The Lemmings Are All Right: Richard Matasar Responds to David Segal

Anyone who read last weekend’s New York Times piece, “Law School Economics: Ka-Ching!” by David Segal should also take the time to read NYLS dean Richard Matasar’s response, “Law School Cost, Educational Outcomes, and a Reformer’s Agenda,” on NYLS’s website. Matasar keeps his cool and provides the written pieces he sent to Segal before the article’s publication. Today’s special is what exactly caused NYLS’s large class of 2009.

Segal:

[NYLS] increased the size of the class that arrived in the fall of 2009 by an astounding 30 percent, even as hiring in the legal profession imploded.

Matasar:

For the prior 3 years our yield rate—the percentage of students who received offers, who accepted those offers, and enrolled—had been relatively steady. From 2008 to 2009, however, the yield rate increased by 10 percent, meaning that even though we accepted fewer students than the prior year (approximately 150 fewer), 170 more students enrolled. While we can’t say with certainty why this happened, we can look to the economic downturn, the opening of the new building which was receiving rave reviews, and the fact that we were coming off of a record high bar pass rate of 93.6 percent as reasons why more applicants chose to come. Again, enrollment can be very unpredictable.

So: Segal argues the 2009 1L bounce was deliberate and reckless on NYLS’s part; Matasar counters that it’s not NYLS’s fault people were clamoring to go there for its building, high bar passage rates, and law school’s low opportunity cost.

Except they weren’t.

Aside from the fact that the economic downturn translated to only a slight bump in law school applicants, NYLS saw none of this. Indeed, according to Official Guide data NYLS suffered a 25% applicant drop in 2009, complicating the story.

Instead of cobbling together an HTML table, here’s a screen capture of NYLS’s incoming classes from 2004 to 2010 according to the Official Guide.

So full-time applicants dropped 28% and part-time applicants 11%. Segal didn’t research this, and Dean Matasar has no reason to tell anyone. At some point in 2009 NYLS’s admissions office must have realized there was a problem, and it altered its acceptance strategy accordingly.

Starting with part-time students, it looks like Segal is right: NYLS deliberately accepted more applicants predicting they would matriculate. For full-time applicants, one might think that by extending fewer offers than in previous years, NYLS was expecting a smaller incoming class, but that wasn’t what it did. Bear in mind the “Offer %” was 10% higher than in previous years despite the lower numeric acceptance rate. Had it accepted 45% of its full-time applicants, with 20% matriculating, it would have an incoming class of 306, similar to 2006, which was an unusually low matriculation year for NYLS.

When a drop in applications occurs, the quality of the applicants (LSAT & GPA) drops as well. The bell curve contracts and shifts rightward towards zero. Looking at the full-time class of 2009, I characterize what happened to NYLS as a “downshift.” NYLS had to compromise accepting students with lower-than-usual credentials against under-enrolling its incoming class. It accepted 212 fewer applicants, but it inaccurately predicted the matriculation yield. Consequently, Matasar is right to the extent that NYLS didn’t predict the willingness of people who got B’s in college to go to NYLS over those who got B+’s.

I suspect geography explains the downshift. The only other law schools in New York State that accepted the kinds of students that NYLS did in 2009 were Albany, Syracuse, and Touro. Albany and Syracuse are mid-state, and Touro is beyond Gatsby Country on Long Island, making it more attractive to New Jersey-based applicants.[i] In 2009 NYLS accidentally discovered that it is in a prime location to serve the market for B-average prospective law students. In 2010, NYLS adapted again by accepting its usual number of part-time applicants, roughly, but it reduced its numbers of offers despite a slight increase in full-time applicants. Its matriculation yield was still 10% higher than before 2009, but the incoming class largely recovered to median B+ college students, though the high-end GPAs were slightly lower. It will be interesting to see what happens to NYLS in fall 2011. However, of the 2,000 or so fewer NYLS applicants in 2009 and 2010, some of them may have realized a law career would not be available to them if they went to NYLS.

The good news that Segal missed and Matasar declined to mention is that not all lemmings jump.

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[i] Supposedly West Egg is a parody of Great Neck, which is northwest of Central Islip, but it was a good line so I couldn’t pass it up.

Two Quick Comments on David Segal’s Portrait of Richard Matasar

(1)  Law schools cannot self-terminate.

I suppose it’s safe to say that when NYLS dean Richard Matasar stepped down, I was easier on him than David Segal is in today’s NYT piece, “Law School Economics: Ka-Ching!” My personal opinion that I realized after I published my piece is that if you want to be a reformer who acts against your own interests, you must show some noblesse oblige. That means you do not criticize your peers’ practices while making half a million dollars off your students’ debt. You take a voluntary pay cut to show that you are serious, and you make enrollment cuts like Albany Law School supposedly did over the last decade. If you get ousted, you go back to teaching. At some point one must be willing to lose for one’s principles. Matasar’s ineffectualness/perceived hypocrisy never surprised or shocked me. To me it’s obvious that non-Ivy League law schools have no hope of internal reform without losing their place in the U.S. News rankings and by consequence access to high LSAT-scoring applicants, for they should realize by now that the legal education system has over-expanded and will certainly contract. If they’re not going to make symbolic gestures personally, reformers at lower status law schools might as well save their breath and tell the board of trustees that it’s time to close up shop.

(2)  Demand for legal education and demand for lawyers is not the same thing. One must fall.

Segal writes:

[T]here’s no business like the business of law school. The basic rules of a market economy — even golden oldies, like a link between supply and demand — just don’t apply. Legal diplomas have such allure that law schools have been able to jack up tuition four times faster than the soaring cost of college. And many law schools have added students to their incoming classes — a step that, for them, means almost pure profits — even during the worst recession in the legal profession’s history.

It should be clear: demand for lawyers is separate from demand for law degrees, and the ABA’s goal of law as an elite profession contradicts its concurrent goal of law as a democratic profession open to the masses (especially minorities, which is the ABA’s biggest insecurity). That’s the basic problem, and as J-Dog opined before taking a blogging break, the irreconcilable conflict entails the solution: Either:

(a)   A Gorbechev figure takes over at the ABA and initiates law school accreditation perestroika that circumvents antitrust concerns: minimum LSAT score requirements, mandatory experience in a legal position, or mandatory undergraduate course streams. Such reforms would smash the legal education system, and enrollments would fall to what they were in the 1960s. Law remains a selective, elite profession.

(b)  Water down legal education requirements (especially the costly wasteful ones) to the point that nearly anyone can get a law license provided they meet certain minimum criteria. Law becomes a democratic profession.

Until some kind of formal change is adopted, expect more legal education volatility: wary applicants, warier bondholders, and defiant law school behavior (like Vermont’s increasing its tuition and LL.M. students to compensate for declining JD enrollment).

Quick Link: National Law Journal Praises Richard Matasar as He Steps Down

Karen Sloan, “Reformer Dean to Step Down after Long Tenure at New York Law School,” in the National Law Journal

Sloan proclaims:

Matasar has been one of the few legal educators publicly supporting controversial proposals to change the American Bar Association’s law school accreditation standards, including removal of what many law professors interpret as a tenure requirement.

Matasar has argued that law schools need the flexibility to experiment with new ways of delivering legal education, including untenured faculties made up primarily of adjunct professors. Those views haven’t always been popular with legal educators who support the traditional model, and some have accused Matasar of pushing cost cutting at the expense of quality.

I’ve always been cautious about Richard Matasar. Yes, he was arguing against his own interests in articles like, “The Rise and Fall of American Legal Education,” while he “oversaw a $40 million capital campaign, the opening of a new law school building in Manhattan’s Tribeca neighborhood,” served on the board of the student loan company, Access Group, and in his tenure NYLS supposedly created a practice-oriented curriculum that costs as much as Harvard’s. But when he says things like this…

Legal education does cost too much, Mr. Matasar said, mainly because it is “grossly inefficient.” Schools could cut costs by stratifying—offering, as a friend characterized it to him, a “Motel 6″ education with few bells and whistles, in which practicing lawyers teach many of the courses, as well as a “Ritz-Carlton” version taught by full-time, tenure-track professors. Neighboring schools could share library, faculty, and other resources, he said, adding, “Does every law school need an expert in the law of Timbuktu?”

…I would get annoyed. Legal education costs too much because law schools are wholly dependent on the student loan complex. The government loans in particular are a privilege, not a right. If the head of the Department of Homeland Security said, “Yes, we’re grossly inefficient, we’re really redundant to the Defense Department, but we still deserve our full budget from tax dollars,” she’d be fired and DHS would be reassessed. By contrast, law schools can charge whatever they want without any duty to the taxpayers transferring their wealth to them and subsidizing their graduates’ IBR plans. He would also sometimes rebuke law firms for not hiring graduates from non-elite law schools even though the legal profession would do just fine if NYLS closed its doors. Indeed, I have hearsay evidence from an NYLS lawyer that Matasar is in favor of shutting down law schools. One wonders why he thinks NYLS would be exempt, or more cynically, whether he thinks it isn’t and he’s jumping ship.

Task Force to NYSBA and Law Schools: More Debate + Transparency Please

Instead of the clichéd approach of finger-pointing between and among law schools, employers and the bar, the Task Force recommends an approach in which the various sectors and stakeholders work together to undertake the professional formation of young lawyers. [Report from the NYSBA Task Force on the Future of the Legal Profession, Page 38]

On Friday, the New York State Bar Association’s (NYSBA) Task Force on the Future of the Legal Profession published its report on the NYSBA website. Unlike your typical ABA committee, the Task Force wasn’t crammed full of law school deans along with token general counsel; only five of fifty-eight members were law faculty, including New York’s legal education prognosts, Prof. Rachel Littman of Pace and Dean Richard Matasar of NYLS. This is as real a deal as you’ll get from a very large non-integrated state bar association.

Excluding the executive summary, the Task Force devoted about two-fifths of the 102-page report to legal education and lawyer training, and it has some worthwhile ideas like mandatory mentoring. Skipping to the meat on pages 66-67, it appears the Task Force finds plenty of poo to fling around. I’ll itemize my response:

Helping New Lawyers Form a Professional Identity

…

IV. Attending to the National Debate Regarding Law School Debt

Recent commentators within and outside legal education argue that the current structural and business model of law schools is no longer sustainable. These commentators call attention to the burden our current economic model places on unsuspecting law students while law school administrators point out the stranglehold that U.S. News & World Report’s criteria and rankings have on law school finances.

(1)  I find it hard to sympathize with the law school administrators’ hatred of U.S. News. Law schools’ core business is training lawyers, not earning a magazine’s approval.

(2)  Whenever someone says “X” is unsustainable, I take it seriously, whether it’s someone warning about an $8 trillion housing bubble or someone mistakenly thinking the national debt is going to wipe us out. Such claims demand prompt, correct responses. So, the NYSBA Task Force’s shoulder-shrug at people claiming the legal education system is unsustainable confuses me. If true, the Task Force should be sounding the alarm before thousands of students matriculate to New York’s fifteen law schools this fall. If not, the Task Force needs to say why not.

Escalating law school tuition, drastically increased student debt, and the high probability that most debt-burdened law graduates will not quickly obtain high paying employment has not only created an economic nightmare but a real moral and ethical challenge for law schools and the profession. [Emphasis original]

(3)  Spot on. Watchya gonna (recommend the NYSBA) do about it? Answer further down.

Law schools must continue to examine the real cost in human terms that flows from new graduates carrying such large debt loads and ensure more realistic financial expectations for those entering law school by providing more transparency in employment data. However, a balance needs to be struck. Law schools cannot afford to be saddled with additional, costly regulatory requirements, nor should applicants from disadvantaged economic or diverse social backgrounds be discouraged from entering the profession in the attempt to create “realistic expectations.”

(4)  “Continue to examine”? The truth is that no matter how much a law school frets over its debt-burdened graduates, it took on none of the financial risk—not just the information risk that transparency attempts to equalize—but the financial risk of its graduates’ failures. Law schools aren’t going to examine “the real cost in human terms” any more than they already do. Either their graduates are employed or they’re not, and law schools get paid from current law students not former ones.

(5)  I’m not here to do the transparency people’s work for them, but as far as I know, they just want the raw data law schools already collect and transmit to NALP made directly available to applicants. This is not a “costly regulatory requirement,” especially if a magazine can have a “stranglehold” on their finances.

(6)  The “economic or diverse social backgrounds” stuff is a red herring for a few reasons:

1. The deans of the non-ABA-accredited Massachusetts School of Law tout they can do the job of a private law school for $15,000 per year. I’m not here to do MSL’s work either, but it’s contradictory—not to mention confusing—for the Task Force to claim that law schools are strapped for cash appeasing U.S. News and then lament how we need the poor and the diverse to pay as much as law schools feel like charging to enter the profession.
2. “Realistic expectations” does not mean patronizing the poor and the diverse: why would they want to enter a profession that doesn’t provide them with upward mobility or meaningful social visibility? Why would they want to jump into an “economic nightmare”?
3. If law schools were so concerned about the profession’s accessibility, I wholeheartedly invite them to change their business model from unlimited federal debt financing to equity investment such as human capital contracts. Law schools could be paid from ten percent of their graduates’ incomes for ten years after graduation. What would that do to those law schools that care more about their U.S. News ranking than providing a valuable education? To quote Michael C. Macchiarola and Abraham Arun, “If a school doubts its own value proposition, it might think about becoming an unschool; and we will all be better off…No one should be overly sympathetic to the plight of these schools; expensive, lower-tier schools in their current form never represented a good deal for non-upper income students to begin with.” [129-130]. Ouch.

At the same time, law firms that decry the lack of practice-ready law graduates need to examine whether their own hiring criteria are based on elitism or fundamental lawyering ability and skills. For example, do large-firm employers request interviews with those law students who have excelled in clinical experiences, or do they simply emphasize more heavily those who have the best GPAs from the most prestigious institutions or who have law review credentials?

(7)  I suspect the Biglaw example is another, albeit unintentional, red herring to distract us from the oversupply problem. It’s one thing for employers to capriciously hire graduates based on pedigree when others are demonstrably better (theoretically the market would correct for their incompetence), and I suspect this happened until the recent past. It’s another thing for employers to use credentials to filter hopelessly large stacks of resumes to save time. Here’s something for law school administrators to internalize as they’re being choked by U.S. News: Legal employers don’t need you; they are under no obligation to hire all of your graduates no matter how qualified they are, and if you fail, as I predict many will, you will not be missed.

Yes, that's actually what Stanford said to justify its 5.75% tuition increase for Fall 2011.

 

The Task Force’s recommendations aren’t bad (the uniform bar exam and psychometric testing are good ideas [page 69]), but it’s all you’ll get from an authority without power. As for what the Task Force thinks the NYSBA should do about its “economic nightmare and moral and ethical challenge for law schools and the profession”: participate in the debate and ask the law schools to be transparent.

V. Support Appropriate and Realistic Entry Into the Profession

15. The Task Force recommends that NYSBA closely monitor the issue of law student debt. The issue of debt, combined with the decreased hiring due to the economic downturn, has a tremendous impact on the future of the legal profession. NYSBA should play an active role in all aspects of the national debate regarding law school debt and full disclosure of tuition costs and job prospects, including working cooperatively with other entities to develop ways to reduce the impact of student debt on the future of the legal profession and to promote greater transparency regarding the cost of legal education and prospects of employment.

…

18. All law schools should provide accurate and meaningful information to entering and current students regarding the job market, career options, and their placement of recent graduates both at the J.D. and at the LL.M level. Self-reported information should be audited and include data concerning recent graduates hired by private sector employers, including size of firm, starting salary, type of position (e.g., partnership track, staff attorney, temporary, other), geographic location of employer, substantive area(s) of practice, and diversity, particularly at the leadership and equity-partner levels. [Pages 71, 72]

I’d like to see the NYSBA play an active role in the national debate regarding law school debt.

If you can’t tell whether I’m being sarcastic, the good news for you is that I can’t either. Bar association heavyweights have had plenty of time to educate themselves on the law school debt crisis, and while the Task Force should’ve mentioned Income-Based Repayment as an alleviation, there really isn’t a lot left to debate. No one seriously believes law schools are undercharging their students, aside from law schools like Stanford recently. Nor does anyone seriously believe demand for legal services will increase rapidly to accommodate all the juris doctor-holders who want to enter or desire reentry to the profession.

As for transparency, I’ll say it again: law schools must take on the financial risk of their graduates’ failures not just the information risk. Even with full transparency post-bubble, there will still be underemployed law graduates whose tuition effectively subsidizes the educations of their successful classmates. Admittedly, I’m more partial to human capital contracts than Macchiarola and Arun’s 10-year put option, but the effect would largely be the same. Changing the financing mechanism actually makes transparency easier as it would be a natural function of law school revenue collection.

After listing some more admirable recommendations (I don’t mean to belittle them, but I can only write so much), the Task Force backstabs its readers’ in the dignity:

VII. Work With U.S. News & World Report

21. The Task Force recommends that NYSBA meet with representatives of U.S. News & World Report to discuss current methodologies and to proposed changes to the U.S. News methodology that are aligned with improvement to the profession outlined in this Report. [Page 73]

Bob Morse accompanied by his merry half-dozen subordinates create nationwide rankings for all of higher education. Such is his power that the NYSBA Task Force feels it’s necessary to negotiate with him over his ranking methodology. Of all the players who least deserve a seat at the table when discussing the Future of the Legal Profession, it’s a magazine, yet the Task Force thinks the NYSBA has some kind of leverage over Bob Morse. It does not. U.S. News will keep doing what it can to sell magazines, and Bob Morse has no interest in the legal profession’s future beyond his own and his employer’s valid profit motive. If his rankings have a “stranglehold on law school finances,” it’s because law schools can raise tuition indefinitely without bearing any risk for failing to provide value. Paragraph 21 indicates that the Task Force doesn’t want to consider that.

I didn't know U.S. News looked like this either.

 

The New York bar’s situation isn’t enviable. New York should be infamous for increasing its number of law schools by 50% during a period of economic and demographic decline in the 1970s and 1980s, and there’s no evidence suggesting that the newer schools are remarkably good at exporting graduates elsewhere, though CUNY is unusually cheap and Cardozo has a good reputation considering it’s, like, four in law school years. New York’s thirteen private law schools are all over the average in cost, though some of them are very well regarded, and living expenses are very high. New York’s law schools, especially the disreputable ones in the southern part of the state, are ticking tuition time bombs. The Task Force wants the bar to avoid the “clichéd finger-pointing between and among law schools, employers and the bar,” but it won’t. Put simply, the Task Force can’t suggest numerous changes to lawyer training without taking a concrete opinion on the legal education system’s sustainability. Thus, it seems pretty clear that those pointing fingers at the law schools are right.

Will Fewer LSAT-takers Mean Lower Tuition? (All the World Wonders)

James B. Levy, “December LSAT test-takers drop 16.5% from last year; first time test-takers down 22%,” in Legal Skills Prof Blog

J-Dog, “LSAT, Law School Applications Down 10+% Year-over-Year” in Restoring Dignity to the Law

Knut, “Are They Finally Paying Attention?” in First Tier Toilet !

In the light of this disturbing picture, one might expect that law schools are facing an imminent market collapse – declining applications, few students willing to take on financial risk, the need for significant internal cost savings, price cutting, and other similar measures. Surprise, surprise, surprise! The demand for legal education has remained strong throughout the economic downturn. Applications at many schools are at record levels. Enrollment has been solid, with many schools recording historically high yields of new students. –Dean Richard Matasar, New York Law School, October 2010

Surprise, surprise, surprise! Despite the profoundly countercyclical nature of legal education, demand at the LSAT boundary is dropping. First-time test-takers we would expect to be signing up to take the exam are opting out. In October 2010, 54,345 people (-10.5% from 2009) took the exam, and in December 2010, 42,096 (-16.5% from ‘09) took it. LSAC even reports applications are down 12% for Fall 2011.

Although the number of test-takers has only dropped to 2008ish levels (whatever that means for the market), the question is: Will tuition drop already?

If the number of new test-takers has dropped and the number of repeat takers is up, then the overall number of people in the game has dropped from the previous year or two, shrinking the applicant pool. The only comparison I have is from Astronomy (wha??), the eliminationist Drake equation to test the possibility of extraterrestrial life (that’s similar to terrestrial life).

N (new law school students) = College Degree-Holders * Proportion of Test-Takers * Proportion of Subsequent Applicants * Proportion of Accepted Applicants * Proportion of Subsequent Enrollments

Obviously over-stylized, we really need only look at enrollments, but those data aren’t available yet. So the question we can ask is: assuming decreased Test-Takers leads to decreased Enrollments, will that lower tuition?

Hmm. Not across the board. Bear in mind that the “Proportion of Test-Takers” includes repeat takers who want a better score. This suggests that the distribution of scores for Fall 2011 applicants will shift rightwards towards 180, assuming that anyone who did badly twice in a row is less likely to apply at all than anyone who did badly in the past but did better in a retake—a fair assumption.

This phenomenon occurs every year, but it’ll be more pronounced in the future.

From this I believe that U.S. News’s top-tier schools will see more applicants and better overall incoming classes than they have in even the recent past. On that level, law schools that have been able to collect high LSAT scorers will cement their positions and end up competing with schools receiving similar applicants. Schools accepting lower-scoring applicants will have to make do with what they get. Incidentally, one hopes that the smaller, stronger applicant pool will diminish claims by legal professionals that under-motivated applicants are pursuing law degrees for the “wrong reasons.” (Not that I was ever persuaded by them to begin with, but…)

For the near future, I predict a three-tier law school distribution will emerge: law schools will be top-tier, average, or left behind.

Left Behind: These schools will be the most likely to close due to low enrollments, and in the meantime they will see sharp reductions in tuition to function.

Average: These schools will sputter, their tuition increases will plateau and retiring (voluntary or not) tenured faculty will not be replaced. If they are still nonperforming, they’ll also fail.

Top-Tier: Tuition will continue rising as these schools compete with one another provided applicants continue to believe they are good investments.

The real question returns to this blog’s premise: what is the ROI of a law degree? If the investment cost drops, then the return need not be so high. If the return rises, then the investment isn’t so onerous. In our world—a world in which blogs called First Tier Toilet ! warn potential applicants that top-tier schools are a risk—we can tell that many of the Left Behind and Average schools will not survive no matter how much they cut tuition. I also suspect that surprising numbers of graduates from top-tier schools will still find themselves in debt without gainful legal employment. When the return is zero, the degree is still nonperforming. We need only wonder how rotted out the legal education system is.

The Law School Tuition Bubble predicted this back in October, calling it “Scam Blogger Victory”:

0Ls figure out that a large number of law schools are nonperforming, send their applications to either far cheaper alternatives or do-or-die to U.S. News’s top tier schools, and if they’re rejected, they go back to their jobs at Target.  Law schools fail or drop prices.

The perverse problem with “V-SB Day” is that it’s not a solution to the problem (beyond the 0Ls it saves from debt and unemployment) but an interregnum. Worse, since I made those predictions it occurred to me that while reduced law schools is certain and preferable, it doesn’t entail immediate reform. Part of what makes the system so dysfunctional is the large number of nonperforming law schools behaving as Super Law Schools, which I mock as those in landlocked states offering Admiralty Law course streams. As the number of law schools decreases—absent reform—reform becomes more difficult. In other words, obsolete pedagogy becomes further entrenched, course offerings continue to underprepare students for practice, and tuition remains too high. The better law schools absorb the latent success of the failed law schools and as a result they become more powerful and can demand better OCI opportunities from employers. So what we’re seeing isn’t the beginning of the end but the end of the beginning.

It’s like Highlander, but with your tax dollars and students’ futures.

Now if I can only work Zardoz into the LSTB.

The Law School Tuition Bubble: Tuition Increases Law School-by-Law School from 2005 to 2011, Part 1

As a member of a learned profession, a lawyer should cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work to strengthen legal education. – Wisconsin Rules of Professional Conduct “Preamble: A Lawyer’s Responsibilities,” ¶6, (WI SCR Chapter 20)

Introduction

Last May, I started the Law School Tuition Bubble for two personal reasons. One was to maintain my writing skills while I was unemployed (and ironically I found work around the time I started writing). The other reason was to contribute to the legal profession. At the very least, I could fulfill the Wisconsin Bar’s directive: reform the law and improve legal education. This blog fulfills that requirement.

My goal was to keep the candle alive on the supply side of the issue. Other reformers focus more on the demand side, gathering better graduate employment statistics and then transmitting them to prospective law students. Coverage on legal education’s ills has crested into the public’s knowledge over the last several months, but the tuition increases that animate the problem and their connection to the nondischargeability of student debt in bankruptcy, whether protected by income-based repayment, frequently appear as an afterthought.

I often run across quotes like these:

Tuition costs at law schools accredited by the American Bar Association have doubled in the last nine years. Total inflation during that same period was less than 25 percent. –Dean Michael Coyne, Massachusetts School of Law (non-ABA)

It’s always given as a statistic, even by the ABA. More sophisticated writers will distinguish between the causes of tuition increases in public versus private law schools. But it’s always a statistic. Somewhere someone has the spreadsheet with all the law schools’ tuition increases on it. I looked myself and it’s impossible to find it on the Internet.

So I built it myself.

Literature Review

As always, every discussion of the tuition bubble requires distinguishing a bubble from what I call a bottleneck. Law school staff (and sadly even progressive economists whom I agree with over just about everything else) look at the problem in terms of the economy. Every industry is doing badly, they will say. It’s just “cyclical” unemployment. Assumedly, as the economy improves, lost generation attorneys will be reabsorbed. In the meantime, unemployment remains high, the country is saddled with detritus of an $8 trillion housing bubble, and the federal government refuses to intervene on debtors’ behalves. Worse, structural problems plague the legal sector, too many attorneys chasing too few jobs, even if the economy reached a new normal.

You need not take my word for why I believe the bottleneck argument is false. Students, you are now enrolled in the Law School Tuition Bubble’s eponymous graduate-level seminar. Here is your syllabus culled from the Internet. I think that’s fairly comprehensive. If readers would like to add anything, let me know, and Professor LSTB will assign it.

• “Competition for job openings should be keen because of the large number of students graduating from law school each year,” and, “Job Outlook: About as fast as the average employment growth is projected [for lawyers], but job competition is expected to be keen.” Bureau of Labor Statistics, “Lawyers,” and, “Judges,” Occupational Outlook Handbook, 2010-2011 Edition.
• The ratio of attorneys per capita has risen from 1:695 in 1951 to 1:264 in 2000. Jason Dolin, “Opportunity Lost,” California Western Law Review, Vol. 44, 219-255 (2007).
• The legal field has not grown along with the rest of the economy. Amir Efrati, “Hard Case: Job Market Wanes for U.S. Lawyers,” The Wall Street Journal, September 24, 2007. [I believe this article is slightly crisper than David Segal’s recent and noteworthy New York Times piece.]
• Over the last twenty years, the distribution of graduate starting salaries gas shifted from a common mode of $30,000 per year to a bimodal distribution with a minority of graduates (about 25%) earning more than $160,000 and 34% of graduates earning between $40,000 and $65,000. NALP only reported 19,513 salaries in this stark 2009 graph. No one knows what the remaining 25,000 law graduates are earning, if anything.
• ABA records indicate that around 1.4 million juris doctors have been conferred in the period between 1968 and 2008. By contrast, the BLS reports 759,200 people employed as lawyers and 51,200 people employed as judges (total 810,400). No one knows how many people entered the field via non-ABA accredited law schools, especially in California, nor does anyone know if the remainder of those with ABA law degrees are gainfully employed or even if their law degrees helped them get their current jobs. No one knows how the employment situation is since 2008.
• The ABA also collected data from state bar authorities reporting 1,180,386 attorneys licensed and active within their jurisdictions as of 2009. No one has explained the gap between the ABA’s numbers and the BLS’s.
• The ABA’s MacCrate Report, published in July 1992, finds that law schools mostly do not adequately prepare law students for practice. Things have not changed since then.
• Using comparable back-of-the-envelope calculations, Fluster Cucked independently arrived at similar conclusions.
• Shilling Me Softly diligently reports the growth in Legal Process Outsourcing.
• Practioners: Jerry Kowalski informs readers that law jobs are down to 1991 levels. The Legal Dollar provides similar analysis.
• Growing numbers of law professors, likely too many to track, publically agree on these issues to varying degrees: Professor Bainbridge, Richard Sander, Steve Harper, Maimon Schwarzschild, Bill Henderson, Herwig Schlunk, Christine Hurt (whose article helped inspire this blog), and my favorite on the subject Brian Tamanaha +1.
• Dean Richard Matasar of New York Law School has long predicted the end of easy federal money to law schools. Richard Matasar, “The Rise and Fall of American Legal Education,” New York Law School Law Review, Vol. 49, No. 2, 465-504 (2004-2005); “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?” New York State Bar Association Journal, October 2010, 20-26.
• On the good news side, the Law School Admissions Council (LSAC) reports fewer LSAT takers in 2010 than in the previous year. Assuming legal education is highly countercyclical, this may indicate that the reform movement is successfully discouraging people from going to law school when it has a low return on investment.

Your three-page critical reviews are due next week.

So what?

What’s the benefit of knowing law schools’ tuition increases severally if we know them jointly? Shouldn’t hypotheses accompany research? Yes. The data I have collected tell us nothing we don’t already know. Although, all we can find easily is the post-aggregated statistics. Partly, this is an exercise in ensuring this blog lives up to its name. Those of you who want a tuition bubble, here is your tuition bubble.

More importantly, I think the statistics disconnect people from the reality of the crisis. Older practitioners can compare what law schools are charging today to what they paid. Younger graduates can see how much tuition has increased since they’ve left (even my recent successors’ fates sadden me). Students can envy what their recent predecessors paid, and hopefully prospective law students can grasp the bigger picture, especially since they don’t really know what they’ll be paying until they’re asked to pay it.

Data Collection Methodology:

I’ll explain how I gathered the tuition data autobiographically to explain the scope of the project.

I started collecting the data from U.S. News’s website, which gave the 2009-2010 school year’s tuition (with a few exceptions). Then came the hard part: finding the pre-2010 tuition data. At first, I went to law schools’ websites and went through the Wayback Machine, but this proved frustrating and took too much time. Then I made a breakthrough. The LSAC maintains data reported by law schools to the ABA going back to the 2004-2005 school year. I downloaded all 970 pdf files, 80.2 megabytes in all, and will provide them to those who don’t want to go through the LSAC themselves. Finally, to gather data for the 2010-2011 school year, I visited every law school’s website, seeking its tuition data.

Most of what I learned from the data-collection experience occurred while sifting through the websites. I can’t imagine too many other people having done this, save Nando from Third Tier Reality. It usually took only two clicks to find a law school’s current tuition, unless it was available via a pulldown menu. However, applicants trying to assess next year’s tuition are out of luck (except University of Hawaii, which estimates its 2011-2012 tuition). Law schools’ sites are well-designed. Eerily like a for-profit university, finding out how to apply for or obtain financial aid is far easier than finding the law school’s actual cost. That prospective law students can’t finance their own way through law school is usually taken as a given, not as a problem. How current students are given notice of tuition increases, I know not.

Notes on the Data:

The critical rule in empirical research is accuracy and precision. Accuracy refers to the degree to which the observations accord with the actual measurements, and precision refers to the reproducibility of the observations. These data are precise to the extent that one can look over the three sources and compare them, and I’m pretty damn good at data entry so I doubt there’re any mistakes. As to accuracy, because the data come from three distinct sources, they may vary. I’ll go into them.

• The LSAC data come directly from the ABA, and for the first five years, they should be consistent unless stated otherwise. For instance, sometimes, I conclude that a law school’s semester tuition is reported instead of its annual tuition.
• U.S. News data are reported by the law schools to the magazine. I doubt they differ from what the ABA reported in the LSAC data. When the LSAC publishes its law school reports for 2011, I’ll reenter those into the 2009-2010 school year.
• Law School websites are far different from the other two data sets. Often readers may find that tuition dropped in the 2010-2011 school year over the 2009-2010 school year. This is not evidence the bubble is deflating! Rather, I took the bald tuition statistic the law school published and excluded fees whenever possible. Law schools are very inconsistent in how they measure fees. Some include them in tuition, others separate them, and still others itemize them. Law schools are very much like airlines, which pay a tax based on fares, so they add numerous, sometimes vague, fees (e.g. a “9/11 Security Fee”) to retain income. By separating tuition from fees, law schools appear cheaper than they actually are. As a result, when the 2012 edition of U.S. News is published this year, I will update these data as well.

I’ve organized the data by state in alphabetical order, noting whether the school is public or private. Along with the tuition, I also calculated the percent increase over the consumer price index according to the Bureau of Labor Statistics. This is not the place to discuss whether you think headline inflation is more relevant, or if you think CPI doesn’t mean anything anymore because the government switched to hedonic measurements in the last several years. More inflation is actually a good thing for those with massive non-dischargeable debts.

For private schools, a little treat for you. Using the regression coefficient for each law school’s tuition increases, I projected what the law schools’ tuitions will be five and ten years from now. Unsurprisingly, it’ll get absurdly expensive in the future. Note: I’m assuming tuition is increasing linearly rather than exponentially. If it’s growing exponentially, which may in fact be the case, then the problem is nightmarishly worse. I may recalculate the predictions using exponential regression after the next LSAC/U.S. News publishing cycle gives me an opportunity to update the data, which should be before the summer. So remember, what you see is a conservative estimate.

In Part 2, I share the data.

The Village Green Preservation Links—NYLS Dean Writes on the Tuition Bubble

New York Law School Dean and President Richard A. Matasar, “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?” [bad link!] in the New York State Bar Association Journal

Typically, law school deans’ presence on this blog highly correlates to face-palmed criticism.  Dean Matasar ups the ante by not completely ignoring the reality of the tuition bubble.[i][ii] I say “not completely” because he tethers himself to two assumptions that I wish were true but probably aren’t: (1) That prospective law students are well-informed, and (2) that uncertainty of legal education’s ROI makes it too soon to tell whether we should be discouraging people from going to law school.  If you can find a copy (or politely ask me to violate all copyright in the name of knowledge and scan it and e-mail it to you) it’s actually a very good read.

(1) Regarding students’ information, he writes:

[O]ne might expect that law schools are facing an imminent market collapse – declining applications, few students willing to take on financial risk, the need for significant internal cost savings, price cutting, and other similar measures.  Surprise, surprise, surprise!  The demand for legal education has remained strong throughout the economic downturn.  Applications at many schools are at record levels.  Enrollment has been solid, with many schools recording historically high yields of new students…Law students are not ignorant.  Today they have access to more information than ever, information that is tested daily in the blogosphere for accuracy, which is producing even greater transparency about law schools and employment.  Students do not ignore costs.  (21)

[Disturbingly, there] is a widespread belief that students are intentionally misled into thinking that they all will receive whatever employment they seek; that they could have a BigLaw job if they want one.  Given the pervasiveness of stories of law firm layoffs, popular law-debunking sites that catalogue the plight of law school graduates, the straightforward warnings that senior students give to applicants, and even honest communication from law schools to applicants, students today know, or should know, that banking on a BigLaw job is risky. (24) [My emph’]

Do 0Ls really “know” this??  Recently, Heather Diersen and Frank the Underemployed Professional, upon assessing the masses of unemployed and disenfranchised JDs, both concluded they do not.  There are multiple explanations for why people defy what Dean Matasar knows or thinks everyone should know by now—0Ls and 1Ls: (i) believe the economy will recover for them in 2013+, (ii) suffer from cognitive dissonance, (iii) fear the stigma of quitting, or (iv) believe they should take one thing at a time (first your torts exam, then worry about your job hunt).  I don’t think Dean Matasar considered these possibilities.  I can see why he wouldn’t want to.

(2) On legal education’s ROI:

The return on investment is not merely a short-term measure; it depends on lifelong earnings as against alternative paths, discounted by the opportunity costs of delaying entry to the workforce.  It is simply not possible to know in advance whether the long-term financial return on a legal education will pay off until a number of years have passed…However, I have no doubt that the value of a legal education will continue to erode in the years ahead, especially if the price of that education continues to rise at a higher rate than the expected return on that investment. (22) [My emphasis]

Partially agree.  Yes, it looks bad right now for most contemporary law grads and prospective students.  It may turn around, and I hope in 15 years reformers and blamers can chuckle about their career arcs.  But I think Matasar misunderstands the point: We calculate ROI because we’re uncertain of a choice’s outcomes.  We place our bets based on the best information we have, and even if it turns out we’re wrong, at least it won’t be because we misunderstood the risks.  Right now, law school is a certain risk, and graduating into unemployment remarkably impacts one’s life earnings.  Nondischargeable student debt makes it worse.  Discussing risk reminds me of Herwig Schlunk’s crucial footnote 16, justifying his high discount rates for a legal education’s ROI requiring a six-figure starting salary in most cases:

Law students may not appreciate how volatile attorney income is, even in the case of established attorneys.  Not all associates become partners.  Not all partners become senior partners.  Law firms blow up, leaving non-rain-making partners in the lurch.  In-house attorneys are subject to all the vicissitudes of corporate down-sizing.  And so on.

Matasar acknowledges these risks, for later he writes:

Many students will ultimately end up in non-law jobs.  For some students, like those in part-time programs, this may have been the goal to begin with; they seek law degrees to enhance their roles with current employers.  For others, it reflects disenchantment with a profession they may erroneously have chosen.  And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer. (24) [My emphasis]

We can add the following risks to Schlunk’s footnote: municipal bankruptcy, misguided federal downsizing, and inability to break into the profession beyond contract work as Down By Law discussed extensively in its third podcast.  Given all these risks, we can tell that law school has a lower ROI than Matasar (and everyone else) would like due to the legal economy’s volatility.  I sympathize with these two assumptions (and I’d be happy if Matasar knew something I didn’t), but I don’t think people are well enough informed.  Nor do I think the ROI is as high as he does.

To add some value, perhaps now is the time to wonder how the bubble will pop.  This question is significant because we already know the American legal education system is unsustainable (my spread is 1-3 years for the bubble popping, place your bets in the comments), but how it pops will tell us what kind of new equilibrium will emerge.  My meaning will be clearer below.

As I see it, the bubble can pop in one of five ways:

1. Internal Reform.  Law schools or the ABA turn course.  This is unlikely; law schools cannot self-terminate.

   

2. Bankruptcy Reform.  Once Congress realizes >$850 billion in student loan debt will never be paid down, it’ll remove the undue hardship exception from all student loans, and the Department of Education will refuse to loan money to heavily indebted students.  Prices drop; schools close.
3. Title IV Reform, “The Apocalypse Option”.  Congress or the Department of Education realize universities are sucking taxpayer dollars out of the treasury, overinvesting in themselves, raising tuition, and then demanding higher student lending caps to cover the self-inflicted costs.  The federal government either slashes the caps, or it switches to an equity-like human capital contract system such as Robert Reich’s 10% of 10 years’ income proposal.
4. State Government Intervention, “(Chuck) Newton’s Gambit”.  State governments realize the dangers, jettison ABA accreditation in favor of their own stricter standards, require employment disclosure by higher education institutions, close schools, sue them, or directly regulate them.
5. Run on the law schools, aka “Scam Blogger Victory (V-SB Day)”.  Enough 0Ls figure out that a large number of law schools are nonperforming, send their applications to either far cheaper alternatives or do-or-die to US News’ top tier schools, and if they’re rejected, they go back to their jobs at Target.  Law schools fail or drop prices.

Matasar believes in a combination of V-SB Day and the Apocalypse Option:

• Some schools will continue to prosper charging high tuition (at least for a while); others will not.
• Lower priced alternatives to the current model will certainly evolve; non-U.S. law schools will become viable competitors in training U.S. lawyers; some schools will fail; others will adjust…(20)

The demand for legal education will decline at high-priced schools whose graduates are having difficulty repaying their loans.  The federal government, the only remaining lender, if at all rational, will respond: perhaps by restricting the amount of credit to students of such schools, requiring an equity contribution by those students, requiring co-signors, or increasing the interest rate for their loans.  Alternatively, the Department of Education (aka the “Bank”) as the regulator of higher education might respond by issuing regulations requiring schools to reduce their costs, justify their price increases, or otherwise alter their model…Like any other market, as economic barriers to entry are lowered, we should expect lower cost and more efficient providers to enter the legal education field.  (22-23)

I used the term “equilibrium” above, meaning the concern isn’t when the bubble starts to pop but what the next era of legal education will look like, and how long it’ll take to get there.  V-SB Day alone is dramatic, but it reforms the system by causing schools to close.  Given that the legal profession would probably function just fine with near-zero new law graduates for at least several years (depending on how bad the oversupply situation really is & the timing and manner of any economic recovery), reformers don’t see an end in sight for a lo~ng while.  Nor does the BLS, for that matter.  Here’s the rub: a run on the law schools is just that, a run, which depends on the information 0Ls have.  Years later, some may irrationally believe law is a worthwhile investment again and submit their applications, reinflating the bubble.

By contrast, the other solutions check against law school tuition.  For Bankruptcy, unlike every banker and Congressperson, I staunchly believe debtors are honest people who want to pay down their loans and won’t cheat the system.  The Apocalypse Option or Newton’s Gambit force tuition down, and in the human capital contract context, a law school that currently produces tri-modal outcomes (BigLaw, LittleLaw/NonLaw, & TentLaw) won’t be feasible until unemployment vanishes.  When it does, though, legal education will be bubble-free.  Yay!

We don’t want partial solutions that end up failing again.  Why?  Because I’d like to not be writing about this when I’m older and grayer.

The lesson I take from Matasar’s article is that until this new equilibrium emerges (or at least the economy returns to full employment), law school’s ROI will worsen.  If his predictions are right and legal education will transform to a market-responsive system, current graduates won’t have the skills in demand.  In other words, the “lost generation” would be better termed the “abandoned generation.”  Matasar blithely accepts this.  Repeated from above, “Many students will ultimately end up in non-law jobs…And, for some, perhaps the largest group, it reflects their inability to find a job as a lawyer.”  As the legal profession begins to understand the need for change, reformers will have to stake a position that clearly advocates on behalf of involuntarily unemployed attorneys and their student debt, if they wish to have any credibility.

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[i] For example, Matasar casually dismisses (& more concisely than I did) everything Valparaiso dean Jay Conison told Heather Diersen a few weeks ago:

The American Bar Association regulatory regime has been built over many decades and includes many requirements that increase education cost, like requiring job security for faculty members, librarians, and deans; requiring a significant physical plant; requiring three years (give or take) of law school; requiring an undergraduate degree; or limiting the number of classes that can be taken online.  Recent proposed changes that mandate law schools to announce, measure, and improve their outcomes and offer particular types of skills classes, while desirable, will not lower costs.

[ii] I should say Matasar and NYLS are not bucking the system.  NYLS charges $46,460 per year in tuition and due to unfortunate circumstance shares New York City with seven other law schools, many of which are better regarded regardless of what others say about NYLS’s sophisticated curriculum.  I have seen no evidence that under Matasar’s stewardship NYLS has reduced its ecological footprint, and Third Tier Reality criticizes him for chairing the board of Access Group, a “non-profit loan service provider.”  That said I don’t want to discourage law school deans from using their prominence to say things against their interests—so long as they subject themselves to the inevitable outcomes.