MY OP-ED IN THE NY TIMES — AND A KINDLE BOOK PROMOTION

My August 25, 2015 New York Times op-ed on law student debt, law school moral hazard, and the dysfunctional legal education market appears here: “Too Many Law Students, Too Few Legal Jobs.”

In the winter 2015 issue of the American Bankruptcy Institute Law Review, I published a specific proposal for creating a law school accountability: “Bankruptcy and Bad Behavior – The Real Moral Hazard: Law Schools Exploiting Market Dysfunction.” 

Additionally, Amazon is running a promotion for my novel. From August 25 through August 29, you can download the Kindle version of The Partnership – A Novel.

 

 

DEAR ABA…

Dear ABA (especially members of the House of Delegates to the upcoming annual meeting in Chicago):

For years, America’s dysfunctional system of financing legal education has produced too many lawyers for too few jobs — and too many law graduates with too much educational debt. A year ago, the ABA created yet another Task Force to consider the problem. The June 17, 2015 Final Report on the Financing of Legal Education embodies the failure of that Task Force’s mission. It now goes to the House of Delegates for approval.

If the Delegates are interested in rehabilitating the ABA’s credibility and restoring public confidence in the profession on an issue of critical importance to the country, they could take this simple step: reject the Task Force Report. That’s right. Rather than giving the typical rubber stamp of approval amid flowery speeches thanking Task Force members for their time and effort in generating a hollow ABA statement summarizing the obvious, the House of Delegates could just say no.

Round One

Some observers had hoped that the ABA’s previous Task Force on the Future of Legal Education might tackle the daunting issues responsible for our dysfunctional legal education market. After all, the ABA’s leaders promised that the 2012 Task Force would make “recommendations to the American Bar Association on how law schools, the ABA, and other groups and organizations can take concrete steps to address issues concerning the economics of legal education and its delivery.”

To its credit, the 2012 Task Force put its toe in those waters, observing that the “system of lending distances law schools from market considerations and it supports pricing practices that do not well serve either the public or private value in legal education.”

Let’s state the problem more bluntly: Marginal law schools are relying on exploding student debt to produce revenue streams that keep them alive. They get away with it because federal student loans come without school-specific accountability for graduates’ dismal employment outcomes. Schools have no financial skin in the game.

But the 2012 Task Force didn’t go beyond identifying the problem because, it said, “The time and resources available to the Task Force have made it impractical to develop a structure of equitable and effective solutions.”

Round Two

So in May 2014, then-ABA president James R. Silkenat announced the creation of a new Task Force — one specifically devoted to the Financing of Legal Education. It was supposed to pick up where the 2012 Task Force had stalled. It was going to “conduct a comprehensive study of the complex economic and political issues involved and produce sound recommendations to inform policymakers throughout the legal community.”

The 2014-2015 Task Force Report recites that 25 percent of law schools obtain at least 88 percent of their total revenues from tuition and that the average for all law school is 69 percent. It also reports that higher tuition has produced more student debt, even as job prospects for graduates of marginal schools have languished.

Since 2006 alone, average student debt has increased by 25 percent (private schools) and 34 percent (public schools) in inflation-adjusted dollars. Average student debt at graduation from private law schools in 2013 was $127,000; for public schools it was $88,000. Meanwhile, only about half of new law graduates are obtaining full-time long-term jobs requiring a JD.

But the new Task Force didn’t pursue this obvious market dysfunction. Instead, its Final Report offers superficial fixes: better debt counseling for students, better disclosure forms from the Department of Education, more dissemination of how schools spend their money, and continued experimentation with law curriculum. They ignore the core financial accountability problem, rather than confronting and addressing it.

Insularity and Self-Interest

The chairman of the 2014-2015 Task Force was Dennis W. Archer, former mayor of Detroit, former Michigan Supreme Court justice, and past president of the ABA. Did the ABA think no one would notice that Archer also chairs of the national policy board of Infilaw — a private equity-owned consortium of three for-profit law schools — Arizona Summit, Charlotte, and Florida Coastal.

The Infilaw schools feed on the market dysfunction that the current system for funding legal education creates. The job market for law graduates from schools such as Infilaw’s remains dismal. But even in the face of their graduates’ poor full-time long-term JD-required employment results, Infilaw’s schools increased enrollment and have become leaders in creating debt for their students.

Archer wasn’t the only problematic appointment to the 2014-2015 Task Force. Another member, Christopher Chapman, is president and CEO of Access Group — the collective voice of 197 ABA-accredited law schools.

According to the Access Group’s website, “During the course of our 30+ year existence, we became a leading provider of affordable student loans for aspiring professionals in law, medicine, dentistry, health, business, and other disciplines. As such, we served as a national originator, holder and servicer of federally guaranteed and private, credit-based loans, funding more than $18 billion of education loans since 2001.”

Enough said.

Forfeiting The Right To Be Heard

The fact that, as one 2014-2015 Task Force witness said, legal education may be the “canary in the coal mine” on issues relating to student debt and financing higher education generally is no excuse for the profession to refrain from offering potential solutions.

For that reason, at its upcoming August 3-4 meeting in Chicago, the ABA House of Delegates could reject the Task Force Report. It could then reconstitute the Task Force membership with individuals willing to deliver the tough message that the profession needs. It could direct the newly constituted group to develop meaningful proposals that tie law student loan availability to individual law school outcomes. My recent article in the American Bankruptcy Institute Law Review, “Bankruptcy and Bad Behavior,” offers one idea that would force law schools to put some financial skin in the game; others have suggested plans warranting serious consideration.

The ABA describes its mission as “committed to doing what only a national association of attorneys can do: serving our members, improving the legal profession, eliminating bias and enhancing diversity, and advancing the rule of law throughout the United States and around the world.”

In a single vote rejecting the 2014-2015 Task Force Report on the Financing of Legal Education, the House of Delegates could match those lofty words with action.

On this vitally important issue, the ABA leadership has caused many attorneys and the general public to become cynical about the organization’s motives. The House of Delegates has a unique opportunity to prove that the ABA is not just the vehicle whereby an insular, self-interested group seeks to preserve the present at the expense of the future. The House of Delegates can be part of the solution, or it can remain part of the problem.

Which path will it choose? The whole legal world is watching.

WHEN SUPPORTING A CAUSE UNDERMINES IT

Lee Siegel and The New York Times probably thought they were aiding a vital cause when the Times published Siegel’s June 6 op-ed, “Why I Defaulted on My Student Loans.” The underlying issue is important. Many of today’s young people bear the burden of huge educational debt in an economy that has not afforded the kinds of opportunities available to their baby-boomer parents, including Siegel.

Here’s the problem: Siegel did more harm than good. He made himself a poster child for the kind of moral hazard that first led policymakers to render student loans non-dischargeable in bankruptcy more than 40 years ago. It was a mistake then, and it’s a mistake now. But Siegel is exactly the wrong spokesperson for the issue.

Lee Siegel’s Pitch

According to his op-ed, Siegel financed his education with student loans, the first of which he obtained 40 years ago. But when his family’s financial hardship left him unable to pay the full cost of tuition at “a private liberal arts college,” he “transferred to a state college in New Jersey, closer to home.” Eventually, he defaulted on his student loans.

“Years later,” he writes, “I found myself confronted with a choice that too many people have had to and will have to face. I could give up what had become my vocation (in my case, being a writer) and take a job that I didn’t want in order to repay the huge debt I had accumulated in college and graduate school. Or I could take what I had been led to believe was both the morally and legally reprehensible step of defaulting on my student loans, which was the only way I could survive without wasting my life in a job that had nothing to do with my particular usefulness to society.”

He urges others to follow his example: default.

Who is Lee Siegel?

Here’s what Siegel and the Times didn’t reveal.

Notwithstanding his transfer to a New Jersey state college, he obtained three degrees from Columbia University — a B.A., an M.A., and a master’s of philosophy. According to the HarperCollins Speakers Bureau website, he’s “an acclaimed social and cultural critic.” The mere fact that he appears on that site means that you should expect to pay big bucks for the privilege of hearing him speak. He has written four books and his essays have appeared in The Atlantic Monthly, The New Yorker, Time, Newsweek, The New York Times, and The Wall Street Journal.

In other words, he has an elite education that led to a lucrative career. He is exactly the wrong person to be the face of the student loan crisis — which is very real.

The Problem with Siegel’s Support

Siegel has now made himself a powerful anecdote for those on the wrong side of the fight for reform in financing higher education. Forty years ago, similar ammunition — anecdotes about individuals exploiting moral hazard — led to bad policy when student debt first became non-dischargeable in bankruptcy.

In the early years of the student loan program, the Department of Health, Education & Welfare brought a supposed “loophole” to the attention of the 1973 Congressional Commission on Bankruptcy Laws. Concerned about tarnishing the image of the new program, the Department didn’t want new college graduates embarking on lucrative careers to default on loans that had made their education possible

But there was no hard, numerical evidence suggesting a serious problem. Rather, media hype over a few news reports of “deadbeat” student debtors took on a life of their own. In 1976, Congress yielded to public hysteria and made student loans non-dischargeable in bankruptcy unless a borrower had been in default for at least five years or could prove “undue hardship.”

In 1990, it extended the default period to seven years. In 1997, the Bankruptcy Reform Commission still had found no evidence supporting claims of systemic abuse, but Congress decided nevertheless that only “undue hardship” would make educational debt dischargeable. That placed it in the same category as child support, alimony, court restitution orders, criminal fines, and certain taxes. In 2005, it extended non-dischargeability to private loans as well.

The Enduring Power of a Big Lie

Unfortunately, the anecdotes and unsubstantiated lore about supposed abuses that led to the current rule persist to this day. In a lead editorial on July 25, 2012, The Wall Street Journal perpetuated the falsehood that “[a]fter a surge in former students declaring bankruptcy to avoid repaying their loans, Congress acted to protect lenders beginning in 1977.” 

There was no such surge. It was “more myth and media hype” than reality. Now, Siegel has provided fuel for a new round of obfuscation to displace facts.

“Thirty years after getting my last [student loan],” Siegel writes, “the Department of Education is still pursuing the unpaid balance.” I hope they catch him.

NOTE: The special ebook sale of my first book, Crossing Hoffa – A Teamster’s Story continues: http://discussions.mnhs.org/10000books/true-crime-e-book-sale/. It’s the true crime saga of my father’s two-year tangle with Jimmy Hoffa from 1959 to 1961.

The Chicago Tribune honored it as one of the “Best Books of the Year.” You can get it at Amazon, bn.com, Google, iTunes, and Kobo.

ON THE COLUMBIA LAW SCHOOL BLUE SKY BLOG…

The Columbia Law School Blue Sky Blog is now running my article, “Law School Moral Hazard and Flawed Public Policy”

Here’s the link: http://clsbluesky.law.columbia.edu/2015/05/28/law-school-moral-hazard-and-flawed-public-policy/

LAW SCHOOL MORAL HAZARD

My article in the Winter 2015 issue of the American Bankruptcy Institute Law Review, “Bankruptcy and Bad Behavior — The Real Moral Hazard: Law Schools Exploiting Market Dysfunction,” is now available on the Social Science Research Network. (Free download)

Here’s a teaser.

Loose talk about “the market for law school graduates” and related optimism about future employment prospects for entering students lack analytical rigor. That’s because the job market for new law school graduates is not a single market at all. Rather, graduate employment opportunities vary tremendously across distinct law school submarkets. But tuition and resulting law student debt often bear little relationship to graduates’ employment outcomes.

Current federal policies, including unlimited educational loans that are not dischargeable in bankruptcy, ignore these differences in law school submarkets and confound the operation of a true market. Those policies allow many law schools to exploit the resulting moral hazard, namely, the absence of accountability for their graduates’ poor employment outcomes.

I propose a solution that will make many law school deans, admissions officers, and faculty squirm — as they should.

A NEW YORK TIMES COLUMN MISFIRES

My unwelcome diagnosis and resulting detour into our dysfunctional medical system diverted my attention from scrutinizing commentators who make dubious assertions about the current state of the legal profession.

Well, I’m back for this one. At first, I thought that Professor Steven Davidoff Solomon’s article in the April 1 edition of the New York Times, “Despite Forecasts of Doom, Signs of Life in the Legal Industry,” was an April Fool’s joke. But the expected punch line at the end of his essay never appeared.

To keep this post a manageable length, here’s a list of points that Solomon got wrong in his enthusiastic account of why the legal industry is on the rise. As a professor of law at Berkeley, he should know better.

  1. “The top global law firms ranked in the annual AmLaw 100 survey experienced a 4.3 percent increase in revenue in 2013 and a 5.4 percent increase in profit.”

That’s true. But it doesn’t support his argument that new law graduates will face a rosy job market. Increased revenue and profits do not translate into increased hiring of new associates. In most big firms, profit increases are the result of headcount reductions at the equity partner level – which have been accelerating for years.

  1. “Bigger firms are hiring.”

Sure, but nowhere near the numbers prior to Great Recession levels. More importantly, big firms comprise only about 15 percent of the profession and hire almost exclusively from the very top law schools. Meanwhile, overall employment in the legal services sector is still tens of thousands of jobs below its 2007 high. Even as recently December 2014, the number of legal services jobs had fallen from the end of 2013.

  1. “Above the Law, a website for lawyers, recently reported a rising trend for lateral moves for lawyers in New York.”

Apples and oranges. The lateral partner hiring market — another big law firm phenomenon that has nothing to do with most lawyers — is completely irrelevant to job prospects for new entry-level law school graduates. Even during the depths of the Great Recession, the former was hot. The latter continues to languish.

  1. “Last year, 93.2 percent of the 645 students of the Georgetown Law class of 2013 were employed.”

That number includes: 83 law school-funded positions, 12 part-time and/or short-term jobs, and 51 jobs not requiring a JD. Georgetown’s full-time, long-term, non-law school-funded JD-required employment rate for 2013 graduates was 72.4 percent – and Georgetown is a top law school. The overall average for all law schools was 56 percent.

  1. “[Michael Simkovic and Frank McIntyre found that a JD degree] results in a premium of $1 million for lawyers over their lifetime compared with those who did not go to law school.”

Simkovic acknowledges that their calculated median after-tax, after-tuition lifetime JD premium is $330,000. More fundamentally, the flaws in this study are well known to anyone who has followed that debate over the past two years. See, e.g., Matt Leichter’s two-part post beginning at https://lawschooltuitionbubble.wordpress.com/2013/09/09/economic-value-paper-a-mistrial-at-best/, or the summary of my reservations about the study here: http://thelawyerbubble.com/2013/09/03/once-more-on-the-million-dollar-jd-degree/. Most significantly, it ignores the fact that the market for law school graduates is really two markets — not unitary. Graduates from top schools have far better prospects than others. But the study admittedly takes no account of such differences.

  1. “[The American Bar Foundation’s After the JD] study found that as of 2012, lawyers had high levels of job satisfaction and employment as well as high salaries.”

It also found that by 2012, 24 percent of the 3,000 graduates still responding to the study questionnaire are no longer practicing law. The study’s single class of 2013 originally included more than 5,000 — so no one knows what the non-respondents are doing.

“These are the golden age graduates,” said American Bar Foundation faculty fellow Ronit Dinovitzer [one of the study’s authors], “and even among the golden age graduates, 24 percent are not practicing law.”

7.  “Law schools have tremendous survival tendencies. I have a bet with Jordan Weissmann at Slate that not a single law school will close.”

Yes. Those “survival tendencies” are called unlimited federal student loans for which law schools have no accountability with respect to their students employment outcomes. If Solomon wins that bet, it will be because a dysfunctional market keeps alive schools that should have closed long ago.

Whatever happened to the News York Times fact-checker?

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.