is recovering:

The number of applicants per school has reached a record low going back as far as the ABA can tell us. It probably hasn’t been like this since the late ’60s/early ’70s. Probably no one in legal academia has ever experienced anything like this before. In fact, probably no one in higher education has experienced anything like this before.

Guess Who’s Not Enrolling in Law School

The ABA just updated its legal education statistics page, and now all the PDFs include confusing charts because time decreases from left to right on the x-axis. Fortunately, I don’t subject my readers to such nonsense. Here are a few highlights.

(1)  2012 was the first time ever that the number of 1Ls dropped below the number of J.D.s conferred.

It’ll get worse in 2013 because there will be something like 47,000 law school graduates who enrolled during the peak in 2010.

(2)  Last year’s enrollments averaged to about what they were in 1999, 1984, and 1976. Given that the number of 1Ls per school was at a record low going back to 1969, it’s really going to hit the fan this year.

(3)  And just who is choosing not to enroll? Why, men and non-minorities, of course.

1L Men are down 18 percent from 2010, 1L women 13 percent from 2009 (their peak). Notably, male 1Ls had been trending downward since people were going to law school to dodge the Vietnam draft (I think). The last decade saw a break from that, probably due to the stock bubble popping, but now men are jaundiced to law school for good.

For three years now minorities have comprised more than a quarter of all 1Ls because non-minorities are now disproportionately less likely to enroll. (Hypothesis: Minorities don’t read L.A. Times editorials about how there are too many law schools.)

I expect law schools and some lawyers to be sanguine about these two developments because a higher proportion of minority and women law students should translate into a more diverse profession. This I doubt.

Rather, it signals that the children of capital and land owners (i.e. white men) are bailing on the profession. Opening law to minorities and women hasn’t translated into significant enfranchisement to begin with due to the legal profession’s hiring and retention practices (to say nothing of oversupply), so increasing their proportions is unlikely to improve things. For example, The National Law Journal ran an article last week about an academic who claims that minority applicants “misapply” to law schools that won’t accept them due to their low LSAT scores, as though down-market law schools provide the meaningful access to the profession that elite ones do.

According to the ABA’s lawyer demographics table, as of 2000, 27 percent of lawyers were women, which is up from 20 percent in 1990 and 8 percent in 1980, but that impressive growth doesn’t accommodate all the women graduating from law school. Nor do we know if they benefit from legal education as much as men do, even though they pay the same price. And don’t point at justices Ginsburg, Sotomayor, and Kagan; they went to Columbia, Yale, and Harvard. As for minorities, in 2010, the profession was 88 percent white, barely unchanged from a decade earlier.

There’s a wealth of information about these topics in the Official Guide, and I may look into it, but adding gender and racial dimensions to law school debt and outcomes isn’t going to end well. Expect accusations of people trying to deny access to the profession to disadvantaged groups versus law schools exploiting those groups for federal loan dollars.

Lawyer Training Is Not a Public Good

The response to the ABA Task Force on the Future of Legal Education’s working paper (PDF) has been lukewarm to critical, which is fair based on my read of it. There are a some good points, like “reengineering the financing system of legal education” and “minimizing the obstacles for those who wish to pursue a career in legal services.” I don’t want to leave the impression that I’m understating the importance of the Task Force making these statements, but I’m nonplussed by its insistence that the “stresses and criticisms” legal education faces are due to a “fundamental tension” between the public and private good aspects of lawyer training. By definition lawyer training cannot be a public good, so I think the Task Force is grasping for a theory that allows it to not pick sides when it has no such luxury.

A good is “public” when its consumption by one person does not diminish it for others and does not exclude others from consuming it. For example, lighthouses and national security are (supposed to be) public goods. Some aspects of the legal system are public goods, such as: legal knowledge; the efforts of attorneys general, solicitors general, prosecutors, public defenders, etc.; and the civil and criminal justice systems. Of course, when the attorney general spends his time sending in SWAT teams to rifle-butt 50-year-old medical cannabis farmers, the public benefit is unobvious, but that’s the problem with codifying substantive justice. The fact that the public doesn’t sufficiently provide justice is another broader problem.

Arguably, the regulation of lawyers (which, by the way, excludes people from the private good of law practice) is a public good in that competent lawyering increases accessibility of the judicial system and conserves its resources for everyone. However, “competent lawyering” isn’t the same as “lawyer training” and it certainly doesn’t mandate three years of education for college graduates or even law programs at public universities. In fact, the public good aspect of the legal system is indifferent to lawyer training. Lawyers who sit through ethics courses can be just as honest as lawyers who read about ethics in books. Being judicially created, the legal education requirement for law practice is wholly artificial, making lawyer training a private good through and through.

Consequently, the “fundamental tension” is not balancing the public and private goods of legal education but how much training is necessary for lawyers and who should bear the risk for it, but that’s a distributional question whose answer is crystal clear: Currently, law students bear 100 percent of the risk of failure. If they get laid off from a good lawyer job never to return, if they hate law practice despite their best efforts, if they can’t repay their student loans with their lawyer incomes, if they never use their legal educations professionally, if they fail the bar exam, if they blow character and fitness, then their law schools still get paid in full—at public expense.

In short, the lawyer training system is completely lopsided against law students and favors universities, some private lenders, and prestigious employers instead. Only in the coming year will we see some institutions pay a price for their law school overbuilding, over-enrolling, and overpricing. Rest assured none of their stakeholders will be held personally liable for their schools’ debts—but their former students certainly will for theirs.

Despite its willingness to acknowledge the effects of the student loan system, I didn’t (and still don’t) expect the Task Force to consciously throw the law schools under the bus, but it hopes in vain that some kind of compromise solution can be struck among parties participating in good faith constructive dialogue. Law school defenders participating in good faith would at the very least guilelessly offer the “mutual mistake” defense, i.e. they had no idea that there were too many law schools, that the federal loan program encourages tuition hikes, that job outcomes’ importance is paramount, that they stood by while the bankruptcy law was cruelly tightened against student loan debtors, and that all these policies must be reversed.

What arguments has the law school side presented instead? Last month, a relatively recent graduate from an elite law school peddled a paper based on an absurd human capital formation theory of legal education, stating that law school pays off for everyone who attends. Human capital theory for everyone else; signaling theory for him. How is that good faith? Or how about a week later when a dean bafflingly declared that the ratio of college graduates to law graduates matters more than the ratio of law graduates to jobs and who “rejects the premise that American law students are too stupid to know the cost of their degree” even though his own school’s Web site still lists last year’s tuition rates?

Law professors’ obstreperous proclamations that everything is fine undermine the Task Force’s aspirations for a “dispassionate and pragmatic examination of the current situation.” When the enrollment numbers come out for fall 2013 like the casualty lists from Antietam, and the low October and December LSATs predict a dearth of applicants for 2014, the acrimony will ratchet up, and the freeloading rentiers will ensure there won’t be a middle ground left to stand on.

CFPB’s Math on Student Loans Ain’t Pretty

Rohit Chopra, “A closer look at the trillion,” CFPB.

I’m not a fan of the three-year cohort default rate as the metric for the vitality of the student loan program. It’s about as unhelpful as the unemployment rate, which can hide people who left the labor force, are underemployed, left the jurisdiction, etc. Just as the definition of “unemployed” is slippery (like, any job search activity in the previous four weeks), so too is “default,” which is no payments whatsoever over the previous 270 days. The CFPB has released, to my recollection, the first ever breakdown of federal student loans by repayment status (billions of dollars):

	In-school	Grace	Repayment	Deferment	Forbearance	Default	Other	Total
Direct	133.8 (24%)	40.4 (7%)	237.4 (42%)	75.6 (13%)	48.3 (8%)	30.5 (5%)	3.2 (1%)	569.2 (100%)
FFEL	12.2 (3%)	6.6 (2%)	256.3 (60%)	46.5 (11%)	42.8 (10%)	58.8 (14%)	6.3 (1%)	429.5 (100%)

I get 30 percent of all federal student loan dollars in deferment, forbearance, or default. Only 49 percent of the total are in active repayment. I’d love to see a comparison to credit cards, but aside from class concerns, I think it’d tell us that the federal loan program has been a spectacular, embarrassing failure.

Here’s the same thing for borrowers (millions):

	In-school	Grace	Repayment	Deferment	Forbearance	Default	Other	Total
Direct	7.9 (28%)	1.9 (7%)	10.8 (39%)	3.2 (12%)	1.8 (6%)	2.1 (8%)	0.1 (0%)	27.8 (100%)
FFEL	0.9 (4%)	0.5 (2%)	12.9 (56%)	2.3 (10%)	1.6 (7%)	4.4 (19%)	0.3 (1%)	22.9 (100%)

I’m not going to do the same calculation because there’s certain to be some overlap between DLP and FFELP borrowers, but I direct your attention to the FFELP’s default rate: 19 percent. That’s a better long-term indicator of where the DLP is headed, and remember, once you’re in default, there is no IBR. People in those circumstances will have to negotiate with their lenders, but my guess is that debtors who are old enough can beg for mercy from bankruptcy judges (and federal court judges dealing with the inevitable appeals).

Another interesting factoid is that the average balance by repayment status table (omitted) shows that the average amount owed by people who are in default is less than $15,000 for both DLP loans and FFELP loans. I expected the figure to be much higher based on the belief that people would default when their loan balances are hopelessly high. It’s probably weighted-down by people who borrowed a small amount of money to go to a for-profit and then dropped out or couldn’t find a decent-paying job.

The CFPB also gives a table of repayment plan choices for direct loan borrowers (not FFELP):

	Outstanding balance Billions of dollars	Recipients Millions of recipients	Average balance Thousands of dollars
Standard 10-year plan	139.9	9.84	14.2
Plans based on income	72.3	1.58	45.8
Income-contingent repayment	20.1	0.63	31.9
Income-based repayment	50.9	0.91	55.9
Pay as you earn	1.3	0.04	32.5
Plans not based on income	107.4	3.35	32.1
Extended repayment	62.1	1.63	38.1
Graduated repayment	27.8	1.27	21.9
Extended graduated repayment	17.5	0.45	38.9
Other alternative repayment plan	4.4	0.23	19.1
Total of loans in these plans	324	15	21.6

Note that the average balance for the 910,000 people on IBR is $55,900. This is certainly a bellwether for law school debt and other graduate or professional school programs that rely heavily on Grad PLUS loans. Going forward, student loan debtors, including undergraduates, will be on the better-publicized PAYE, which will reduce the average amount borrowed.