2015: THE YEAR THAT THE LAW SCHOOL CRISIS ENDED (OR NOT) — PART II

Part I of this series addressed the ABA rule change that will allow 2014 law graduates until March 15 — an extra month from prior years — to find jobs before their schools have to report those graduates’ employment results to the ABA (and U.S. News). That change will almost certainly produce higher overall employment rates. But relying on any alleged trend that results solely from an underlying change in the rules of the game — such as extending the reporting period from nine months to ten — would be a mistake.

This post considers a second rule change. It comes from the U.S. Department of Labor, and it’s a whopper.

The Government Makes Things Worse

The Bureau of Labor Statistics recently adopted a new statistical methodology for projecting the nation’s legal employment needs. Just about everyone agrees that, by any measure and for many years, the economy has been producing far more new lawyers than JD-required jobs. But the new BLS methodology declares that any oversupply of attorneys has evaporated. In fact, applying the new methodology retroactively to previous years would lead to the conclusion that the obvious glut of new lawyers never existed at all!

Using its earlier methodology, the Bureau has been revising downward its predictions of new lawyer jobs. In 2008, it projected a net additional 98,500 legal jobs through 2018. In 2012, it dropped that number to 73,600 through 2022. Taking into account retirements, deaths, and other attrition, the BLS separately projected that the profession could absorb about 20,000 new graduates annually for the next ten years. Most knowledgeable observers of the changing market for new lawyers have concurred with that ballpark assessment. Unfortunately, schools have been producing about twice that number (40,000).

Remarkably, the BLS’s new approach more than doubles the number of anticipated new legal jobs over the next 10 years. Rather than annual absorption of about 20,000 new lawyers through 2022, the Bureau now projects room for more than 41,000 a year. Overnight, demand caught up with what had been a chronic oversupply of attorneys.

In Defiance Of Sound Statistical Analysis And Common Sense

There are numerous technical and analytical flaws in the BLS’s new methodology. (See, e.g., Matt Leichter’s recent post, “2016 Grads Shouldn’t Take Comfort in New Jobs Projection Approach.”) Beyond those are common sense tests that the new methodology fails. For example, since 2011 the ABA-required data have revealed a persistent FTLT JD-required employment rate of 55 percent for new graduates. That’s not far from the projections that the BLS’s old methodology produced for a long time.

The BLS’s new approach amounts to saying that, somehow, all of those unemployed graduates must have been finding law jobs after all. As the old joke goes, endless digging in a roomful of manure was worth the effort; there was indeed a pony to be found – with the help of a little regression analysis.

Another common sense test considers actual employment numbers. For example, legal sector employment (including non-lawyers) through December 2014 was 1.133 million — about the same as a year ago and down more than 40,000 from 2006. Although the economy generally has recovered from the Great Recession, total employment in the legal sector is still far below pre-recession levels. If the BLS’s proposed approach were valid, it would suggest a remarkable attrition rate, raise serious questions about the state of the profession, and cause many prelaw students to wonder whether law school was the right choice.

The Bad Beat Goes On

Meanwhile, weak law schools that will benefit most from the ABA and BLS changes remain unaccountable for their graduates’ poor employment outcomes as they lower admission standards to fill classrooms. Median law school debt at graduation currently exceeds $120,000, and some of the schools with the worst employment outcomes burden students with the highest levels of debt. But there’s no financial risk to those schools because the federal government backs the loans and they’re not dischargeable in bankruptcy.

The escape hatch is small. If income-based repayment programs survive austerity demands of the Republican-controlled Congress – a big if – then students who persevere through 20 years of IBR will get a large tax bill because forgiven debt will count as income to them in the year it’s forgiven. The shortfall between the amount IBR students actually pay and the amount they owe will come from the federal purse.

Voila! The Crisis Is Over

Sometime in 2015, the synergy between the new ABA-rules allowing law schools to report 10-month employment data (discussed in Part I of this series) and the new BLS methodology projecting 41,000 new lawyer jobs annually will produce a law school chorus declaring that the crisis in legal education is over, at least in a macroeconomic sense. Indeed, the hype has already begun. Discussing the new BLS approach, Loyola University – Los Angeles School of Law professor Ted Seto observed: “If the new BLS projections are accurate, we should see demand and supply in relative equilibrium in 2015 and a significant excess of demand over supply beginning in 2016.”

The operative word is “if.” As noted in Part I, Seto’s similarly conditional prediction in 2013 didn’t come to pass. Meanwhile, only about half of his school’s 2013 graduating class secured full-time long-term JD-required employment within nine months of receiving their degrees. Average law school debt for the 82 percent of Loyola-LA law graduates who incurred debt was $141,765 — placing it 22nd (of 183) among schools whose students graduate with the most law school debt.

Here’s the real kicker. The vast disparity in individual law school employment outcomes makes broad macroeconomic declarations about opportunities for law graduates disingenuous anyway. It’s no surprise that the loudest voices come from schools where many graduates have great difficulty find any JD-required job.

But even at the macro level, anyone concerned about the fate of marginal law students, exploding student debt, or the future of a noble profession should look beyond any distracting noise about the supposed end of the legal education crisis. At least for now, the real question should be whether anything has really changed — other than the rules of the game.

2015: THE YEAR THAT THE LAW SCHOOL CRISIS ENDED (OR NOT) — PART I

Remember that you read it here first: In 2015, many law school deans and professors will declare that the law school crisis is over. After five years of handwringing, relatively minor curriculum changes at most schools, and no improvement whatsoever in the mechanism for funding legal education, the storm has passed. All is well. What a relief.

The building blocks for this house of cards start with first-year law school enrollment that is now below 38,000 – a level not seen since the mid-1970s when there were 53 fewer law schools. The recent drop in the absolute number of future attorneys seems impressive, but without the context of the demand for lawyers, it’s meaningless in assessing proximity to market equilibrium, which remains far away.

The Search for Demand

To boost the projected demand side of the equation, the rhetoric of illusory equilibrium often turns to the “degrees-awarded-per-capita” argument that Professor Ted Seto of Loyola Law School – Los Angeles floated in June 2013. His premise: “Demand for legal services…probably increases as population increases.”

“Unless something truly extraordinary has happened to non-cyclical demand,” Seto continued, “a degrees-awarded-per-capita analysis suggests that beginning in fall 2015 and intensifying into 2016 employers are likely to experience an undersupply of law grads, provided that the economic recovery continues.”

If only wishing could make it so. The economic recovery did, indeed, continue, but the hoped for increase in attorney demand was nowhere to be found. When Seto posted his analysis, total legal services employment (including non-lawyers) at the end of May 2013 was 1,133,800. At the end of November 2014, it was 1,133,700.

Follow That Dream

Professor Rene Reich-Graefe of Western New England University School of Law relied on a similar per capita approach (among other dubious arguments) to assert that today’s students are about to enter “the most robust legal market that ever existed in this country.” His students sure hope he’s right. Only 49 out of 133 members of the Western New England Law class of 2013 — 37 percent — obtained full-time long-term JD-required jobs within nine months of graduation.

It’s easy to hypothesize that population growth should increase the demand for everything, including attorneys. But it’s more precise to say that population growth is relevant to the demand for attorneys only insofar as such growth occurs among those who can actually afford a lawyer. (The degrees-per-capita argument also ignores the profound ways that technological change has reduced the demand for lawyers across many segments of the profession.)

The ABA and the U. S. Department of Labor’s Bureau Labor Statistics have added two new factors that will feed false optimism in 2015. This post considers the ABA’s unfortunate action. Part II will cover the BLS’s contribution to continuing confusion.

The ABA Misfires Again

Since it began requiring law schools to report detailed employment outcomes for their most recent graduates, the overall full-time long-term JD-required employment rate has hovered around 55 percent (excluding law school-funded jobs). For a long time, the cutoff date for schools to report their most recent graduates’ employment status to the ABA (and U.S. News) has been February 15 following the year of graduation.

Starting with the class of 2014, law schools will get an additional month during which their graduates can try to find jobs before schools have to report class-wide employment results. When the employment status cutoff date moves from February 15 to March 15, the reported FTLT JD-required employment rate will go up. Comparisons with prior year outcomes (nine months after graduation) will be disingenuous, but law deans and professors touting an upswing in the legal job market will make them. Market equilibrium, they will proclaim, has made its way to legal education.

The stated reason for the ABA change was that the February 15 cutoff had an unfair impact on schools whose graduates took the bar exam in states reporting results late in the fall, especially New York and California. Schools in those states, the argument went, suffered lower employment rates solely because their graduates couldn’t secure jobs until they had passed the bar. Another month would help their job numbers.

In July 2013, Professor Deborah Merritt offered powerful objections to the ABA’s proposed change: The evidence does not support the principal reason for the change; moving the cutoff date would impair the ability to make yearly comparisons at a time when the profession is undergoing dramatic transformation; prospective students would not have the most recent employment information as they decide where to send their tuition deposits in April; the change would further diminish public trust in law schools and the ABA. The new March 15 cutoff passed by a 10-to-9 vote.

Watch For Obfuscation

In a few months when the new 10-month employment figures for the class of 2014 show “improvement” over the prior year’s nine-month results, think apples-to-oranges as you contemplate whose interests the ABA is really serving. Consider, too, whether any macroeconomic projections of attorney demand are even probative when there is a huge variation in employment opportunities across law schools.

At 33 law schools (including Western New England School of Law), fewer than 40 percent of 2013 graduates found full-time long-term employment requiring a JD. At most of those schools, the vast majority of students incurred staggering six-figure debt for their degrees. (At Western New England, it was $120,677 for the class of 2013.)

In the some corners of the profession, federal student loan dollars are subsidizing an ugly business.

LAW & FOOTBALL: RANKINGS DOUBLETHINK

For many people, the holiday season means an intense focus on college football. This year, a 12-person committee develops weekly team rankings. They will culminate in playoffs that produce head-to-head competition for the national championship in January.

A recent comment from the chairman of that committee, Jeff Long, is reminiscent of something U.S. News rankings czar Robert Morse said about his ranking system last year. Both remarks reveal how those responsible for rankings methodology rationalize distance between themselves and the behavior they incentivize.

Nobody Wants Credit?

Explaining why undefeated Florida State dropped from second to third in the November 11 rankings, Long told ESPN that making distinctions among the top teams was difficult. He explained that the relevant factors include a team’s “body of work, their strength of schedule.” Teams that defeat other strong teams get a higher rank than those beating weaker opponents. So even though Oregon has suffered a loss this year, its three victories against top-25 opponents jumped it ahead of undefeated FSU, which had only two such wins. Long repeated his explanation on November 19: “Strength of schedule is an important factor….”

Whether Oregon should be ahead of FSU isn’t the point. Long’s response to a follow-up question on November 11 is the eye-catcher: Was the committee sending a message to teams that they should schedule games against tougher opponents?

“We don’t think it’s our job to send messages,” he said. “We believe the rankings will do that.”

But who develops the criteria underlying the rankings? Long’s committee. The logic circle is complete.

Agency Moment Lost: Students

In his November 14 column for the New York Times, David Brooks writes more broadly about “The Agency Moment.” It occurs when an individual accepts complete responsibility for his or her decisions. Some people never experience it.

Rankings can provide opportunities for agency moments. For example, some prelaw students avoid serious inquiry into an important question: which law school might be the best fit for their individual circumstances? Instead, I’ve heard undergraduates say they’ll attend the best law school that accepts them, and U.S. News rankings will make that determination.

If they were talking about choosing from law schools in different groups, that would make some sense. There’s a reason that Harvard doesn’t lose students to Boston University. But too many students take the rankings too far. If the choice is between school number 22 and the one ranked number 23, they’re picking number 22, period. That’s idiotic.

In abandoning independent judgment, such students (and their parents) cede one of life’s most important decisions to Robert Morse, the non-lawyer master of the rankings methodology. It’s also an agency moment lost.

Agency Moment Lost: Deans, Administrators, and Alumni

Likewise, deans who let U.S. News dictate their management decisions say they’re just responding to incentives. As long as university administrators, alumni, and prospective students view the rankings as meaningful, they have to act accordingly. Any complaint — and there are many — should go to the person who develops the rankings methodology.

All roads of responsibility lead back to U.S. News’ Robert Morse, they say. But following that trail leads to another lost agency moment. In March 2013, Lee Pacchia of Bloomberg asked Morse if he took any responsibility for what’s ailing legal education today:

“No…U.S. News isn’t the ABA. U.S. News doesn’t regulate the reporting requirements. No….”

Agency Moment Lost: Methodology Masters

Morse went on to say that U.S. News was not responsible for the cost of law school, either. Pacchia didn’t ask him why the methodology rewards a school that increases expenditures without regard to the beneficial impact on student experiences or employment outcomes. Or how schools game the system by aggressively recruiting transfer students whose tuition adds revenue at minimal cost and whose lower LSAT scores don’t count in the school’s ranking methodology. (Vivia Chen recently reported on the dramatic increase in incoming transfer students at some schools.)

Cassius was only half-right. The fault lies not in our stars; but it doesn’t lie anywhere else, either!

The many ways that U.S. News rankings methodology has distorted law school deans’ decision-making is the subject of Part I of my book, The Lawyer Bubble – A Profession in Crisis. Part II investigates the analogous behavior of law firm leaders who rely on metrics that maximize short-term Am Law rankings in running their businesses (e.g., billings, billable hours, hourly rates, and leverage ratios).

Aggregate Rankings v. Individual Outcomes

In the end, “sending a message” through a rankings methodology is only one part of an agency equation. The message itself doesn’t require the recipient to engage in any particular behavior. That’s still a choice, although incentive structures can limit perceived options and create first-mover dilemmas.

Importantly, individual outcomes don’t always conform to rankings-based predictions. Successful participants still have to play — and win — each game. That doesn’t always happen. Just ask Mississippi State — ranked number one in the college football playoff sweepstakes after week 12, but then losing to Alabama on November 15. Or even better, look at number 18 ranked Notre Dame, losing on the same day to unranked Northwestern.

Maybe that’s the real lesson for college coaches, prelaw students, law school deans, and law firm leaders. Rather than rely on rankings and pander to the methodology behind them, focus on winning the game.

BULLET DODGED? OR REDIRECTED TOWARD YOU?

For the past six months, Thomas Jefferson School of Law in San Diego seemed poised to become the first ABA-accredited law school to fail since the Great Recession began. For anyone paying attention to employment trends in the legal sector, the passage of six years without a law school closing somewhere is itself remarkable. It also says much about market dysfunction in legal education.

In his November 5 column in the New York TimesUniversity of California-Berkeley law professor Steven Davidoff Solomon has a different view. Solomon argues that recent enrollment declines prove that a functioning market has corrected itself: “[T]he bottom is almost here for law schools. This is how economics works: Markets tend to overshoot on the way up, and down.”

Solomon urges that the proper course is to keep marginal law schools such as Thomas Jefferson alive for a while “and see what happens.” I disagree.

Take Thomas Jefferson, Please

As I’ve discussed previously, in 2008 the school issued bonds for a new building. When the specter of default loomed large in early 2014, the question was whether some accommodation with bondholders would keep the school alive. Solomon suggests that creditors made the only deal possible and the school is the ultimate winner. He gives little attention to the real losers in this latest example of a legal education market that is not working: Thomas Jefferson’s students, the legal profession, and taxpayers.

In retrospect, the restructuring agreement between the school and its bondholders reveals that a deal was always likely. That’s because both sides could use other people’s money to make it, as they have since 2008.

According to published reports, interest on the taxable portion of the 2008 bond issuance was 11 percent. Tax-exempt bondholders earned more than 7 percent interest. Thanks to federally-backed student tuition loans, taxpayers then subsidized the school’s revenue streams that provided quarterly interest and principal payments to those bondholders.

Outcomes? Irrelevant In This Market

Last year, Thomas Jefferson accepted 80 percent of applicants. According to its latest required ABA disclosures, first-year attrition was over 30 percent. The school’s California bar passage rate for first-time takers in February and July 2012 was 54 percent, compared to the state average of 71 percent.

Solomon cites the school’s other dismal statistics, but ignores their implications. For example, Thomas Jefferson’s low bar passage rate made no difference to most of its graduates because the full-time long-term bar passage-employment rate for the class of 2013 was 29 percent, as it was for the class of 2012.

Meanwhile, its perennially high tuition (currently $44,900 a year) put Thomas Jefferson #1 on the U.S. News list of schools whose students incurred the greatest law school indebtedness: $180,665 for the class of 2013. According to National Jurist, the school generates 95 percent of its income from tuition.

It’s Alive

This invites an obvious question: How did the school survive so long and what is prolonging its life?

First, owing to unemployed recent graduates with massive student loans, bondholders received handsome quarterly payments for more than five years — much of it tax-exempt interest. The disconnect between student outcomes and the easy availability for federal loans blocked a true market response to a deteriorating situation. Bondholders should also give an appreciative nod to federal taxpayers who are guaranteeing those loans and will foot the bill for graduates entering income-based loan forgiveness programs.

Second, headlines touted Thomas Jefferson’s new deal as “slashing debt” by $87 million, but bondholders now own the law school building and will reportedly receive a market rate rent from the school — $5 million a year. Future student loans unrelated to student outcomes will provide those funds.

Third, the school issued $40 million in new bonds that will pay the current bondholders two percent interest. Student loan debt will make those payments possible.

Net-net, win-win, lose-lose

The bottom line benefit for Thomas Jefferson is immediate relief from its current cash crunch. Instead of $12 million in principal and interest payments annually, the school will pay $6 million in rent and bond interest — funded by students who borrow to obtain a Thomas Jefferson law degree of dubious value.

“I think the whole deal is a reflection of the fact that the bondholders were very desirous for us to succeed,” [Thomas Jefferson Dean Thomas] Guernsey said.

Actually, it reflects the bondholders’ ability to tap into the proceeds of future federal student loans as they cut a deal with a wounded adversary. Instead of cash flow corresponding to bond interest rates of 7 and 11 percent, bondholders will receive about half that amount, along with an office building and the tax advantages that come with ownership (e.g., depreciation deductions). Think of it as refinancing your home mortgage, except the bank gets to keep your house.

Erroneous Assumptions Produce Dubious Strategies

“This restructuring is a major step toward achieving our goals,” said Thomas Guernsey, dean of Thomas Jefferson. “It puts the school on a solid financial footing.”

Throwing furniture into the fireplace to keep the house warm is not a viable long-run survival strategy. Consider future students and their willingness to borrow as the “furniture” and you have a picture of the Thomas Jefferson School of Law’s business plan.

Meanwhile, Solomon echoes the hopes of law school faculty and administrators everywhere when he says, “[T]he decline in enrollment could lead to a shortage of lawyers five years from now.”

In assuming a unitary market demand for lawyers, he conflates the separate and distinct submarkets for law school graduates. His resulting leap of faith is that a rising tide — even if it arrives — will lift Thomas Jefferson’s boat and the debt-ridden graduates adrift in it. It won’t.

ELON’S “GROUNDBREAKING NEW MODEL”

On October 9, the Elon University School of Law issued a press release announcing its “groundbreaking new model” of legal education. That’s an overstatement, but the plan has some distinctly positive elements. Unfortunately, it also continues to rely on the prevailing law school business model that has produced the profession’s current crisis.

Elon’s Brief History

Located in Greensboro, North Carolina, Elon was founded in 2006 and received ABA accreditation in 2008 — as the Great Recession began. In one sense, the timing was good because many undergraduates thought law school was a safe place to spend three years waiting for the economy to improve. At the time, that option looked especially attractive because the ABA didn’t require schools to disclose whether recent graduates were obtaining meaningful JD-required jobs. By 2010, Elon achieved a record-high first-year enrollment of 132 students. Tuition for 2009-2010 was $30,750/year.

As ABA-mandated disclosures began to reveal that almost half of all law graduates nationwide were not getting full-time long-term jobs requiring a JD, the overall number of applicants to all law schools plummeted — from 87,500 in 2010 to 59,400 in 2013. Some deans at less competitive schools lowered admissions standards and raised acceptance rates. Even in a collapsing market for new lawyers, the effort to fill classrooms was a rational response to financial incentives. Federally-backed non-dischargeable student loans for tuition generated revenues for law schools, but schools had no accountability for their graduates’ poor job prospects.

Lowering the Bar

According to U.S. News, Elon accepted 68.4 percent of applicants for fall 2013 and enrolled 107 first-year students — almost 20 percent fewer than in 2010. From 2010 to 2013, the median LSAT for its first-year class dropped from 155 to 150; the median GPA declined from 3.12 to 3.01. At the 25th percentile, from 2010 to 2013, Elon’s LSAT/GPA combination went from 153/2.80 to 146/2.75.

Even as first-year enrollment declined at Elon, tuition increased to almost $38,000/year. Average student debt for 2013 graduates exceeded $108,000. Meanwhile, Elon’s full-time long-term JD-required employment rate for 2013 graduates was 32.8 percent. The school was one of only 13 (out of 201) ABA-accredited schools that placed less than one-third of their graduates in such jobs.

Groundbreaking?

When the school’s new dean, Luke Bierman, joined Elon on June 1 of this year, the school was already more than two years into developing a strategic plan that now includes added experiential learning, residencies with practicing attorneys, faculty-supervised development, and a JD program of seven trimesters replacing three academic years.

Practical training, residencies, and student development efforts that give otherwise unemployed lawyers a few tools to help them scratch out a living with their JDs is a good thing. Everyone should applaud those initiatives. But especially with Duke, UNC, and Wake Forest nearby, such changes are not likely to create more JD-required jobs for Elon graduates.

Pushing students out the door more quickly is not particularly novel. Many schools, including the University of Dayton, Drexel, Pepperdine, Northwestern, Southwestern, and others, have two-year programs. But the really big reform — eliminating the third year altogether — isn’t happening because accreditation rules prevent it. Existing accelerated programs merely cram the requisite workload into a shorter time period.

Money-saving?

Elon claims that its new plan offers two economic benefits to students: they can enter the job market sooner and save money on tuition. Whether becoming eligible for JD-required employment is a benefit for Elon graduates in the current environment (or even a few years from now) isn’t clear. As for the tuition discount, it’s true that an Elon JD will now cost $100,000 for seven trimesters compared to the $114,000 for three years (at $38,000/year) — a nominal student savings of $14,000.

But Elon’s strategic plan probably includes a pro forma projection showing that its new pricing policy benefits the school at least as much. Take the total current cost of $114,000, divide it by nine trimesters (three years), and the result is a per-trimester cost of $12,666.67. If students were paying for seven trimesters at Elon’s current annual tuition rate, the total cost for the degree would be $88,666.67. They’ll now pay $100,000 (or $14,285.71 per trimester). Elon promises to freeze a student’s total cost for the program, but on a price-per-trimester basis the $100,000 fixed cost already includes a tuition increase.

The Real Problem

The short-term economic impact of Elon’s new program is less troubling than the school’s long-term business plan. Because the seven-trimester program will generate less gross revenue per student than its current three-year course of study, the school plans to recover those losses by adding — you guessed it — more students.

The Triad Business Journal reports: “From a business standpoint, Elon Law anticipates offsetting the loss of revenue from tuition reduction by gradually increasing the number of students joining the school each year, up from 112 this fall to about 130 within a number of years.”

Imagine the consequences if every law school that currently places fewer than one-third of its graduates in full-time long-term JD-required jobs were to increase enrollment by 20 to 30 percent “within a number of years.” For the profession, that would be like accelerating in reverse gear toward a brick wall.

The Quest for Meaningful Reform

Elon’s understandable approach to the economics of this situation is important for one more reason. After accepting the deanship in January 2014, Bierman became a member of the ABA’s Task Force on the Financing of Legal Education. If that task force develops a “groundbreaking” plan to supplement a glutted market with more new lawyers from schools where two-thirds of current graduates can’t find full-time long-term JD-required employment, perhaps the ground would be better left unbroken.

More about possible solutions in my address at the American Bankruptcy Institute Law Review Symposium at St. John’s University on October 24.

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.

STUDENT LOANS, MORAL HAZARD, AND A LAW SCHOOL MESS: PART 2

Sometimes law school moral hazard assumes a concrete form — literally.

A School Making Unwanted News

For example, Thomas Jefferson School of Law is now coping with a widely publicized credit downgrade of its bonds to junk status and related concerns about its future. But those financial difficulties date back to late 2008. The deepening recession was decimating the employment market for lawyers generally and hitting Thomas Jefferson graduates especially hard.

That didn’t stop the school from breaking ground in October 2008 on a new building that opened in January 2011. California tax-exempt bonds financed the $90 million project. Government-backed student borrowing for ever-increasing tuition — currently almost $45,000 a year — would provide a revenue stream from which to pay bondholders.

In 2012, new ABA-required disclosures allowed the world to see the school’s dismal employment record for graduates seeking full-time, long-term jobs requiring a JD (63 out of 236, or 27 percent, for the class of 2011). As enrollment declined, so did revenue from student loans. Unfortunately, the building and the bonds issued to pay for it remain, as does the stunning debt that students incurred for their degrees.

Quinnipiac’s New Digs

Recently, Quinnipiac University School of Law celebrated the opening of a new $50 million building in North Haven, Connecticut. Its website boasts that the new facility “is 154,749 square feet and will include a 180-seat two-tiered courtroom with Judge’s Chambers and Jury Room.” The Law Center is one of three interconnected buildings on a graduate school campus that is “expansive and architecturally distinctive, with an array of shared amenities, a beautiful full-service dining commons, bookstore, ample parking, and convenient highway access.”

Quinnipiac’s students — including all 92 entrants to the fall 2014 one-L class — will have luxurious accommodations in which to contemplate their uncertain futures. According to the school’s ABA required disclosures, nine months after graduation only 51 of 148 students in the class of 2013 — 34 percent — had found full-time long-term employment requiring a JD. And a Quinnipiac law degree has become increasingly expensive as tuition and fees alone have risen from $30,280 in 2006 to more than $47,000 today.

Tough Numbers

Such dismal employment outcomes for Quinnipiac are not new. Only 41 percent of its 2012 graduates found full-time long-term employment that required a JD. The rate for the class of 2011 was 35%.

Both Thomas Jefferson and Quinnipiac are among many law schools that must yearn for the good ole’ days — three years ago — when deans didn’t have to disclose whether their most recent graduates held jobs that were short-term, part-time, or had no connection whatsoever to the legal training they had received. ABA-sanctioned opacity allowed law schools as a group to claim — without qualification — that the overall employment rate for current graduating classes exceeded 90 percent.

Back to the Future

At Quinnipiac, the culture of that bygone era apparently endures. The link to its ABA-required disclosures page takes prospective students to “Employment Outcomes” and this:

“82% of the graduating class was employed as of Feb. 15, 2014 in the categories listed below…Bar passage is required, JD is an advantage, other professional jobs, and non-professional jobs.”

But if prospective students want to know the whole truth, they have to click again, go to the school’s ABA questionnaire, and perform a calculation from the raw data that reveals the 34 percent employment rate for the most important job category — full-time, long-term, JD-required jobs.

Law School Marketing

Similarly, the “Career Development” section of Quinnipiac’s current prospective student “Viewbook” leads with the banner headline that its “Employment Rate” for the class of 2012 was a remarkable 84% — “127 of 151 graduates employed.” An asterisk adds this tiny note: “Comprehensive employment outcomes for the class of 2012, including all employment categories as defined by the ABA (full-time/part-time/short term/long term) can be found at emplyomentsummary.abaquestionnare.org.”

Can prospective law students discover the truth? Sure. Should they take the time to do so? You bet. Do all of them make the effort? Not a chance. If they did, the 80+ percent, big-font employment statistics wouldn’t be in Quinnipiac’s recruiting materials. For careful readers, those big numbers are a waste of space.

What, me worry?

Undeterred by its recent graduates’ employment track record, Quinnipiac wants to grow. “There’s a decline in the demand for lawyers,” university president John Lahey said. “Even with the decline, we’re the only school in the country to spend $50 million for a new law school.”

That peculiar boast reflects an “if you build it, they will come” mentality determined to maximize tuition revenues. Unfortunately, that attitude can lead to short-term mischief and long-run calamity. Just ask anyone associated with the Thomas Jefferson School of Law.

Market dysfunction

Law schools remain unaccountable for the poor employment outcomes of their graduates. As most schools raise tuition, many students incur increasing amounts of debt for a degree that won’t get them a JD-required job. Because the federal government backs the vast majority of those loans, you could say that the system is your tax dollar at work.

Quinnipiac didn’t raise tuition for 2014-2015, but 86 percent of its 2013 graduates incurred law school debt averaging $102,000. Down the road at New Haven, 80 percent of Yale’s 2013 graduates with far superior job prospects incurred debt averaging $112,000.

The More Things Change…

The perverse law school response to market forces is a predictable business strategy, especially for law schools whose graduates are having the greatest difficulty finding law jobs. In an interview with the New Haven Register, Quinnipiac University President Lahey said that he hopes enrollment will grow from the current total of 292 students to 500 — the design capacity for the school’s new building.

Now that they’ve built it, will students come? If they value a “beautiful full-service dining commons,” perhaps. If they consider footnotes, read the fine print, and assess realistically their JD-required employment prospects as they peruse recruiting materials touting a Quinnipiac law degree, perhaps not.