Legal Education ROI

So Just How Far Off Were My Tuition Projections?

Back in February 2011 I made a bold prediction: Full-time tuition costs at private ABA law schools would increase.

Talk about sticking to your guns and throwing conventional wisdom out the window!

But enough self-congratulations and I-told-you-sos. I offered projections for each law school, which proved so popular that a handful of Web sites even reported on them, motivating me to update them annually. Although I’m always pleased to receive positive press, I ceased making new projections when it became clear that tuition growth was going to slow down due to the applicant crash. (Also, the methodology posts were mind-numbing to write.) No tweaks to the methodology would create accurate results, so that was that. Nevertheless, time has passed; we’ve caught up to the first projections, and I’m curious how far off (or on?) they were. Maybe we’ll learn a lesson.

My original projection methodology estimated that mean-average private-law-school tuition (excluding the two private Puerto Rico schools, as always) would rise from $38,097 in 2010 to $47,598 (25 percent) by the 2015-16 academic year. Later, I believed that methodology produced results that were too inaccurate, so I revised it, giving a mean-average tuition of $46,341 (22 percent) by 2015.

These growth rates are impressive, and when I offered them I chose not to adjust them to inflation because I didn’t want to predict inflation and I was convinced that consumer-price inflation wasn’t really playing much of a role in law-school tuition anyway. In fact, the consumer price index has only risen by 8.7 percent in this five-year time period. In hindsight it may’ve been appropriate to compare tuition to the CPI’s higher-education cost index, but I think no one is worse off.

So how did I do? Thanks to the ABA’s 509 information reports, I get $44,413 mean-average tuition at the private law schools that were around in 2010—and were private law schools in 2010, for some have been socialized, e.g. Texas A&M, which used to be Texas Wesleyan. On average, tuition is 17 percent higher than 2010, so my average was high by 4 percent. Yikes, but at least the savings went to law students.

But as we learned once again recently, the mean average isn’t useful without the dispersion. Yeah, that damn average is made up of real observations that may indicate patterns of their own. So here’s the variance.

Percent Variance of Projected Private-Law-School Tuition (2015)

You can see there are a few outliers, which I’ll go into, but overall, the horizontal zero line cuts fairly closely through the body of the points. In fact, the median projection was off by less than 3 percent. Variances below the zero line, however, tend to clump together more.

So who are these outliers?

No. 1 is La Verne (82.5%), which gave up on merit scholarships a few years back in favor of flat costs for all. I figured it’d charge $48,027 in 2015, but in fact it cost $26,323. You can take this as evidence that tuition can’t go up forever.

No. 2 is the school I thought would’ve been number 1, Faulkner (45.6%), which doubled its price tag within a few years of receiving ABA accreditation. This was certain to throw off my methodology, so no one believed it would cost $51,045 today. Still, I didn’t expect it to go up by only 13 percent since 2010 ($35,050). That barely beats inflation.

No. 3 is a school I didn’t expect to see on the list, Ohio Northern (41.5%), which cut its tuition from $31,264 in 2010 to $26,030. I thought it’d charge only $36,820.

No. 4 is another unexpected tuition reducer, Roger Williams (33.3%), which costs $34,596 now rather than the $46,128 I expected.

Nos. 5 and 6, Elon (24.8%) and New Hampshire (23.2%), barely raised their tuition at all, so it’s no wonder their projections were off.

No. 7 is another tuition reducer on the list, Brooklyn (23.1%), now $46,176 when I thought it’d be $56,862. It charges only 1 percent less than in 2010, and that’s nominal dollars.

I’m not going through the rest, but the one law school I expected to see further up was New England (11.5%) because like Faulkner it raised its costs by quite a bit in the mid-2000s. I guess it just kept going. Finally, among the for-profits, Arizona Summit, Atlanta’s John Marshall, Charleston, and Charlotte all came in below their projections by at least 10 percent. Florida Coastal and Western State overshot theirs by about 5 percent.

The bottom-end variances aren’t as noteworthy, but congratulations are in order to the most expensive law school in the land, Columbia (-3.7%), for raising its costs more than I thought. A bunch of other expensive, well-regarded law schools also outdid my methodology. Good job. Not.

However, that lone dot way below the zero line at $47,980 is … WMU Cooley (-23.4%). I thought it would charge only $36,680. I’m not in the mood to research why it jacked its price tag so much, but it probably has to do with the school’s large part-time program. Maybe it’s trying to deter people from the full-time program?

Overall, I would’ve guessed the median variance would’ve been over 3 percent, but in general the projections tended to skew higher rather than find their marks. Meanwhile, I count 28 law schools (about one-fourth of them) that varied from their projection within the -2-to-2 percent band. That’s about $900 at the median law school.

In all, there was a nugget of accuracy to the initial projections, but I don’t take credit for predicting that; rather, I was right that the projections would overshoot reality. Private law schools slowed their tuition increases over the last five years. That’s small potatoes for the students though.

Below the fold, here’s a list of private law schools by cumulative cost increase between 2010 and 2015, along with information on their projected 2015 tuition.

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‘Law Deans Are Running Bait and Switch Operation’

…In Australia.

Yes folks, y’all can add Down Under to the list of countries with too many law students chasing too few legal jobs, according to a surprisingly scathing opinion piece in The Australian Financial Review by a law instructor at Macquarie University.

A few quotes:

“Law student numbers are out of hand. Nearly 15,000 finish their degree each year, and enter a market where there are only 66,000 solicitors.” Yikes.

“Law deans are running a bait and switch operation. They hold out the promise of a legal career, while adding to the unemployment queue.”

Finally:

“[The deans’] claim that the legal problems undertaken in law tutorials are a platform for a generalist degree – that will see students who miss out on a job as a lawyer well placed to enter other high-paid spheres of the economy – is a self-serving myth.”

All this is just more evidence that American legal education does a better job of training law deans to advocate their positions than other countries do. The best they can offer here is the versatile-law-degree argument, but if they want to avoid a government crackdown, they’ll have to lean on increasing diversity in the profession or at least gussy up what they have with some kind of human-capital analysis. Otherwise, these Southern Hemispherians will end up like their Japanese counterparts.

LSAT Tea-Leaf Reading: June 2016 Edition

Whoo-ey! Took long enough. As with February, the LSAC took its sweet time posting the number of people who sat for the most recent LSAT. In June 23,051 people took the test, down 0.8 percent from last year (23,238).

No. LSAT Takers, 4-Testing Period Moving Sum

The four-period moving sum fell trivially again by 0.2 percent to 105,696. My December speculation that LSATs are trending downward again appears to be holding, but these numbers are really, really flat.

Meanwhile LSAC data indicate that 1 percent more people are applying to law school this year. I can see this number falling next year because of the latest round of New York Times coverage on law school, but until then, I’m still curious what the application distribution will be for this year. September/October will probably be more insightful.

Anyway, a year ago I joked that law school was becoming a thing again, but that trend appears blunted. That’s where we are.

No Libertarians, the ABA Does Not Control The Supply of Lawyers

Writing for Forbes, University of Chicago law professor Todd Henderson explains to us “Why Lawyer Salaries Are Skyrocketing.” Although he attributes most of the cause of the big-law salary hike to the libertarian red-tape boogeyman, Henderson opens the article with long-falsified supply-side reasoning.

On the supply side, the American Bar Association operates a state-approved cartel, which uses a licensing regime to artificially limit the supply of legal services. In a recent white paper, the White House came out against occupational licensing in general, and breaking the ABA cartel would be a good first step in addressing the staggering growth in lawyer pay.

The last time I recall encountering the “ABA attorney shortage” claim in any depth was two years ago when Michael Lind on Salon told us that that the ABA controls the supply of lawyers. Henderson’s argument though more predictably libertarian is nevertheless surprising because only a month ago The New York Times explored law-graduate underemployment in depth. The natural question is, how can Henderson discuss an attorney shortage while graduates a state away from him struggle to find work at far less pay?

In recent years bar-passage rates have played a role in graduate underemployment to some extent, but not all of the 5,004 unemployed or unsurveyed class of 2015 graduates failed the bar. Another 5,400 graduates were in JD-advantage jobs, which frequently includes positions that could be filled with people with less education. These graduates should be pushing lawyer pay down, and this is prior to any discussion of whether big law salaries should track inflation.

Then of course, there’s the fact that payroll lawyers’ incomes have been flat for quite a while.

10th to 90th Percentile Dispersion of Annualized OES Lawyer Incomes

From a business perspective, law firms could also take the same amount of money and substitute more new associates for the same (or less) pay to cover demand for their services. That is, if demand for their services is really an issue.

Then of course, there’s the ABA’s accrediting power, which a Department of Education panel threatened with a one-year suspension not because it’s refusing to accredit more law schools but because it’s accrediting law schools with insufficient regard to graduates’ employment outcomes.

Cleary other forces are responsible for the ~$20,000 big-law pay raise. I insist I’m not a biglawologist and other voices such as Steven Harper are vastly more credible than I am on the subject, but anyone who thinks ABA rules are choking lawyer supply doesn’t have much credibility when it comes to regulatory boogeymen either.

CLASS OF 2015 EMPLOYMENT REPORT

[UPDATE: As with last year, it appears the ABA took down the employment spreadsheet by late Friday afternoon, making this post … an exclusive. There may be substantial revisions to come.]

At last, something to write about! (And time to do it too!)

On Friday, the ABA updated its Employment Summary Report Web site, which provides employment data for each law school class going back to 2010. Many if not all law schools have uploaded their individual reports, and some intrepid researchers have already dug into them, but I prefer to wait until the easy-to-use spreadsheet comes out. Note: There may be revisions to these data, but this first, preliminary cut gives a good sense of the class of 2015’s employment outcomes. Also, I diligently account for all accredited law schools, so researchers should recognize that Concordia Law School must be inserted manually. Indiana Tech has no data.

39,423 people graduated from 204 ABA-accredited law schools outside of Puerto Rico roughly between September 1, 2014, and August 31, 2015. The employment information is good as of about March 15, 2016.

Here’s the employment status distribution.

Class of 2015 Employment Status Distribution

Surprisingly, many of the employment status categories’ percentages are identical to last year, even though the absolute numbers have fallen. I almost thought I was looking at the 2014 data by mistake. Notably, the employment status tables added a section for “Employed – Law School/University Funded” jobs. It’s probable that a good chunk of these jobs were classified as “JD Advantage” until now, further clouding the validity of that category.

The display tables appear below the fold to conserve blog space.

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CBO: $1.3 Trillion in New Federal Student Loans by 2026

Each year the Congressional Budget Office (CBO) provides its baseline projections for the federal student-loan program. The projections include the total amount of new federal student loans that the office believes will be issued, future interest rates, and subsidy costs, i.e. whether the government will make or lose money on the loans. This year, the CBO projects that the government will lend an additional $1.3 trillion to students between FY2016 and FY2026. The figure is largely unchanged since the 2014-2024 period, discussed here.

Subsidy Rates

The CBO uses an accrual-accounting methodology to determine the present value of federal loans. This essentially means discounting the estimated cash flows of student loans against government securities with the same maturities. If student loans make more money than buying government debt would, then the loans are valuable. Accrual accounting does not include the market risk that a private lender would consider when making a student loan, which is why many people advocate fair-value accounting. It’s a surprisingly contentious issue, which I elaborate in the student debt data page, because under fair-value accounting, the government loses money on student loans.

Under accrual accounting, the CBO projects negative subsidy rates for federal student loans; that is, it sees the government making money on its lending. All student loans made in 2015 will make an estimated 13.9 percent return. Of interest to law-school watchers: Unsubsidized Stafford loans and Grad PLUS loans issued in FY2016 will make 19.2 percent and 18.9 percent returns, respectively. Oddly, Parent PLUS loans appear to be the most profitable for the government.

CBO Table 2This year, however, the CBO included fair-value estimates of federal student loans. Under these, the government loses about 12 percent of its investment on student loans every year until FY2026. Unsubsidized Stafford loans and Grad PLUS loans lose about 5 percent in 2016, but the losses increase over the decade. Parent PLUS loans remain profitable.

Note also that the CBO believes the net number of loans will rise during the decade. It’s already evident that federal-student-loan borrowing is declining.

CBO Table 6Under accrual accounting the student loans will net the government $85.2 billion; under fair-value accounting the government will lose $145.1 billion. This isn’t a lot of money for the government, actually, but it could obviously be redirected to better uses.

Interest Rates

A crucial variable affecting subsidy rates, for both accounting methodologies, is the CBO’s projection of future interest rates. Two years ago, the office believed interest rates would rise from less than 2 percent in 2013 to 5 percent in 2018. This year, the CBO estimates that interest rates will rise to only 3.4 percent in 2018 and 4.14 percent starting in 2022.

CBO Table 4I believe the current interest-rate predictions are more plausible than the office’s estimates two years ago. The interest rate on 10-year government bonds has been falling this year, so the CBO may be overly pessimistic again for FY2016.

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In all, I think the CBO is overly pessimistic with these assumptions. Student borrowing is declining, and there isn’t much of a reason to believe interest rates will rise. This doesn’t mean the government won’t make bad loans, or that the skills and knowledge they pay for will make the workforce more productive, but it’ll probably be less than $145.1 billion.