GUEST POST—Smokin’ Bucketful of Awesome (Flow Chart Edition)

(Connecticut attorney Samuel Browning, a friend of The Law School Tuition Bubble, obtained permission from law professor Bernie Burk to create a flow chart version of a series of posts Burk wrote on The Faculty Lounge in June 2014 that characterized law school outcomes as between either “A Smokin’ Bucketful of Awesome” or “A Smoking Pile of Scrap.” Mr. Browning’s chart appears here with only minor proofreading on my part, so any unclear points, variances from Burk’s posts, or errors are his own. Actual hyperlinks to Burk’s articles are included at the bottom. Click on the flow chart to enlarge it in your browser.)

Smokin' Bucketful of Awesome (Flow Chart)

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http://www.thefacultylounge.org/2014/06/more-thoughts-on-self-delusion-in-the-legal-academy-and-an-effort-to-engage-the-aals.html

http://www.thefacultylounge.org/2014/06/self-delusion-spreads-from-professional-to-graduate-education-consternation-curiously-absent.html

http://www.thefacultylounge.org/2014/06/still-more-thoughts-on-self-delusion-in-the-legal-academy-or-accepting-the-difference-between-a-smok.html

Correction: 13 Schools Didn’t Report Graduate Debt to U.S. News

I wrote in my post on 2014 law graduate debt that Seton Hall did not report graduate debt data to U.S. News. Due to an accidental error in my data collection I omitted it, and I have now updated the original post on the topic. Excepting Belmont, it appears that 13 law schools did not submit graduate debt data to U.S. News, so that’s an improvement. I will not report any additional corrections, making changes only to the post itself.

71 Percent of Lawyers Work in the Legal Services Sector

71 percent of employed lawyers, that is. We’re not talking about people who are on the rolls but aren’t working.

I haven’t carefully read through all of Michael Simkovic’s and Frank McIntyre’s most recent analysis in law graduate earnings, but it looks like they’re still uninterested in exploring the possibility that law grads’ earnings are attributable to demand-side factors, like price or income elasticity of demand for lawyers’ services. Because they don’t show us that law students who complete all the required law school course work without graduating have the same earnings as law graduates, anything they say about a JD premium is premature. Such an analysis is crucial because one of their own citations, David Card’s 1999, “The Causal Effect of Education on Earnings,” indicates that law grads earn substantially more than the trend would suggest. This finding screams for testing, but Simkovic and McIntyre aren’t careful enough researchers to do that.

Thus, it follows that their comparisons between law grads and college grads in “Timing Law School” are equally inadmissible. Indeed, I may not bother commenting on “Timing” at length at all.

However, I did decide that a little procrastination is good for the human spirit (and entertaining to the reader), so I poked around “Timing” to see what errors I could find. I’ll showcase one.

On page 17 Simkovic and McIntyre write:

Based on initial outcomes for recent graduates and qualitative factors, Henderson and Zahorsky argue that the legal profession is experiencing a “structural shift” due to globalization and technological change.34 Others point to a decline in the size of “legal services” (law firms) relative to GDP.35 What this means for law school graduates is uncertain, since most legal services workers are not lawyers,36 and many law graduates work in fields other than legal services.37

Footnote 36 uses the Bureau of Labor Statistics’ Occupational Employment Statistics (OES) database to show that “out of more than 1.1 million legal services workers, only 375 thousand were lawyers. Other occupations include paralegals, secretaries, bookkeepers and computer support and business specialists.”

And footnote 37 says:

Around 60 percent of law graduates practice law. Simkovic and McIntyre, supra [“Economic Value of a Law Degree”] at 252. Of those working as lawyers, around 65 percent work in “legal services.” United States Department of Labor, Bureau of Labor Statistics, supra note 36. Some of the non-lawyers working in legal services have law degrees.

In other words, the authors bury in a footnote the fact that 65 percent of lawyers work in legal services, so they can claim that it’s unclear how economic swings affecting the legal services sector would in turn affect law grads because most workers there aren’t lawyers. Being mindful of the distinction between law grads and lawyers, it’s nevertheless pretty bizarre to believe that the one industry law school prepares people for most would have a trivial impact on their earnings. The only alternative interpretation is for Simkovic and McIntyre to show that the legal sector is laying off everyone but its lawyers—and admittedly (again, in a footnote) malemployed law grads.

The foregoing aside, their math is still incorrect. It’s true that 375,000 legal sector lawyers out of the 592,670 total in the OES equals 63 percent, but that’s not the full number of lawyers. Why? Because the OES omits self-employed workers, which feature prominently in the legal profession. This is an pitfall that I either first noticed or was pointed out to me when I started writing on law schools nearly five years ago, so it’s amusing to see Simkovic and McIntyre make it.

In 2012, the BLS’s Employment Projections program found 759,800 employed lawyers, of which 374,900 were legal sector wage-and-salary employees. According to the BLS’s estimate of the distribution of lawyers among industries (xls), 165,700 lawyers were self-employed workers. It’s just about impossible for these folks to not be working in the legal sector, and indeed, if one looks at the Bureau of Economic Analysis’ National Income and Product Accounts tables, one finds that self-employed workers are included in the category “Persons Engaged in Production by Industry” (Table 6.8D).

As a result, 540,600 lawyers out of 759,800 lawyers—71 percent—work in the legal services sector, not 63 percent. These scant 8 percentage points sure make it look more persuasive to me that what goes on in the legal sector influences law grads’ earnings. (Oh, and I add that another 17 percent of all lawyers work in government. Is that sector robustly hiring lawyers?)

I don’t expect those 8 percentage points to persuade Simkovic and McIntyre, though. They’ve gotten plenty of mileage asking the legal profession to accept on an untested, pure human capital hypothesis that law school pays off even if the legal sector implodes. They can at least include self-employed lawyers in their adverse footnotes.

13 Law Schools Didn’t Report 2014 Graduate Debt to U.S. News, Again

[UPDATE: Seton Hall’s average graduate debt datum is now accounted for in this post, lowering the number of non-reporting law schools to 13 this year. Without altering the substantive points of the post, please consider the necessary changes having been made.]

The record was 14 last year, which was still too high.

Each year U.S. News ranks law schools based on how much debt their graduates take on. The figure excludes accrued interest, but it’s probably the best estimate of the cost of attendance at a particular law school. It’s also, unfortunately, the only source for this information as the ABA does not publicize it in the 509 Information Reports. Here’s this year’s list of absentees and their debt levels in their last reported year:

  • Arizona Summit – $190,471 (2015, can be found on the school’s Web site [Interestingly, no one took out private loans…])
  • New England – $132,246 (2014)
  • Seton Hall – $127,075 (2014)
  • Faulkner – $122,187 (2014)
  • Missouri (Kansas City) – $103,038 (2014)
  • Southern Illinois – $67,966 (2014)
  • Appalachian – $114,740 (2013)
  • Atlanta’s John Marshall – $142,515 (2013)
  • Florida A&M – $96,934 (2012)
  • La Verne – $112,628 (2013)
  • Rutgers-Camden – $93,990 (2013)
  • Southwestern – $147,976 (2013)
  • Texas Southern – $99,992 (2013)
  • WMU Cooley – $122,395 (2013)

I’m excluding the three Puerto Rico law schools and Widener Harrisburg because U.S. News usually does too. In point of fact, Belmont had 119 graduates last year, so it probably should have been included as well, but I’ll be lenient today. I’d hate to see the record broken.

These schools account for 3,361 3,076 graduates out of 43,118 (excl. Puerto Rico), or 8 7 percent of the total.

The unweighted average private law school graduate debt rose from $124,638 last year to $127,740 127,743 this year (2.4% 2.5%). For public law schools: $88,287 in 2013 to $89,471 in 2014 (1.3%). I haven’t QC-ed this year’s figures, but I’m confident they’re right.

Other amusing facts:

  • Kudos to Barry and District of Columbia for correctly reporting their graduates’ debt levels this year. In 2014, both schools reported what must have been their graduates’ debt for their final year.
  • I’m curious why some schools saw large leaps in debt, e.g. South Dakota (45%), Arkansas (Little Rock) (33%), Baylor (30%), Elon (22%), and Pace (20%). It doesn’t appear they blatantly misreported last year, but these are odd fluctuations, particularly given that some of these schools saw 15% drops in debt disbursed last year.
  • Big ol’ raspberry to Howard for reporting what must be its graduates’ final year of debt: $24,021. Last year, it reported $123,485.
  • Although the ABA hasn’t “acquiesced” yet, it’s nice to see Hamline’s numbers reported. I expected them to not appear.

That is all.

LSAT Tea-Leaf Reading: February 2015 Edition

BOUNCE!

No. LSAT Takers, 4-Testing Period Moving Sum

20,358 people took the LSAT in February, up 859 (4.4 percent) from 2014. Notably, that’s growth in two consecutive testing administrations. Wow indeed.

This ends our LSAT year with 101,689 total LSAT takers, which is a record low going back to 1986. Back in those days, you said you were listening to Springsteen’s Born in the U.S.A. or Heart’s eponymous album, but we all know couldn’t take Barbra Streisand’s The Broadway Album and the soundtracks to Miami Vice and Rocky IV out of your tape deck. (Cultured readers from my age bracket will recognize how Rocky IV‘s villain’s theme closely resembles that of Unicron’s from the Transformers movie of the same period: Both were crafted by Vince DiCola.)

Back to less exciting 2015, I think there’s a little room left for LSAT takers to drop, but applicants aren’t shying away from law school as they were in the past. They’re down a mere 7 percent from this time last year.

No. Applicants Over App Cycle

It’s unlikely they’ll weigh in at fewer than 50,000, so it looks like we’re pretty close to the bottom if we’re not there already. Who knows, though, maybe it’s just people thinking they could get into elite law schools.

For some perspective on the law school crunch, here’re the trends since the 1960s.

Enrollment, LSAT, & Application Data

The only unobvious insight I can give you from this chart is how amazing it is that peak LSAT in 2009-11 just did not translate into peak applicants. Much of it is due to non-first-time test-takers, but it’s a real harbinger for how things will look going forward. We may be at the applicant trough, but folks, they ain’t coming back.

New America Foundation: Let the Sins of Grad PLUS Be Visited Upon IBR

I’ll try to go quickly through the New America Foundation’s (NAF’s) Jason Delisle’s and Alexander Holt’s Washington Post opinion piece from Friday. Reacting to news that the president’s budget forecasts income-based repayment programs (IBR) will cost the government an additional $21.8 billion, the authors argue that “too much” of it is attributable the administration’s changes to IBR, i.e. reducing monthly payments even more and accelerating loan forgiveness to 20 years from 25. Their article has many problems.

One, Delisle and Holt don’t provide evidence that the $21.8 billion comes from the changes to IBR. They’re just conjecturing. My hunch is that the additional costs are mainly attributable to the changes in the budget’s model that don’t anticipate as much job growth as before—or just increased participation in IBR. Without this evidence, the rest of Delisle’s and Holt’s article is just righteous huffing.

Two, the authors use this pretext to slide into their grad-students-are-abusing-IBR claim the NAF has been making for a few years now. This argument is problematic because the problem isn’t IBR so much as the Grad PLUS Loan Program, which the authors understand is unlimited and to their credit have advocated abolishing elsewhere. That’s all fine and good, but if the problem is Grad PLUS, then it’s not IBR, and the authors should focus on that instead. More on this point below.

Three, the grad-students-are-abusing-IBR claim has never been substantiated either. The NAF has always trotted it out in hypotheticals without doing the actual research. How many (and what percentage of) graduate debtors are (a) on IBR and (b) earn high enough incomes that could allow repayment under 25-year or consolidated repayment plans without compromising their living standards? Also, how many grad debtors are on IBR but are not earning enough to repay their loans under the older repayment plans?

These questions are crucial because until they’re answered those of us sitting at the feet of the East Coast think-tank elite can’t weigh how many people unfairly benefit from the changes to IBR against those who do not. If every unfair IBR beneficiary is canceled out by dozens of debtors who will never repay their loans in 25 or 20 years, then it’s safe to say that the changes to IBR are useful and the adverse consequences minimal. (And it’s not like the IBR changes have influenced people’s graduate school enrollment behaviors as law school applicants are still falling.) In the end, Delisle’s and Holt’s arguments are really just revamped versions of welfare queen fear-mongering.

Four, Delisle and Holt do not regain any sympathy with their hypothetical graduate debtor, Robert, who finishes law school with $150,000 in debt and earns $70,000 per year. Here are the problems with Robert:

(a)  For those of us who’ve done the research, Robert’s debt is plausible, but his income is not. Robert earns well over the median salary reported to NALP in 2013 ($62,467). Assuming that all non-reporting graduates are making less than the median, which I believe is fair, Robert is above the top 23 percent in law graduate earnings. He is quite atypical. The true median, which would include graduates working part-time and the 12.3 percent who were unemployed (and matter since we’re talking about debt repayment), is much, much lower. It’s likely many of them will never repay their loans. These people will benefit from the PAYE changes, but the NAF ignores them.

(b)  The authors then fashion out of Robert’s rib a wife, who earns $80,000 per year. With an annual household/family income of $150,000, readers should recognize that this partnership is in the top 10 percent by household income. Is this common for graduate debtors? Probably, but again the authors don’t say.

(c)  Delisle and Holt proceed to criticize IBR for not taking spousal incomes into account, that only 1.9 percent of Robert’s household’s/family’s income is going to his student loans. Are you shocked? Well, the response is, so what? Robert’s wife didn’t sign his master promissory notes any more than she would his gambling debts. If Robert wants to leave work to raise their kids, for example, doesn’t that imply that his wife will essentially assume his debts? Would the NAF say this if Robert were Roberta? How would unmarried Robert feel if he had to tell his bride-to-be that she’d be partly on the hook for his student loans if they got married? Again, what if Robert were Roberta, who would be more likely to take time off to raise children?

(d)  The authors’ hypothetical is only as outrageous as the lopsided assumptions they bake into it. It’s one thing to say that Robert, unusual though he is, benefits more from the Obama administration’s changes to IBR than before. But it’s a rhetorical foul altogether to throw in a wife, whose high earnings Robert largely has no power over, and then blame IBR for the result. Delisle and Holt could just as easily give Robert’s parents multimillion-dollar lottery tickets or 5 percent of Maine’s landmass, but it would still have little relevance for IBR as a policy.

Five, the authors repeat that graduate debtors are the unfair beneficiaries of the administration’s changes to IBR, that they’re half of all IBR participants (unsurprising: they have undergraduate debts too), that they have higher incomes and are less likely to be unemployed than undergrad (or non-grad) debtors. Again, no income data on IBR participants is given, so Delisle’s and Holt’s IBR welfare queens are all speculative. Now, I’m sure some exist, but the NAF needs to show us the bodies and carefully tell us whether they’re worth less than the number of underemployed graduate debtors who won’t be able to repay their loans.

Six, even if they do that, all their talk of IBR’s “loan-forgiveness benefits” is really a problem with Grad PLUS loans, not IBR. As I wrote last week, IBR without Grad PLUS loans would be much more innocuous. It’s one thing for Delisle and Holt to make poor arguments with unrepresentative examples, but I question their credibility if they’re going to attack IBR, which I think we all agree was never crafted with Grad PLUS loans in mind, instead of the loan program itself. Why not attack the problem at its source? What’s so special about IBR, then? Nor does it help that they bait their readers with the $21.8 billion IBR shortfall and then switch it with the changes to IBR without evidence. For all their elegant, mathematical—and probably costly—policy papers, the NAF’s results almost always have zero external validity. Like, if I didn’t know any better, I’d say those folks had some kind of ulterior, partisan motive…

Seven, and finally, at the beginning of their article the authors characterize the federal loan program as “an implicit contract: Students get loans to go to college at reasonable interest rates, with no previous credit history required, but when they graduate, they [and their high-income spouses, apparently] have to pay them back. But that agreement is shifting.”

In their dreams. The “implicit agreement” was that the loans would make debtors more productive workers so they could fill higher-paying jobs that required additional skills. Little of this has turned out to be true: There’s no good evidence that widespread college education is raising our national income, and the government has pretty much reneged on its jobs promises.

As far as contracts go, this one has been drafted in favor of the government. When its underlying assumptions are true, everyone wins, but when they’re not, the government won’t be held accountable for self-serving research, false promises, and reckless lending. Instead, attempts to help the debtors will face resistance by people like Delisle and Holt, who will howl at all the alleged benefits the lucky-duckies are getting—and right now we’re only talking about grad student debt! Consequently, you should expect the endgame for all this unpayable student loan debt to be really, really acrimonious.

NY Fed: Only 37 Percent of Student Loans in Repayment, Not Delinquent

I didn’t promise I’d cover it, but here it is, you lucky-duckies:

NY Fed--Student Loan Repayment Status in 2014

But I particularly relished the part at the end:

Some [the Brookings Institution] have argued that rising student debt and slow repayment are not particularly worrisome. After all, the story goes that if households can afford the modest payments they are making, then why worry about the cost of debt? But, of course, widespread failure to repay is a problem for the lender, in this case, federal taxpayers. We don’t fully understand yet how the burden of large amounts of debt on households’ balance sheets for long periods of time affects student borrowers’ behavior, but our research so far suggests that growing student debt has contributed to the recent decline in the homeownership rate and to the sharp increase in parental co-residence among millennials.

That, my readers, is as close as the Liberty Street gang is ever going to get to smacking-down the Brookings Institution.

MY DAY = MADE.

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