What If The Gainful Employment Rule Were Applied to All Law Schools?

The first draft of my latest article on The American Lawyer about the gainful employment rule asked that question, but I realized that reporting on the for-profits alone was more important. The broader question is much more appropriate for a blog post, and since another federal court upheld the rule, it appears it’ll stick around. So, here you go.

To recap, the Department of Education’s gainful employment rule applies two debt-to-earnings tests to a college’s debtors: one based on their total annual incomes and the other their annual discretionary incomes. The tests create three results: passing, falling “in the zone,” or failing. Passing either test gives the school an overall passing grade for that year, not passing either test but not failing puts them “in the zone,” but failing is failing. Sorry if there’s some equivocation among these terms; I blame the rule.

Failing in a given year won’t kill a school’s access to federal loans, but certainly four years of failing or being in the zone will do the trick.

So:

  • Passing either debt-to-earnings test means debt payments are less than or equal to
    • 8 percent of total annual income, or
    • 20 percent of annual discretionary income.
  • The “zone” means debt payments are greater than
    • 8 percent of total annual income but less than or equal to 12 percent of annual income, or
    • 20 percent of annual discretionary income but less than or equal to 30 percent of discretionary income.
  • Failing occurs when debt payments are greater than
    • 12 percent of total annual income, or
    • 30 percent of annual discretionary income.

Got it? Good. If not, reread the article. I hate explaining this rule.

Rather than giving the numbers for both tests, I’m going to display the class of 2014’s mean debt (weighted with non-debtors (because I’m fair)), the minimum income (discretionary or total) needed to pass either test or at least stay in the zone, and the unemployment rate (“seeking” and “not seeking” employment, but excluding “deferred start dates”). The numbers will differ slightly from what I published in the article last week.

As for which test you’re seeing, since it’s somewhat important, the annual income test is the lesser test until about $43,000. After that, you are seeing the minimum discretionary income graduates need to be earning for the school to pass the test. That means they need to be earning even more money than what’s stated.

CLASS OF 2014 ON GAINFUL EMPLOYMENT
SCHOOL WTD AVG DEBT MIN PASS MIN ZONE TOT UNEMP
Howard $23,060 $20,178 $13,452 12.4%
Brigham Young $39,026 $34,148 $22,765 7.2%
Hawaii $39,949 $34,955 $23,304 15.5%
Alabama $45,830 $40,102 $26,734 3.5%
Lewis and Clark $47,014 $41,137 $27,425 15.4%
Arkansas (Fayetteville) $48,927 $42,811 $28,540 7.0%
Nebraska $49,758 $43,538 $29,026 6.0%
North Carolina Central $49,932 $43,691 $29,127 14.1%
District of Columbia $51,954 $44,434 $30,307 25.2%
Tennessee $52,961 $44,786 $30,894 14.6%
Wyoming $52,999 $44,800 $30,916 23.9%
North Dakota $55,743 $45,760 $32,517 13.2%
Connecticut $56,813 $46,134 $33,141 9.1%
Arkansas (Little Rock) $58,407 $46,692 $34,071 12.8%
Missouri (Columbia) $58,541 $46,740 $34,149 8.9%
Georgia State $58,650 $46,778 $34,213 5.6%
Mississippi $59,132 $46,946 $34,494 12.3%
Kentucky $60,629 $47,470 $35,367 5.6%
Wisconsin $61,117 $47,641 $35,652 7.6%
Kansas $61,410 $47,743 $35,822 8.4%
SUNY Buffalo $61,568 $47,799 $35,915 9.9%
New Mexico $61,795 $47,878 $36,047 3.6%
Liberty $63,917 $48,621 $37,285 25.0%
Georgia $63,954 $48,634 $37,307 13.6%
Texas Tech $64,047 $48,666 $37,361 18.8%
Northern Illinois $64,061 $48,671 $37,369 9.1%
Montana $64,094 $48,683 $37,388 11.3%
City University $64,284 $48,749 $37,499 20.7%
Oklahoma $64,613 $48,865 $37,691 7.7%
Florida $65,104 $49,036 $37,977 9.4%
Memphis $66,326 $49,464 $38,690 18.3%
Akron $66,681 $49,588 $38,897 8.7%
Cincinnati $66,697 $49,594 $38,906 10.4%
South Carolina $66,826 $49,639 $38,982 7.4%
Northern Kentucky $67,221 $49,777 $39,212 9.6%
Arizona State $67,227 $49,780 $39,216 1.5%
Florida State $68,319 $50,162 $39,853 6.0%
Wayne State $68,698 $50,294 $40,074 11.2%
Michigan State $69,711 $50,649 $40,665 1.2%
Houston $70,931 $51,076 $41,377 7.4%
South Dakota $71,067 $51,123 $41,456 6.2%
Boston University $71,181 $51,163 $41,522 6.5%
California-Davis $71,993 $51,448 $41,996 10.1%
Temple $72,019 $51,457 $42,011 9.1%
Washburn $72,555 $51,644 $42,323 8.9%
Indiana (Bloomington) $72,726 $51,704 $42,423 6.8%
Southern University $73,214 $51,875 $42,708 23.0%
Louisiana State $73,366 $51,928 $42,797 3.1%
Texas A&M [Wesleyan] $73,485 $51,970 $42,866 18.5%
West Virginia $73,712 $52,049 $42,999 8.5%
Utah $74,002 $52,151 $43,168 8.1%
Duquesne $74,172 $52,210 $43,267 13.5%
Arizona $74,516 $52,331 $43,468 4.9%
Texas $74,642 $52,375 $43,541 6.8%
Boston College $74,695 $52,393 $43,572 6.6%
North Carolina $74,905 $52,467 $43,694 11.9%
Maryland $75,615 $52,715 $43,894 8.8%
Illinois $76,374 $52,981 $44,071 5.9%
Campbell $76,555 $53,044 $44,113 13.6%
Iowa $76,670 $53,084 $44,140 2.3%
Washington University $76,828 $53,140 $44,177 1.2%
Drexel $77,209 $53,273 $44,265 11.3%
William and Mary $77,805 $53,482 $44,404 8.4%
Indiana (Indianapolis) $78,287 $53,651 $44,517 7.9%
Florida International $79,037 $53,913 $44,692 6.5%
Villanova $79,097 $53,934 $44,706 9.5%
Nevada $79,742 $54,160 $44,857 10.1%
Ohio State $80,527 $54,435 $45,040 1.4%
Pittsburgh $80,700 $54,495 $45,080 12.7%
Cleveland State $80,891 $54,562 $45,125 13.9%
Rutgers-Newark $81,451 $54,758 $45,255 8.4%
Idaho $81,604 $54,811 $45,291 8.1%
Louisville $82,077 $54,977 $45,401 7.1%
Baylor $82,833 $55,242 $45,578 11.8%
California-Irvine $83,342 $55,420 $45,696 10.8%
Tulsa $83,416 $55,446 $45,714 5.1%
Washington $83,732 $55,556 $45,787 14.0%
Maine $84,452 $55,808 $45,955 14.7%
Minnesota $84,834 $55,942 $46,045 6.9%
Cardozo, Yeshiva $85,151 $56,053 $46,119 15.3%
Toledo $87,232 $56,781 $46,604 17.9%
St. Thomas (MN) $87,349 $56,822 $46,631 8.4%
Washington and Lee $87,538 $56,888 $46,675 12.6%
Richmond $88,304 $57,156 $46,854 7.4%
Detroit Mercy $88,604 $57,261 $46,924 16.9%
St. John’s $89,567 $57,599 $47,149 8.9%
Yale $90,162 $57,807 $47,288 3.9%
Brooklyn $90,813 $58,035 $47,440 9.9%
Notre Dame $91,274 $58,196 $47,547 3.9%
Oregon $92,133 $58,497 $47,748 14.1%
Chicago-Kent, IIT $92,311 $58,559 $47,789 8.9%
Vanderbilt $92,969 $58,789 $47,943 2.6%
California-Los Angeles $93,221 $58,877 $48,002 6.3%
Emory $93,473 $58,966 $48,060 2.6%
Massachusetts — Dartmouth $93,819 $59,087 $48,141 16.0%
Fordham $94,187 $59,215 $48,227 9.8%
Baltimore $95,222 $59,578 $48,468 11.5%
Wake Forest $95,703 $59,746 $48,581 7.0%
St. Mary’s $95,761 $59,766 $48,594 17.9%
Southern Methodist $95,955 $59,834 $48,640 6.7%
Seton Hall $96,075 $59,876 $48,668 6.3%
Case Western Reserve $96,159 $59,905 $48,687 9.5%
Pennsylvania $96,201 $59,921 $48,697 0.4%
South Texas $96,686 $60,090 $48,810 9.2%
Dayton $97,598 $60,409 $49,023 11.4%
Colorado $97,675 $60,436 $49,041 4.2%
Quinnipiac $99,563 $61,097 $49,481 14.2%
Stanford $99,947 $61,231 $49,571 2.7%
Duke $100,325 $61,364 $49,659 2.8%
Samford $100,526 $61,434 $49,706 13.2%
Oklahoma City $100,825 $61,539 $49,776 5.6%
Mississippi College $101,946 $61,931 $50,037 21.1%
Syracuse $102,107 $61,987 $50,075 11.4%
Drake $102,326 $62,064 $50,126 9.2%
Suffolk $102,844 $62,245 $50,247 14.4%
Southern California $102,872 $62,255 $50,254 5.1%
William Mitchell $102,986 $62,295 $50,280 7.3%
Virginia $103,102 $62,336 $50,307 2.3%
Ohio Northern $104,531 $62,836 $50,641 18.1%
Loyola (LA) $104,924 $62,973 $50,732 19.3%
Pace $105,075 $63,026 $50,767 14.3%
San Diego $105,351 $63,123 $50,832 18.3%
Harvard $105,951 $63,333 $50,972 2.4%
Michigan $105,978 $63,342 $50,978 2.6%
Mercer $106,506 $63,527 $51,101 13.3%
Capital $106,628 $63,570 $51,130 31.3%
Tulane $107,133 $63,747 $51,248 9.7%
Hamline $107,514 $63,880 $51,337 8.7%
George Mason $107,715 $63,950 $51,383 2.7%
Gonzaga $107,940 $64,029 $51,436 16.0%
Chicago $108,521 $64,232 $51,572 1.9%
Penn State (Dickinson) $108,981 $64,393 $51,679 14.8%
New Hampshire $109,322 $64,513 $51,758 10.3%
New York University $109,331 $64,516 $51,760 1.3%
Western State $109,519 $64,581 $51,804 11.6%
DePaul $109,529 $64,585 $51,807 18.9%
George Washington $110,250 $64,837 $51,975 5.3%
Roger Williams $110,547 $64,941 $52,044 17.9%
Pepperdine $110,599 $64,960 $52,056 18.2%
Albany $110,656 $64,980 $52,070 14.2%
St. Louis $110,737 $65,008 $52,089 10.1%
Miami $110,761 $65,016 $52,094 7.7%
California-Berkeley $111,966 $65,438 $52,375 2.4%
Cornell $112,050 $65,468 $52,395 1.0%
Loyola (IL) $113,373 $65,931 $52,704 8.0%
Santa Clara $113,702 $66,046 $52,780 33.0%
Elon $113,902 $66,116 $52,827 27.9%
Denver $114,912 $66,469 $53,063 8.3%
Hofstra $114,917 $66,471 $53,064 7.9%
Ave Maria $115,045 $66,516 $53,094 33.6%
California-Hastings $116,260 $66,941 $53,377 22.1%
Regent $116,397 $66,989 $53,409 12.3%
Creighton $116,459 $67,011 $53,424 9.0%
Columbia $117,098 $67,234 $53,573 2.1%
Chapman $117,259 $67,291 $53,610 19.6%
Nova Southeastern $117,347 $67,321 $53,631 11.1%
Northeastern $117,379 $67,333 $53,638 14.4%
Marquette $118,389 $67,686 $53,874 9.8%
Georgetown $118,918 $67,871 $53,998 5.0%
Western New England $119,714 $68,150 $54,183 20.4%
John Marshall (Chicago) $121,990 $68,947 $54,714 8.8%
Valparaiso $122,769 $69,219 $54,896 20.9%
Catholic $123,026 $69,309 $54,956 13.4%
Stetson $123,167 $69,358 $54,989 7.2%
Widener $123,914 $69,620 $55,163 8.1%
Charleston $124,976 $69,992 $55,411 24.0%
Pacific, McGeorge $125,060 $70,021 $55,431 22.5%
Loyola (CA) $125,546 $70,191 $55,544 17.9%
Seattle $126,157 $70,405 $55,687 18.0%
Willamette $126,572 $70,550 $55,783 13.9%
St. Thomas (FL) $128,135 $71,097 $56,148 17.6%
Golden Gate $128,733 $71,307 $56,288 33.3%
Northwestern $130,452 $71,908 $56,689 7.2%
Touro $131,627 $72,319 $56,963 19.9%
Vermont $131,639 $72,324 $56,966 16.9%
American $132,232 $72,531 $57,104 15.2%
San Francisco $135,802 $73,781 $57,937 32.5%
California Western $137,589 $74,406 $58,354 23.7%
Whittier $137,958 $74,535 $58,440 24.2%
New York Law School $138,296 $74,654 $58,519 13.3%
Barry $141,716 $75,851 $59,317 17.7%
Florida Coastal $151,390 $79,237 $61,574 14.9%
Thomas Jefferson $156,925 $81,174 $62,866 29.0%

Note: Howard almost certainly published its graduates’ annual debt and not their total debts as it was asked, and this table excludes law schools that reported debt levels but not the percent of their graduates with debt.

I reckon that any law school whose graduates would need make $50,000 in discretionary annual income would probably fail the gainful employment rule in short order unless they were elite law schools with low unemployment rates. That’s about $100,000 in mean weighted debt, coincidentally—before interest. That’s at least 50 schools.

Kicking these law schools out of the federal loan program would be in keeping with the Department of Education’s stated goals for crafting the rule—accountability for student outcomes—but Congress won’t let it, which is why I found the comments to the department so galling. Some people claimed that graduate programs should be excluded from the rule because they didn’t face the same “employment challenges and return-on-investment considerations” compared to lower levels of higher education.

Looking at the above table … Right.

Site Update 2015-06-01: Law School Cost Data Page

If you want to know why I haven’t been posting so often, it’s that I’ve been procrastinating! Woo!

I did, however, find time to update the comprehensive Law School Cost Data (1996-) page. Most of the effort is just revisiting law schools’ Web sites to ensure I have their full names correctly. As usual I forgot that law schools have a tendency to place images of attractive women on their main pages, so that wasn’t a total exercise in tediousness.

One thing to note that readers might not know is that even though Lincoln Memorial was accredited after the data submission deadline for 2014, it does have a 509 Information Report (pdf). However, its data are not included in the ABA’s required disclosures Web site, so if you’re into law school data, you’ll need to get that file separately and incorporate it into your spreadsheets.

Peace.

‘Human Capital’ Theory Doesn’t Explain Law Grad Earnings

…Is on The American Lawyer.

You can take a wild guess as to its topic.

CLASS OF 2014 EMPLOYMENT REPORT (Updated)

The ABA released the class of 2014’s employment information last week, and there are enough differences to warrant an update to this post, namely that I’d forgotten that the ABA accredited Lincoln Memorial University late last fall. Most of the figures remain the same, but to keep Web traffic to one post, I’m retaining the original “leaked” version at the bottom but striking it out. I’ve also changed the title.

We have 43,195 people who graduated from an ABA-accredited law school outside of Puerto Rico between September 1, 2013, and August 31, 2014. The employment information is good as of March 15, 2015. Readers likely know that the ABA now collects data as of ten months from the typical graduation date rather than nine. I don’t think there’s too much of an impact by the change except to applicants this year who might have wanted to rely on the data.

The tables are below the fold to conserve blog space.

Continue reading

Law School Diversity Improves at Schools With Worst Job Outcomes

…Is available for your reading on The American Lawyer.

As a side note, irrespective of what you think of Aaron Taylor’s research, please realize that his or those like will not be possible in the future if the ABA Section of Legal Education and Admissions to the Bar’s Data Policy and Collection Committee changes law schools’ entering credentials reporting requirements (pdf). The committee wants to replace matriculants’ 75th, 50th, and 25th percentile LSAT and GPA data with large tables. This change will make the new data incompatible with the years of previous information that was presented in the Official Guide. I’m in favor of backwards compatibility for data, and I sent the committee a comment saying as much, but if the committee decides to make the changes anyway, much will be lost.

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)

********************

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

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.

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