STUDENT LOANS, MORAL HAZARD, AND LAW SCHOOL LOANS – CONCLUSION

My most recent post in this series discussed manifestations of law school moral hazard at Thomas Jefferson School of Law and Quinnipiac Law School. Both institutions have spent millions of dollars on flashy new buildings where attentive students will have a tough time getting jobs requiring the expensive JDs they are pursuing.

The series now concludes with two more schools that illustrate another dimension of the dysfunctional law school market. Recent graduates of Golden Gate University School of Law and Florida Coastal School of Law live in the worst of two worlds: Their schools have unusually low full-time long-term JD-required employment rates and unusually high average law student debt.

Muddy Disclosure

The recent decline in the number of law school applicants has resulted in many schools struggling to fill their classrooms. When a school depends on the continuing flow of student loan-funded revenues, the pressure to bring in bodies can be formidable. One consequence is especially unseemly for a noble profession: dubious marketing tactics.

By now, most people are aware of ABA rule changes that require each school to disclose in some detail its recent graduates’ employment results, specifically, whether jobs are full-time, part-time, short-term, long-term, or JD-required. But those requirements don’t prevent Golden Gate University School of Law’s “Employment Statistics Snapshot” page from touting this aggregate statistic for its 2013 graduates “85.4 percent were employed in jobs that required bar passage…or where a JD provided an advantage.”

The school’s “ABA employment summary” link appears on the same page. But Golden Gate has supposedly made things easier for prospective students by showing its 2013 graduates’ employment results in a large pie chart. According to that chart, nine months after graduation, 38.2 percent of the school’s 2013 graduates had JD-required jobs.

Here’s what the chart doesn’t reveal: Even that unimpressive total (38.2 percent) includes part-time and short-term positions. Golden Gate’s full-time long-term JD-required employment rate for 2013 graduates was 23 percent.

Money to be Made

I’ve written previously about Florida Coastal, one of the InfiLaw system of private, for-profit law schools. Florida Coastal’s website includes all employment outcomes — legal, non-legal, full-time, part-time, long-term, short-term, and a large number of law school-funded jobs — to arrive at its “job placement rate” of 74.3 percent for its 2012 graduates. That number appears on the program overview pages of the school’s website. But you have to dig deeper — and move into the “Professional Development” section — to learn the more recent and relevant data: The overall employment rate dropped to 62 percent for the class of 2013.

However, those overall rates aren’t even the numbers that matter. Anyone persevering to the school’s ABA-mandated employment disclosure summary finds that the full-time long-term JD-required employment rate for Florida Coastal’s 2013 graduates was 31 percent.

The Cost of Market Dysfunction

At Golden Gate, tuition and fees have increased from $26,000 in 2006 to more than $43,000 today. During the same period, Florida Coastal increased its tuition and fees from $23,000 to more than $40,000. That’s why Florida Coastal and Golden Gate rank so high in average law school loan debt for 2013 graduates, with $150,360 and $144,269, respectively.

To its credit, Florida Coastal eliminates any doubt about the trajectory of law school debt for its future students. The median debt for its 2014 graduates rose to more than $175,000 – all of it consisting of federal student loans.

Searching for Solutions

My criticisms of current market failures should not be construed as an argument for eliminating the government-backed student loan program for law students. Were it not for federal educational loans, I could not have attended college, much less law school. The program was a good idea when Milton Friedman promoted it in the early 1950s, and it is still a good idea today.

But the core of this good idea has gone bad in its implementation. Shining a light on resulting market dysfunction should generate constructive approaches to a remedy. At the October 24 American Bankruptcy Institute Law Review Symposium at St. John’s University (and my related law review article appearing thereafter), I’ll outline my ideas.

Here’s a preview: Viewing the law school market in the aggregate — as a single market — obfuscates a reasoned analysis of the problem. It protects the weakest law schools from the consequences of their failures. They should pay an immediate price for exploiting the moral hazard resulting from the current system of financing legal education. At a minimum, the government should not be subsidizing their bad behavior.

The profession would be wise to lead itself out of this mess. The financial incentives of the current structure, along with its pervasive vested interests, make that a daunting task. Even so, human decisions created the problem. Better human decisions can fix them.

LAW SCHOOL DECEPTION — PART III

Money talks, especially to prospective law students concerned about educational debt. Tuition reduction programs promise some relief. Surely, scholarships conditioned on minimum GPAs are better.

Recently, the NY Times profiled a Golden Gate University School of Law student needing a 3.0 to keep her scholarship. By the end of her first year, she’d “curved out” at 2.967. Her Teamsters dad drove a tractor before he was laid off, but she and her parents came up with $60,000 in tuition to complete her degree.

Maybe that’s reasonable. A “B” average doesn’t seem difficult. Is this just whining from what some article comments called “the gimme generation”?

Only if the victims knew the truth. She has no paying job, legal or otherwise. That’s her true victimization, along with many others.

– Statistically possible v. doesn’t happen v. fully disclosed

Golden Gate imposes mandatory first-year curves limiting the number of As and Bs. In second and third year courses, the curves loosen or disappear. The profiled student graduated with a 3.14 GPA — a nice recovery, but too late for the lost scholarship.

According to the article, more than half of the current GGU first-year class has merit scholarships and Dean Drucilla Stender Ramey said it’s statistically possible for 70 percent of one Ls to maintain a 3.0 GPA — also the threshold for the Dean’s List. Even if she meant “theoretically” rather than “statistically” possible, I’m skeptical. The school’s handbook reports the mandatory range for those receiving a “B- and above” in first-year required courses: 45 percent (minimum) to 70 percent (maximum). And a B- is 2.67.

“[I]n recent years,” the article continued, “only the top third of students at Golden Gate wound up with a 3.0 or better, according to the dean…. She also maintains that Golden Gate 1Ls’s are well-informed about the odds they face in keeping scholarships.”

This sounds like the lawyer who tells the jury: 1) my client was out of town at the time of the murder; 2) if he was in town, he didn’t do it; and 3) whatever he did was in self-defense.

– Playing with fire

Why offer merit scholarships? U.S. News‘s rankings, says University of St. Thomas School of Law Professor Jerry Organ:

“Law schools are buying…higher GPAs and LSATs.”

Albany Law School Dean Thomas F. Guernsey notes that such catering to the rankings has “strange and unintended consequences,” such as reducing need-based financial aid by redirecting it to those who otherwise “will go somewhere else.”

U.S. News doesn’t collect merit scholarship retention data because, according to rankings guru Robert Morse, “[W]e haven’t thought about it…[T]hese students are going to law school and they need to learn to read the fine print.”

That’s among the least of many profound flaws in the U.S. News methodology. Law school deans know them all, yet pandering to the rankings persists while students and the profession pay the price.

Somewhere in the cumulative behavior of certain schools lies an interesting class action. Particularly vulnerable are recruiters operating at the outer limits of candor to attract students who accumulate staggering loans and no jobs.

Imagine forcing some deans to answer these questions — under oath:

– Where did you go to law school? (That’s foundational — to show they’re smart; for example, GGU’s Dean Ramey graduated from Yale.)

– How many graduates did you put on your school’s temporary payroll solely to boost your U.S. News “nine months after graduation” employment rate? (I don’t know about GGU, but others have.)

– How many have full-time paying jobs requiring a JD? (GGU’s nine-month employment rate is 87.2% of 143 “reporting” 2009 graduates, but the “number with salary” is only 41 (or 29%). Two-thirds of “reporting graduates” had jobs requiring bar passage; only half held permanent positions. And who’s not “reporting”?)

– How many merit recipients lose scholarships? What did you tell those hot prospects when you enticed them with first-year money? Ultimately, how much did they pay for their degrees?

Ironically, even bold typeface disclosure might not change some prospective students’ minds because facts yield to confirmation bias. Convinced that they’ll overcome daunting odds to become winners, they can’t all be right.

Still, the potential class of law student plaintiffs grows by the thousands every year. If they ever file their lawsuit, the defendant(s) better get good lawyers.