The University of Virginia Law School has offered its unemployed 3Ls stipends to defray the cost of bar application fees ($500) and bar exam prep courses ($1500). This follows a protest during admitted students weekend when some UVA students wore (and sold) T-shirts saying, “$40,000 a year and no jobs.” Of course, such public turmoil is the tip of a mammoth iceberg that isn’t limited to UVA.

The absence of jobs — even for graduates of top schools — is especially dire because repayment of educational loans typically begins when higher education ends. The collateral damage of such debt can persist for generations. As one analyst recently told the NY Times, “A lot of people will still be paying off their student loans when it’s time for their kids to go to college.” According to the same Times article, last year’s college graduates left school with $24,000 in debt.

For those moving on to law school, $24,000 soon looks like the good old days. The 2009 Law School Survey of Student Engagement reported this stunner:

“The percentage of full-time U.S. students expecting to graduate owing more than $120,000 is up notably in 2009…29% of students expect to graduate with this level of debt.” Almost half of all law students expect to cross the $100,000 debt threshold before getting their degrees.

Here’s the disconnect: according to the Bureau of Labor Statistics, the median salary for all lawyers nine months after graduation is $68,500. Try servicing $120,000+ debt on that budget. Average compensation for all attorneys in the United States is $129,000 a year.

Why the gap between investment and reward? A better question is, why not? The BLS numbers don’t appear in law school recruiting brochures that are more likely to tout big law’s $160,000 starting salaries. Nor do they disclose the downside that comes with those high-paying jobs.

Likewise, most schools don’t report meaningful employment data, either. When they collectively tell U.S. News that the most recent average employment rate nine months after graduation is 93%, something is amiss — like the fact that employed can mean being a greeter at Wal-Mart or flipping burgers at McDonald’s. In an insightful new article, Professor Paul Campos calculates the true rate — graduates with full-time legal jobs nine months out — to be well under 50%.

Revealing the truth would almost certainly drive down applications, compromise U.S. News rankings, and threaten law schools’ bottom lines. That might force many deans to reconsider what they’re doing to their own students. Too many administrators hide behind rhetoric — “free choice,” “markets work,” and “students should take personal responsibility” — as excuses to disregard their own roles as the profession’s most important fiduciaries. When ignorance and misinformation reign, choices are distorted and markets don’t work. I often wonder if law school deans who have kids the same age as those they’re duping behave differently from the rest. Or do they fault students’  “failure to take responsibility,” too?

My article, “Great Expectations Meet Painful Realities,” appearing in the current issue of the Seventh Circuit Bar Association’s semi-annual publication, Circuit Rider has more on this (starting at page 24).

Fraud can be overt — by commission — or it can occur by omission when there’s a duty to speak. Revealing good facts can create an obligation to disclose the bad ones. Greater candor won’t stop the flow of talented applicants to law schools. Nor should it. The legal profession is still a noble calling. But it has also become a way for some educational institutions improperly to persuade the next generation to mortgage its own future — literally.

Some call it the next big bubble. If it bursts, I’m not sure what that will mean. Because of statutory revisions in 2005, bankruptcy doesn’t discharge student loan debt unless the difficult “undue hardship” test is met. The era of big bailouts has passed, so that’s an unlikely solution as well.

Perhaps we’ll see a new growth industry in the revival of an ancient concept: debtors prisons. Law school deans who lost sight of their true obligations to their students and their profession should run them — without pay.