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.

INFILAW AND THE ABA

After a setback last summer, Inflilaw has flown under the radar in its quest to acquire the Charleston School of Law. Since July 2013, the private equity owners of Infilaw  — a consortium of three for-profit law schools (Florida Coastal, Charlotte, and Arizona Summit (formerly the Phoenix School of Law)) — have been trying to add Charleston to their portfolio.  (For more on Infilaw, see Paul Campos’ recent article in The Atlantic.)

The persistence of Infilaw’s effort alone says something about the situation: There’s money to be made in legal education. Venture capitalists specialize in finding opportunities for above average investment returns. It doesn’t matter to them that the main source of that money is federal student loans. Nor do they care if the vast majority of students who obtain those loans to attend marginal schools are unable find JD-required employment. If there’s a market failure to exploit for profit, they’re on it.

On November 6, 2014, the ABA Accreditation Committee issued its recommendation of acquiescence — yes, that’s what it’s called — in connection with Infilaw’s proposed acquisition. It found that the desired change in control “will not detract from [Charleston School of Law’s] ability to remain in compliance” with ABA accreditation standards.

The Deal

The ABA recommendation identifies key aspects of the proposed acquisition, but then ignores their implications. For example, under the Asset Purchase Agreement, Infilaw would acquire most of the school’s assets, but it makes no promise of post-acquisition employment for any existing employees. None. Only on the “eve of closing” will Infilaw disclose the faculty members it wants to keep. Nevertheless, the ABA is willing to accept on faith that this pig in a poke — whatever it turns out to be — won’t “detract from the school’s ability” to retain its accreditation.

Under a separate Administrative and Consulting Services Agreement, Infilaw will receive “substantial consideration” to provide “non-academic, administrative, and consulting services” to the law school. Those services probably account for these troubling lines in the ABA committee’s recommendation:

“Infilaw contemplates that…the legal market permitting, it will increase the size of entering classes to approximately 250, or ‘pre-downturn levels.’…The law school will have access to and benefit from the collective knowledge of Infilaw and its three existing law schools with respect to student recruiting and enrollment.”

The Market?

What does “the legal market permitting” mean? Charleston enrolled 145 full-time students for its expected graduating class of 2017. Returning to “pre-downturn” levels would increase that number by 75 percent. Such near-term growth in demand for the school’s new lawyers is a pipe dream. The recent Bureau of Labor Statistics report on legal sector employment confirms painful reality: Over the past year, the number of all legal jobs — not just lawyers — is actually 1,300 lower than a year ago.

But “access to and benefit from” Infilaw’s existing three schools “with respect to student recruiting and enrollment” means law school behavior that has little to do with actual “legal market” employment conditions for new graduates. Rather, as I’ve discussed previously, the current operation of the Inflilaw business model makes the future of Charleston as an Infilaw holding apparent.

A Race To…The Bottom?

The Infilaw model depends on federal student loans to produce revenue streams that create profits for investors. As the demand for lawyers languished during the Great Recession, Infilaw schools increased enrollment and tuition.

Meanwhile, North Carolina bar passage rates for first-time takers graduating from Infilaw’s Charlotte School of Law dropped from 87 percent in July 2010 to 58 percent in July 2013. The school placed seventh (out of seven NC schools) in its July 2014 bar passage rate: 56 percentFlorida Coastal’s first-time rate dropped from 75 percent in July 2012 to 67 percent in July 2013. Its first-time Florida bar passage rate in July 2014 was 58 percent (10th out of 11 Florida schools). Arizona Summit’s first-time bar pass rate in its home state for July 2014 was 55 percent (third out of three Arizona schools).

Overall, only 35 percent of 2013 graduates from Infilaw schools found full-time long-term JD-required employment. By comparison, 53 percent of Charleston School of Law  graduates from the class of 2013 secured full-time long-term JD-required jobs — just below the national average for all law schools.

A Statistic On The Rise

At Florida Coastal, average student loan debt for 2014 graduates was $175,274. The other two Infilaw schools haven’t updated their websites to provide 2014 information. For 2013 graduates of Arizona Summit, average student law school debt was $184,825. At Charlotte, it was $155,697, plus another $20,000 in private student loans. (Average law school debt for Charleston graduates in 2013 was also too high ($146,595). But its 2013 employment outcomes were much better than any Infilaw school.)

Infliaw isn’t home free in its quest. After a closed session of the Accreditation Committee on December 5 in Puerto Rico, the recommendation will go to the ABA’s Council of the Section on Legal Education and Admissions. Then the South Carolina Commission on Higher Education has to approve the deal. Last summer, a committee of that commission voted 3-to-1 against, prompting Infilaw to withdraw its application while promising a return bout that will probably occur in early 2015.

The ABA

People sometimes ask where the ABA has been in the ongoing search for solutions to the current crisis involving law schools whose graduates are incurring staggering debt for JD degrees of dubious value. The answer is becoming clearer.

It’s “acquiescing.”

But wait. The ABA has done one more thing. It has convened a special Task Force on the Financing of Legal Education to recommend fixes for a dysfunctional legal education market. Former Detroit Mayor Dennis W. Archer, the chairman of Infilaw’s National Policy Board, is still chairman of that Task Force. In 2003-2004, he was president of the ABA.

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.

ARE YOU A SMOKIN’ BUCKETFUL OF AWESOME?

[NOTE: For a limited time, the ABA Journal is soliciting nominations for its annual list of the “100 best websites by lawyers, for lawyers, as chosen by the editors of the ABA Journal.” To nominate The Belly of the Beast, please click here.]

Some of my previous posts challenged law school deans, admissions officers, and faculty members who live in denial about the crisis in legal education. This time, I celebrate a law professor who sees things as they are and isn’t afraid to speak truth to power.

Before joining the faculty at the University of North Carolina, Professor Bernard Burk was an academic fellow at Stanford. Prior to that, he spent 25 years in private practice at a firm that eventually merged with Arnold & Porter. We don’t agree on everything, but Burk’s three-part series at the Faculty Lounge culminates in a June 30, 2014 post that earns him my latest “Commendable Comment Award.”

Questioning The “Versatility” Sales Pitch 

Burk analyzes the “versatility of a legal degree” argument. It’s often cited to counter some law schools’ dismal employment outcomes for graduates seeking jobs that actually require a JD. More specifically, the ABA allows schools to soften their self-reported employment results with a loosey-goosey category: “JD-Advantage” positions. To be sure, some are good jobs; but many aren’t. The problem is that schools don’t have to disclose any information about them.

The ABA’s definition of JD-Advantage includes a range of examples so broad that it demonstrates the potential for gaming the numbers: corporate contracts administrator, alternative dispute resolution specialist, government regulatory analyst, FBI agent, risk manager, accountant, journalist, human resources employee, law firm professional development worker, and almost anyone working at a law school in any capacity — from admissions to career services. And even that list isn’t exclusive.

Schools following the ABA’s honor system of reporting don’t need much imagination to dump lots of graduates into the JD-Advantage category. Perhaps that’s one reason that the category has been growing so dramatically. For the class of 2013, more than 6,300 graduates had what their schools called JD-Advantage jobs, a significant increase from 5,200 for the class of 2011.

Admissions Deans as Used Car Salesmen

Professor Burk compares law schools relying on undifferentiated JD-Advantage jobs to used car salesmen. Both assure you that what they have is what you need. But used car salesman never say, “No worries, pal. You should buy this car because, even if the engine implodes the minute you drive off the lot, the smoking pile of scrap that’s left will have measurable salvage value.”

“We generally don’t buy cars for their salvage value,” Burk notes, “especially when any car you buy will have salvage value if it can’t serve the purpose you actually bought it for.”

But some — not all — JD-Advantage jobs look more like the realization of a legal degree’s salvage value for those who have them. That doesn’t mean a legal education lacks intrinsic value. As Burk observes, some prospective students might view what they learn in law school as valuable for its own sake, regardless of whether it leads to a career in the law or enhances their earning power. But three years and $150,000 in tuition is more than most people are willing to spend on such a personal enrichment exercise alone.

A more thoughtful approach is what Burk calls the “Practical Justification Test.” Like the prospective used car purchaser, the prelaw student asks (or should ask), will a law degree actually take me where I want to go? For this group, full-time long-term JD-required employment upon graduation is the most meaningful outcome because law schools exist to produce lawyers. Distinctions based on that criterion should be critical in deciding whether and where to attend law school.

Hope v. Reality

A third rationale for law school involves magical thinking. That’s where some deans, faculty, and admissions officers have now staked their claims. Burk describes the premise of this argument as follows: “[T]he course of study transforms you into such a Smokin’ Bucketful of Awesome that the degree alone routinely opens doors to countless jobs unrelated to the course of study that would otherwise be closed to you or that you will be so much better at whatever you do that the degree is a Rocket to Success at almost anything.”

In response to Burk’s categories, University of Kansas Assistant Dean for Admissions Steven Freedman (the subject of one of my earlier posts) offers a fourth category: “[M]any students see the versatility of a law degree as form of risk insurance.”

Freedman’s comment generated lines from Burk earn him my latest “Commendable Comment Award”:

“[T]outing the salvage value of a law degree as ‘a form of risk insurance’ without offering a clear-eyed assessment of how likely it is that the risk insurance will be needed, what its coverage limits are, and how cheaply you could get the same benefit another way is inexcusably incomplete. It’s a failure to accept the difference between a Smokin’ Bucketful of Awesome and smoking pile of scrap.”

There’s an easy fix. The ABA could require law schools to disclose in detail what their graduates are actually doing in JD-Advantage jobs or, at a minimum, how much they’re earning in such positions. Until that happens, prospective students would be wise to assume that, for most schools, the category includes a lot of scrap.

UPDATE ON THE BATTLE FOR CHARLESTON

Call it an eleventh-hour reprieve. Or maybe it’s just a break before the executioner arrives. On Thursday, June 5, the South Carolina Commission on Higher Education was going to decide on InfiLaw’s application for a license to own and operate the for-profit Charleston School of Law. But a day before the scheduled vote, InfiLaw suspended its application.

As I wrote last week, InfiLaw owns and operates three for-profit law schools (Arizona Summit, Charlotte, and Florida Coastal). Its owner is Sterling Partners, a Chicago-based private equity firm that lists InfiLaw as a holding in its “education portfolio.” In July 2013, InfiLaw agreed to buy the Charleston School of Law. On May 19, the Committee on Academic Affairs and Licensing voted 3-to-1 against recommending InfiLaw’s license request. Then things got interesting.

On May 23 — four days after the Committee’s rejection and just before the Memorial Day weekend — state representative John Richard C. King wrote to the South Carolina Attorney General’s office. He sought an advisory opinion that, if provided, would essentially require the Commission on Higher Education to approve InfiLaw’s application, notwithstanding the earlier Committee rejection. Representative King is also a first-year student at the InfiLaw school in Charlotte, North Carolina.

Only a week after King’s request, the AG’s office issued a detailed 10-page single-spaced legal opinion that gave InfiLaw what it wanted. The final sentence warns: “Any licensing decision based upon criteria outside the law would, of course, be subject to judicial review and possible reversal.”

State senator John Courson immediately suggested that InfiLaw suspend its request temporarily because the AG’s opinion “needs to be vetted” and Governor Nikki Haley needs to fill vacant seats on the Commission before it discusses the issue.

Senator Courson hasn’t revealed publicly where he stands on the merits of InfiLaw’s proposed acquisition. But when legislators want a governor to fill vacant committee seats before taking a final vote on a matter of interest to them, there’s usually a reason. As InfliLaw’s statement accompanying the suspension of its application declares: “We are committed to this acquisition and intend to renew our application in due course.” Close observers might get the uneasy feeling that they’re watching sausage being made.

Meanwhile, no one is discussing the more important point that transcends the Charleston situation. Typically, private equity investors seek opportunities that will provide them with above average returns. That’s not a criticism; it’s their business. However, if for-profit legal education generates returns that are appealing to private equity investors, non-dischargeable federal student loans are the reason. In a glutted market for lawyers, that’s a remarkably unfortunate outcome.

THE BATTLE FOR CHARLESTON

On the heels of my post about two struggling law schools, the New York Times published Professor Steven R. Davidoff’s discussion about one of them. Davidoff argues that critics of InfiLaw’s proposed acquisition of for-profit Charleston Law School are missing a key point: Why is it any worse for the private equity firm that owns InfiLaw to operate Charleston School of Law than, say, the current owners who have already taken millions of dollars out of the school?

In fact, he implies, if the school winds up affiliating with the state-run College of Charleston, why would that be preferable? Profit is profit; what difference does it make who gets it?

Here’s Davidoff’s money quote: “Lost among the dispute is the fact that a lower-tier law school like Charleston — whoever owns it — can not only produce capable graduates but help students start careers they couldn’t have without a law degree.”

Really?

As I’ve reported previously, even the dismal market for new attorneys hasn’t slowed the growth of InfliLaw’s three law schools (Arizona Summit, Charlotte, and Florida Coastal) — from a combined 679 graduates in 2011 to 1,191 in 2013. According to the ABA, only 36 percent of the InfiLaw classes of 2013 (including all three of its law schools) obtained full-time, long term JD-required employment.

Disaggregation doesn’t make things look any better for the company, unless you’re one of its private equity owners. For example, Davidoff cites Florida Coastal’s improvement in the percentage of graduates who pass the bar — from 58.2 percent to 76.4 percent as evidence of InfiLaw’s “track record of improving schools.” He’s responding to a “fear about the acquisition — that a private equity firm will lower standards.”

Davidoff doesn’t cite a source for his 76.4 percent number. According to Florida Coastal’s website, only 67.4 percent of first-time takers passed the bar in July 2013 — down from 75.2 percent for the July 2012 test. For February 2014, 72.9 percent of first-time takers passed — down from 79.3 percent in February 2013.

But that’s a minor issue compared to the overriding problem: only 35 percent of 2013 graduates obtained full-time, long-term jobs requiring that degree. The rest are not starting “careers that they wouldn’t have without a law degree.”

Debt

Maybe most InfiLaw graduates aren’t getting full-time, long-term law jobs, but they’re acquiring a lot of educational debt. Annual tuition and fees at all three InfiLaw schools exceed $40,000. At Arizona Summit, median federal law student debt between July 1, 2012 and June 30, 2013 was $184,825. At Florida Coastal, it was $162,549. The Charlotte Law School median was $155,697, plus another $20,018 in private loans.

Davidoff’s defense of InfiLaw ignores the combination of big debt and poor employment outcomes that afflict most of its recent graduates.

His concluding thoughts make a valid point: “Instead of arguing about who will profit from them, Charleston’s students may instead want to ask who will give South Carolina’s residents the best opportunity to succeed as lawyers at an acceptable price.”

Based on its track record to date, the answer isn’t InfiLaw. And I would reframe the question: Why should anyone profit at all when non-dischargeable student loans are the source of those profits?

The new ABA Task Force on the Financing of Legal Education has an unprecedented opportunity to straighten out this mess and take the profession to a better place. But with the chairman of InfiLaw’s National Policy Board (Dennis Archer) chairing that committee, don’t hold your breath waiting for that to happen.

 

A TALE OF TWO LAW SCHOOLS

Two law schools in the news probably wish that they weren’t. They exemplify market dysfunction in the current system of financing legal education.

Indiana Tech

More than a year ago, I wrote about Indiana Tech Law School, one of several law schools founded after 2010. As proponents completed a feasibility study, newly required ABA disclosures demonstrated that only half of all recent law school graduates were finding full-time, long-term JD-required jobs. But some people thought that Indiana really needed a fifth law school.

Indiana Tech Law School opened its doors in 2013. It enrolled only 28 first-year students, far below the original target of 100. On May 21, 2014, its first dean and university provost Peter Alexander resigned both positions. According to the university press release, “Alexander cited the achievement of the goals he had established for the law school to that point in time and a desire to pursue other employment opportunities as the reasons for his decision to resign.”

An uncertain future?

In addition to promoting Indiana Tech as unique, the school’s website introduces prospective students to the doctrine of caveat emptor:

“Like any new law school, Indiana Tech must be in operation for one year prior to seeking ABA accreditation…The Law School makes no representation to any applicant that it will be approved by the American Bar Association prior to the graduation of any matriculating student.”

In early May, the school stated its intent to seek provisional accreditation. Perhaps ABA Accreditation Standard 201 will be relevant to that determination: “The present and anticipated financial resources of a law school shall be adequate to sustain a sound program of legal education and accomplish its mission.”

At Indiana Tech, tuition is $30,360; estimated living and other expenses and add another $17,800. No data exist on the extent to which the 28 students in the school’s inaugural class borrowed funds for their first year. But it seems likely that federal student loan dollars were central to the following prediction in 2011 — when projected enrollment for the class entering in 2013 was 100 and expected to grow thereafter: “The school [will be] breaking even in 2017, according to the feasibility study. By the fifth year, the law school is projected to start operating at a surplus.”

Without assumptions about growing student loan debt to fund operations, would anyone have thought Indiana Tech Law School was “feasible” in 2011? How about 2014?

Charleston School of Law

Charleston, a for-profit law school, reveals a different kind of market dysfunction. InfiLaw, a for-profit law school group, has been trying to acquire it since last summer. (Recently, I wrote about InfiLaw and one of its national board members who chairs the new ABA Task Force on the Financing of Legal Education.) On May 19, a committee of the South Carolina Commission on Higher Education voted to reject a recommendation that InfiLaw receive a license to operate Charleston Law School.

InfiLaw’s attorney, Kevin Hall, renewed the company’s effort in a public hearing before the full Commission. He described the school as “in a financial tailspin.” According to the Charleston Post and Courier, “The five judges and lawyers who started Charleston School of Law a decade ago with the lofty goal of training attorneys committed to public service… began draining money from the school [in 2010], withdrawing $25 million in profits by 2013 that they split among themselves.”

The three remaining owners “confirmed Hall’s description of the school’s financial situation, and they all agreed that it got that way because owners for years had been pulling profits from the institution.”

Follow the money

What was the source of Charleston’s now-distributed profits? The answer appears on the school’s website:

“Most students will depend on federal student loans to pay for tuition, books and living expenses while in law school. During the 2012-2013 academic year, 88% of our students borrowed student loans to finance their legal education. At graduation, the average student loan debt incurred for those borrowers while attending the Charleston School of Law was $146,595.”

Nine months after graduation, 53 percent of the school’s class of 2013 had found full-time long-term jobs requiring a JD. More than half of those were working in firms of 10 or fewer attorneys.

So at Charleston, student debtors finance profit distributions to law school owners who have no accountability for poor graduate outcomes. When the school later hits the financial skids, only InfiLaw, another for-profit organization, can rescue it.

Wealth redistribution takes many forms, but none produces results more perverse than the current system for financing — and profiting from — legal education.

MORE JOBS, EXCEPT FOR LAWYERS

During April 2014, job growth exceeded economists’ expectations. The recovery continues, but one line item in the latest detailed Bureau of Labor Statistics report should be particularly troubling to some law school deans and professors who are making bold predictions about the future.

The Facts

As the economy added 288,000 new jobs last month, total legal services employment (including lawyers and non-lawyers) declined by 1,200 positions from March 2014. A single monthly result doesn’t mean much. But over the past year, total legal services employment has increased by only 700 jobs.

In fact, according to the BLS, since December 2007 net legal services employment has shrunk by 37,000 jobs. Meanwhile, law schools have been awarding 40,000 new JD degrees annually for more than a decade.

The Denier’s Plight

Some law school deans and professors still object to any characterization of this situation as a “crisis” in legal education. In fact, one professor proclaimed last summer that now is still a great time to go to law school because a lawyer shortage would be upon us by the fall of 2015! Before rejoicing that we’ve almost reached that promised land, note that in 2011 the same professor, Ted Seto at Loyola Law School – Los Angeles, similarly predicted that the short-term problem of lawyer oversupply would lend itself to a quick and self-correcting resolution when the business cycle turned upward.

Well, the upward turn has been underway for several years, but significant growth in the number of new legal jobs hasn’t accompanied it. Nevertheless, tuition has continued to rise. For prelaw students now contemplating six-figure JD debt, law school deniers have a soothing argument: A degree from anywhere is well worth the cost to anyone who gets it.

Using aggregate data, the deniers ignore dramatic difference in individual outcomes for schools and students. Some deniers even use their lifetime JD-value calculations to defend unrivaled tuition growth rates for law schools generally. In somewhat contradictory rhetoric, they simultaneously promote income-based loan repayment plans as a panacea.

Leadership?

Recently, one dean assured me privately that deniers have now become outliers. If so, the overall reaction of deans as a group remains troubling. In particular, law schools have countered a precipitous drop in applicants with soaring acceptance rates. The likely result will be a fall 2014 class somewhere between 35,000 and 38,000 first-year students.

Likewise, law school sales pitches have devolved into cynical efforts at selling something other than the practice of law. They market the versatility of a JD as preparation for anything else that law graduates might want to do with their lives. But so is medicine. So are lots of things. So what? Medical schools train doctors. Isn’t the core mission of law schools to train lawyers? What will remain after we abandon that sense of professional purpose and identity?

Practicing Law? Oh, I Could Have Done That. 

All of this raises a question: How do the law school deans and professors in denial about the state of things deal with unpleasant facts that don’t fit the world view they’re trying to sell others? Ignore them. Pay no attention to the man behind the curtain, as the self-designated Wizard of Oz might say to Dorothy. Somehow, we’ll get you back to Kansas — where associate admissions dean Steven Freedman at the University of Kansas recently went public with his denial.

Like similar predictions, Freedman’s analysis is suspect. For example, his projections of a lawyer shortage by 2017-2018 ignore the excess inventory of new law graduates that the system has produced over the past several years (and is still producing). (In a follow-up comment to his own post on “The Faculty Lounge,” Freedman defends his resulting calculations on the unsupported grounds that “the vast majority of them retired or changed careers” — an assumption, he acknowledges, that contradicts the real world observations and data of Jim Leipold, executive director of NALP.)

Even worse, Freedman offers a general recommendation to every prospective student — “Enroll today!” was the title of his first installment at “The Faculty Lounge.” But he fails to mention that employment outcomes vary enormously across law schools. His post’s subtitle — “Why 2017-2018 Will Be a Fantastic Time to Graduate from Law School” — is fraught with the danger that accompanies the absence of a nuanced and individualized message.

Ironically, in the real world of clients, judges, and juries, attorneys who ignore the key facts in a case usually lose. Eventually, they have trouble making a living. Someday, perhaps the law school deniers will have that experience, first-hand.

A TROUBLESOME TASK FORCE

For any lawyer, credibility is everything. A key reason that the ABA Task Force on the Future of Legal Education produced such a worthwhile report and recommendations was the stature and credibility of its participants, especially its chairman, retired Indiana Supreme Court Chief Justice Randall T. Shepard. Although imperfect, the effort and outcome have received widespread and well-deserved praise.

On a vitally important issue, the Task Force punted. With respect to the cost and financing of legal education, a new ABA task force has now stepped into that breach. Unlike its predecessor, the ABA Task Force on the Financing of Legal Education has a credibility problem at the outset.

The Best Intentions

The chairman of the new task force, Dennis W. Archer, is undoubtedly a decent man trying to the right thing. In fact, he has an impressive history of public service. But as a former associate justice of the Michigan Supreme Court, Archer understands that appearances matter. In fact, the mere appearance of impropriety in a case is enough for a judge to step aside. It’s not a question of personal ethics. Rather, it’s a matter of public perceptions about the integrity of a decision-making process and its outcomes.

Since 2010, Archer has been a member of the National Policy Board of InfiLaw, which owns three private ABA-accredited for-profit law schools: Arizona Summit Law School (formerly the Phoenix Law School), Charlotte School of Law, and the Florida Coastal School of Law. The board on which he sits “provides counsel upon the strategic direction and long-term plans for the InfiLaw system of independent law schools….”

The Business Model

Annual tuition and fees at all three InfiLaw schools exceed $40,000. According to their ABA disclosures, the schools have been big beneficiaries of the current dysfunctional system of financing a legal degree. At Arizona Summit, median federal law student debt between July 1, 2012 and June 30, 2013 was $184,825. At Florida Coastal, it was $162,549. The Charlotte Law School median was $155,697, plus another $20,018 in private loans.

At all three law schools, students’ “institutional financial plan debt” was zero. The InfiLaw schools have plenty of federal student loan dollars skin in the game, but none of their own.

A Disturbing Trend

Even as the market for lawyers has languished, InfiLaw schools increased enrollment. According to the ABA, the three schools graduated a combined class of 679 students in 2011. Nine months later, only 256 had long-term, full-time jobs requiring a JD. That’s 38 percent.

Last year’s combined graduating class for the three school had soared to 1,191 students. Only 428 found full-time long-term JD-required employment. That’s 36 percent.

All of the schools’ websites follow the format of Arizona Summit’s rosier description of employment outcomes:

“Arizona Summit Law School was able to confirm the employment status of 99% (278 out of 279) of its program completers [sic] who graduated September 1, 2012, through August 31, 2013. The job placement rate for these graduates was 90%. This figure was calculated using the NALP formula for calculating job placement rate. Therefore, the 90% job placement rate was calculated by adding together all the employed graduates (250) and then dividing by the number of graduates whose employment status we were able to confirm (278). In accordance with NALP guidelines, the number of employed graduates includes all employment positions, including legal and non-legal positions, permanent and temporary positions, full-time and part-time positions, and any positions funded by Arizona Summit Law School.”

Clicking to another document on the site reveals that 25 of those jobs were “Law School Funded Positions” — 22 of which were short-term.

The Challenge of Leadership

Perhaps it takes an insider, such as former Justice Archer, to accomplish the kind of monumental change that his InfiLaw constituents may well resist. Perhaps this will be a “Nixon goes to China” moment for him and the profession. Maybe it will be the equivalent of President Lyndon Johnson muscling civil rights legislation through the Senate — a Texan overcoming a resistant South in the 1960s.

On the other hand, if the latest ABA task force produces anything less than revolutionary recommendations that finally make law schools financially accountable for the fate of their graduates, everyone will laugh it off — as they should. Unfortunately, there’s nothing particularly funny about the situation.

WHO REALLY PAYS FOR LAW STUDENT DEBT?

More public interest lawyers for our nation’s underserved citizens would be a good thing. More public debt to subsidize law schools that shouldn’t exist at all would be a bad thing.

In recent years, law schools have promoted debt forgiveness programs as a solution to rising student loan obligations. In some important ways, they are. Income-based repayment (IBR) can be a lifeline in a drowning pool of educational debt. It can also open up less remunerative options, including public interest law, for those willing to forego big bucks to avoid big law firms. But now everyone seems surprised to realize that, when all that debt is forgiven years hence, someone will have to pick up the tab.

Well, not quite everyone is surprised. More than two years ago, Professor WIlliam Henderson, one of the profession’s leading observers, saw this train wreck coming. “Unless the government’s actuarial assumptions on student loan repayments turn out to be correct,” Henderson wrote, “federal funding of higher education is on a collision course with the federal deficit.”

Tuition increases without regard to value added

Recently, the Wall Street Journal made that collision a front page story. In “Plans That Forgive Student Debt Skyrocket,” law students took center stage — and for good reason. For a decade, new lawyers have outpaced everyone, even medical students, in the rate at which they have accumulated educational debt.

Am Law columnist Matt Leichter has reported that from 1998 to 2008, private law school tuition grew at an annual rate of almost 3.5 percent, compared to 1.89 percent for medical schools and 2.85 percent for undergraduate colleges. Public law school tuition increased at an even faster pace: 6.71 percent. From 2008 to 2012, median law school debt for new graduates increased by 54 percent — from $83,000 to $128,000. (That compares to a 22 percent increase in medical student debt.)

Market disconnects

What accounts for the law school tuition explosion? For starters, the U.S. News rankings methodology incentivizes deans and administrators to spend money without regard to the beneficial impact on a student’s education. More expenditures per student mean a higher ranking, period.

Who provides that money? Students — most of whom obtain federally backed loans. To that end, the prevailing law school business model requires filling classrooms. As transparency about dismal law graduate employment outcomes has produced fewer applications at most schools, deans generally have responded by increasing acceptance rates. The overall rate for all law schools rose from 56 percent in 2004 to almost 80 percent in 2013.

Sell, sell, sell

As National Law Journal reporter Karen Sloan observed recently, “It’s a tale of two legal education worlds.” Top law schools place 90 percent of their graduates; but “more than three-quarters of ABA accredited law schools — 163 — had underemployment rates of 20 percent or more.”

Those numbers begin to explain what has now become an annual springtime ritual. As I’ve discussed in recent posts, many law school professors and deans at schools producing those underemployed graduates are proclaiming that the lawyer glut is over. Now, they say, is the best time ever to attend law school.

Outside the ivory tower, practicing lawyers know that such hopeful rhetoric isn’t transforming the market or slowing the profession’s structural changes. Last June, NALP Executive Director James Leipold wrote, “There are no indications that the employment situation will return to anything like it was before the recession.”

The most recent ABA employment statistics for the class of 2013 prove Leipold’s point: Nine months after graduation, only 57 percent had obtained long-term-full-time jobs requiring a JD. Median incomes for new graduates aren’t improving much, either. For the class of 2008, it was $72,000; for the class of 2012, it was $61,245.

IBR to the rescue

The vast majority of students borrow six-figure sums to fund their legal education. The federal government backs the loans, which survive bankruptcy. The end result is law schools with no financial skin in a game for which they reap tremendous economic rewards.

IBR is a godsend to many new lawyers who can’t get jobs that pay enough to cover their loans. It permits monthly installments totaling 10 percent of discretionary income (defined as annual income above 150 percent of the poverty level). Outstanding balances are forgiven after 10 years; for private sector workers, it’s 20 years.

Less obvious consequences

IBR has a dark side, too. If a person leaves the program early, total debt will include all accrued interest and principal, often creating a balance larger than the original loans. For those remaining in the program for the requisite 10 or 20 years, forgiven debt becomes taxable income in the year forgiven.

More insidiously for the profession, IBR allows marginal schools to exploit an already dysfunctional market. Such schools are free to ignore the realistic job prospects for their graduates (including JD-required public service positions) as they recruit new students who obtain six-figure loans to pay tuition. When graduates can’t get decent jobs, it’s not the school’s problem. Meanwhile, IBR becomes the underemployed young lawyer’s escape hatch.

The Wall Street Journal reports that graduates are using that hatch in dramatically increasing numbers: “[E]nrollment in the [IBR] plans has surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion.” Those figures aren’t limited to lawyers, but they undoubtedly include many young graduates from law schools that should have closed long ago.

Bill Henderson probably finds some measure of vindication as a wider audience now frets over a problem that he foresaw years ago. But I know him well enough to believe that for him, like me, four of the least satisfying words in the English language are: “I told you so.”

ANOTHER UNFORTUNATE OP-ED

The current debate over the future of legal education is critical. Even more important is the need to base that debate on a common understanding of indisputable facts. Perhaps UC-Irvine Dean Erwin Chemerinsky and Professor Carrie Menkel-Meadow just made an honest mistake in misreading employment statistics upon which they rely in their April 14, 2014 New York Times op-ed, “Don’t Skimp on Legal Training.” If so, it was a bad one. (The Times designated my comment that includes some of the data cited in this post as a “NYT pick.”)

The offending paragraph comes early in the effort to dismiss those who use the word “crisis” — their op-ed puts it in quotation marks — to describe the challenges facing the profession. Since that word appears prominently in the subtitle of my latest book, I’ll take the bait.

Wrong From The Start

The authors support their “no crisis” argument with this:

“[A]s recently as 2007, close to 92 percent of law-school graduates reported being employed in a paid-full-time position nine months after law school. True, the employment figures had dropped by 2012, the most recent year for which data is [sic] available, but only to 84.7 percent.”

But the data on which they rely include part-time, short-term, and law school funded jobs — and only those graduates “for whom employment status was known.”

“Facts Are Stubborn Things”

Not until 2010 did the ABA require law schools to identify the types of jobs that their graduates actually obtained. The results have been startling, as data from the class of 2013 demonstrate:

— Nine months after graduation, only 57% of graduates had long-term full-time (LT-FT) jobs requiring bar passage. Another 5% held part-time or short-term positions.

— LT-FT “JD Advantage” jobs went to another 10.1%. This category includes positions — such as accountant, risk manager, human resources employee, and more — for which many graduates are now asking themselves whether law school was worth it.

— Another 4% got law school funded jobs.

— Unemployed law graduates seeking jobs increased to 11.2%.

— Average law school debt for current graduates exceeds $100,000. The rate of tuition increase in law schools between 1998 and 2008 exceeded the rate for colleges and medical schools. One reason is that U.S. News ranking criteria reward expenditures without regard to whether they add value to a student’s education.

— For 33 out of 202 ABA-accredited law schools, the LT-FT JD-required employment rate was under 40%; for 13 schools, it was under 33%.

Federally-backed student loans that survive bankruptcy fuel a dysfunctional system that has removed law schools from accountability for graduates’ employment outcomes. The current regime blocks the very “market mechanisms to weed out the weakest competitors” that the authors cite as providing the ultimate cure. As law school applications have plummeted, most schools have responded with soaring acceptance rates.

If all of that doesn’t add up to a crisis, what will it take?

The Importance of Credibility

The problem with the authors’ unfortunate attempt to minimize the situation is its power to undermine their other points that are, in fact, worth considering.

For example, they note that job prospects “obviously depend on where a person went to school and how he or she performed.” True, but many law professors now touting the happy days ahead for anyone currently contemplating law school ignore that reality.

“The cost of higher education, and the amount of debt that students graduate with, should be of concern to all.” True, but what’s their proposed solution?

“Law schools specifically should do more to provide need-based financial aid to students — rather than what most law schools have been doing in recent years, which is to shift toward financial aid based primarily on merit in order to influence their rankings. This has amounted to ‘buying’ students who have higher grades and test scores.” True, but how many schools are changing their ways? Between 2005 and 2010, law schools increased need-based financial aid from $120 million to $143 million while non-need based aid skyrocketed from $290 million to $520 million.

Like almost every law school dean in America, Dean Chemerinsky has a choice. He can acknowledge the crisis for what it is and be part of the solution, or he can live in denial and remain part of the problem. Earlier this year, National Jurist named Chemerinsky its “Most Influential Person in Legal Education.” Now is the time for him to rise to the challenge of that role.

 

FALSE ADVERTISING POSING AS LEGAL SCHOLARSHIP

Sometimes everything you need to know about a piece of purported scholarly legal research appears in its opening lines. Take, for example, the first two sentences of “Keep Calm and Carry On” in current issue of The Georgetown Journal of Legal Ethics:

“Supposedly, there is a crisis in legal education. It appears to be touted mostly by those who are in the business of realizing monetary (or, at least, reputational) gain from providing cost-efficient coverage about matters of (rather) little importance.”

At this point, Professor Rene’ Reich-Graefe’s 15-page article offers the second of its 80 footnotes: “For example, in 2011, The New York Times Company reported annual revenues of $2,323,401,000. Of those, approximately 52.57% (or $1,221,497,000) were raised in advertising revenue…”

So it turns out that the New York Times, The Wall Street Journal, and every other media outlet reporting on the troubled world of American legal education have manufactured a crisis to sell advertising space. Never mind too many law school graduates for too few JD-required jobs, more than a decade of soaring law school tuition, and crippling student debt. Everyone just needs to calm down.

The argument

Professor Reich-Graefe offers what he calls “a brief exercise in some eclectic apologetics of the present state of legal education for those of us who refuse to become card-carrying members of the contemporary ‘Hysterias-R-Us’ legal lemming movement.” Starting with a Bureau of Labor Statistics report that “lawyer employment jobs in 2010 were at 728,200,” he observes that the United States has an additional 500,000 licensed attorneys and concludes:

“One may safely assume that, at present, a good number (though certainly not all) of those licensed lawyers are gainfully employed, too — mainly within the legal profession.”

Then Reich-Graefe posits trends that he says will favor the legal profession: “Over half of currently practicing lawyers in this country will retire over the next 15 to 20 years”; “U.S. population will increase by over 100 million people, i.e., by one third, until 2060, thus, increasing total demand for legal services”; “the two largest intergenerational wealth transfers in the history of mankind…will occur in the United States over the course of the next 30 to 40 years, thus, increasing total demand for legal services even further”; and “everything in the law, by definition, will continue to change…there will be more work for more lawyers.”

His analysis culminates in a breathless conclusion: “[R]ecent law school graduates and current and future law students are standing at the threshold of the most robust legal market that ever existed in this country — a legal market which will grow, exist for, and coincide with their entire professional career [sic].”

The critique

Others have already dissected Reich-Graefe’s statistical arguments in great detail. Suffice it to say that when law professors wander into the world of numbers, someone should subject their work to peer review before publishing it. But Professor Bill Henderson makes an equally important point: Even if Reich-Graefe’s analysis and assumptions are valid, his advice — “Keep Calm and Carry On” — is dangerous.

I would add this nuance: Reich-Graefe’s advice is more dangerous for some law schools than for others. The distinction matters because law schools don’t comprise a single market. That’s not a value judgment; it’s just true. At Professor Reich-Graefe’s school, Western New England University School of Law, only 37 percent of the graduating class of 2013 obtained full-time, long-term jobs requiring a JD. Compare that to graduate employment rates (and salaries) at top schools and then try to convince yourself that all schools serve the same market for new lawyers.

The dual market should have profound implications for any particular school’s mission, but so far it hasn’t. Tuition at some schools with dismal employment outcomes isn’t significantly less than some top schools where graduation practically assures JD-required employment at a six-figure salary.

Likewise, virtually all schools have ridden the wave of dramatic tuition increases. In 2005, full-time tuition and fees at Western New England was $27,000. This year, it’s $40,000.

Shame on us

Reich-Graefe makes many of us accomplices to his claimed conspiracy against facts and reason. Shame on me for writing The Lawyer BubbleShame on Richard Susskind for writing Tomorrow’s Lawyers. Shame on Bill Henderson for his favorable review of our books in the April 2014 issue of the Michigan Law Review. Shame on Brian Tamanaha, Paul Campos, Matt Leichter, and every other voice of concern for the future of the profession and those entering it.

Deeply vested interests would prefer to embrace a different message that has a noble heritage: “Keep Calm and Carry On” — as the British government urged its citizenry during World War II. But in this context, what does “carry on” mean?

“Carry on” how, exactly?

Recently on the Legal Whiteboard, Professor Jerry Organ at St. Thomas University School of Law answered that question: filling classrooms by abandoning law school admission standards. Ten years ago, the overall admission rate for applicants was 50 percent; today it’s almost 80 percent. That trend line accompanies a pernicious business model.

It’s still tough to get into top a law school; that segment of the market isn’t sacrificing student quality to fill seats. But most members of the other law school market are. They could proceed differently. They could view the current crisis as an opportunity for dramatic innovation. They could rethink their missions. They could offer prospective students new ways to assess realistically their potential roles as attorneys while providing a practical, financially viable path for graduates to get there.

Alternatively, they can keep calm and carry on. Then they can hope that on the current field of battle they’re not carried off — on their shields.

THE END OF THE LAWYER GLUT?

Could a years-long oversupply of new attorneys finally be on the wane? Based on the trend of recent headlines, it would be easy to reach that conclusion. For example, a December 2013 Wall Street Journal headline read: “First-Year Law School Enrollment at 1977 Levels.” The first sentence of the article described the “plunge” in entering law student enrollments.

Likewise, in January 2014, National Jurist reported on steep enrollment declines at particular schools from 2010 to 2013. The big losers in that compilation were “the University of LaVerne (down 66.2 percent) and Thomas M. Cooley Law School (down 40.6 percent).”

Most recently, the National Law Journal took a closer look at the 13 law schools that saw “1L enrollment drop by 30 percent or more in the span of 12 months, while an additional 27 reported declines of 20 to 30 percent in all.”

Taken together, these reports create an impression that the severe lawyer glut is ending.

How about a job?

For prospective law students, the size of any drop in overall enrollment isn’t relevant; employment prospects upon graduation from a particular school are. According to the ABA, just under 40,000 students began law school in the fall of 2013 — down eight percent from the entering class of 2012. That’s significant, but not all that dramatic.

Meanwhile, for the entire decade ending in 2022, the latest estimate (December 2013) from the Bureau of Labor Statistics puts the total number available positions for “Lawyers, judges, and related workers” at around 200,000. That net number takes into account deaths, retirements, and other departures from the profession. More sobering, it’s yet another downward revision from earlier BLS projections.

As the profession makes room for 20,000 new attorneys a year, why all the media attention about 1L enrollments “plunging” to a level that is still almost twice that number?

I think the answer is that some law professors are running around screaming that their hair is on fire because, for many of them, it is. The media are covering that blaze, but the larger conflagration surrounding the crisis in legal education somehow gets lost.

U.S. News to the rescue?

Professor Jerry Organ at the University of St. Thomas School of Law has an interesting analysis of the situation. Schools in trouble are “picking their poison.” One option is to maintain admission standards that preserve LSAT and GPA profiles of their entering classes. Alternatively, they can sacrifice those standards in an effort to fill their classrooms and maximization tuition revenues.

U.S. News & World Report rankings now have an ironic role in this mess. For decades, rankings have contributed to perverse behavioral incentives that have not served law schools, students, or the profession. For example, in search of students with higher LSATs that would improve a ranking, many schools diverted need-based financial aid to so-called “merit scholarships” for those with better test scores.

Likewise, revenue generation also became important in the U.S. News calculus. As the ABA Task Force Report on the Future of Legal Education notes, the ranking formulas don’t measure “programmatic quality or value” and, to that extent, “may provide misleading information to students and consumers.” They also reward “increasing a school’s expenditures for the purpose of affecting ranking, without reference to impact on value delivered or educational outcomes.”

Now the rankings methodology has presented many schools with a Hobson’s choice: If they preserve LSAT/GPA profiles of their entering classes, they will suffer a reduction in current tuition dollars as class size shrinks; if they admit less qualified applicants, they’ll preserve tuition revenues for a while, but they’ll suffer a rankings decline that will hasten their downward slide by deterring applicants for the subsequent year.

As some schools become increasingly desperate, they will be tempted to recruit those who are most vulnerable to cynical rhetoric about illusory prospects on graduation. The incentive for such mischief is obvious: However unqualified such students might be for the profession, the six-figure loans they need to finance a legal education are available with the stroke of a pen. Revenue problem solved.

Some law professors argue that the trend of recent declines in enrollment is sufficient to create a shortfall in law school graduates by 2015. Maybe they’re right. Time will tell — and not much time at that.

I think it’s more likely that over the next decade, a lot of law professors will find themselves looking for work outside academia. Meanwhile, their best hope could be to run out the student loan program clock long enough for them to retire. Then it all becomes someone else’s problem.

A CASE OF MOTIVATED REASONING

A recent survey, “What Courses Should Law Students Take? Harvard’s Largest Employers Weigh In?” by Harvard Law School Professors John Coates, Jesse Fried, and Kathryn Spier, has assumed a life that its sponsors never intended. For example, a recent Wall Street Journal headline implies that the survey provides a roadmap to success: “Want to Excel in Big Law? Master the Balance Sheet.” Likewise, some cite the survey in taking unwarranted shots at proposals to make law school more experiential.

Such misinterpretations of the Harvard survey might spring from a condition that psychologist Stephan Lewandowsky would call motivated reasoning: “the discounting of information or evidence that challenges one’s prior beliefs accompanied by uncritical acceptance of anything that is attitude-consonant.” In other words, people often see what they want to see, even when it isn’t there.

The HLS survey

Harvard sought curriculum input from an important constituency, namely, some big law firms. The questionnaire went to 124 practicing attorneys at the 11 largest employers of Harvard graduates in recent years, including my former firm Kirkland & Ellis. Among the respondents were 52 litigators, 50 corporate/transactional attorneys, and 22 regulatory practitioners. The tiny non-random sample is not even a representative slice of a typical big law firm practice.

Harvard didn’t ask attorneys to identify law school courses that might improve a student’s chances of getting a job. It couldn’t. The 11 firms represented in the survey hire virtually all new associates from their own second-year summer programs. They base those hiring decisions on first-year grades because, at the time they extend offers, there are no other law school grades to consider. Whatever courses students might take in the second or third years make no difference to their big law firm employment prospects.

Harvard also didn’t ask lawyers to identify courses that might help graduates become equity partners. That would be silly because there are no such courses. Even among Harvard graduates, fewer than 15 percent of those who begin their careers as new associates in big firms will become equity partners many years later.

So what did the survey investigate? The questionnaire could have read: You work in one of 11 big firms that serve corporate America. Your firm already hires many Harvard graduates. What courses can we offer that will make those newbies most useful to you when they start work?

Answering only the questions asked

Even within its narrow scope, the HLS questionnaire limited the range of permissible responses. For example, three questions focused exclusively on courses in “business methods” and “business organizations” (“BM” and “BO” — no laughing). Here’s Question #1:

“HLS has a variety of business methods courses that are geared towards students who have little or no exposure to these areas. For each of the following existing HLS classes, please indicate how useful the course would be for an associate to have taken (1 = Not at all Useful; 3 = Somewhat Useful; 5 = Extremely Useful).”

Respondents had to choose from among seven options: accounting and financial reporting, corporate finance, negotiation workshop, business strategy for lawyers, analytical methods for lawyers, leadership in law firms, and statistical analysis/quantitative analysis. Accounting and financial reporting placed first among all responses; corporate finance was second. Big deal.

Likewise, when asked to look beyond the seven business methods choices in identifying useful courses, respondents predictably chose corporations, mergers & acquisitions, and securities regulation as the top three. For decades, those classes have comprised the heart of most second-year students’ schedules. Again, no news here — and no magic formula that produces success in big law.

The options not offered

As for the misguided suggestion that the survey trashes experiential learning, only one survey question asked attorneys to identify the most useful courses outside the business area. Evidence, federal courts, and administrative law topped the list. But respondents didn’t have the option of choosing trial practice or any other experiential course because they didn’t appear on the questionnaire’s multiple-choice list of permissible answers.

So let’s return to some of the headlines about the HLS study.

Does the survey suggest that students taking business-oriented courses will be more likely to get jobs? No.

Does the survey suggest that students will be more likely to succeed — even in big law — if they take more business-oriented courses? No.

Does the HLS survey deal a blow to proponents of experiential learning? No. (In fact, an experiential option — negotiation workshop — did pretty well, placing third out of seven possible responses to Question #1.)

Desperately seeking something

In the end, any effort to overplay the survey collides with the authors’ concise summary: “The most salient result from the survey is that students should learn accounting and financial statement analysis, as well as corporate finance.” For that conclusion, no one needed 124 big law attorneys to complete an online questionnaire.

As the legal profession makes its wrenching transition to whatever is next, perhaps the unwarranted attention to the Harvard survey reflects a measure of desperation among those searching for answers. Motivated reasoning isn’t making that search any easier.

TROUBLE IN ALBANY

Recently, Albany Law School has attracted some unwanted publicity, but many other schools should be paying close attention. On February 3, the school offered buyouts to as many as eight tenured professors. That may not sound like a lot, but it’s almost 20 percent of the school’s full-time faculty.

Reversal of Fortune

Notwithstanding its relatively low position in the law school universe (U.S. News rank: #132), Albany Law School enjoyed a nice run from 2005 to 2011 — as did most of its peers. During that period, the school enrolled around 240 first-year students annually. Tuition rose steadily from $30,000 in 2005 to its current $42,000. During the period, student-faculty ratios dropped from 16:1 to 13:1.

But the last few years have been a different story. Even as it accepts almost 70 percent of all applicants, enrollment for the class of 2016 has plummeted to 182 — a 25 percent drop from 2005. The school placed a little more than half of its 2012 graduates in full-time long-term jobs requiring a JD. (As with many schools, the decline in first-year enrollment accelerated after detailed ABA-mandated employment outcomes first appeared in 2012 for the class of 2011.)

Tough Choices

Albany’s new dean, Penelope Andrews, began her tenure on July 1, 2012. Even a thorough understanding of the school’s problematic trend lines could not have prepared her for the challenges she soon confronted.

On December 16, 2013, Daniel Nolan, chair of the Albany board of trustees, circulated an email stating that “relevant financial circumstances facing the School require a headcount reduction, including faculty.”

A week later, at the request of a newly formed (in November 2013) Albany Law School chapter of the American Association of University Professors, Gregory F. Schultz, associate secretary and director of the national AAUP, wrote a lengthy letter to Dean Andrews. Schultz expressed concern that the law school’s claims about economic circumstances didn’t rise to the level of “financial exigency” required to justify terminating tenured faculty. Instead, he wrote, Albany’s threatened action appeared to be a pretext for steps that “would eviscerate tenure at the Albany Law School and, with it, the protections for academic freedom.”

He said, She said

According to JDJournal, “one of the professors at the school said that there is a ‘small but vocal minority’ of faculty at the school who want standards lowered in an effort to increase enrollment. This would then prevent layoffs…. It’s a very selfish, selfish endeavor. They are really trying to save their jobs, but they’ve ginned this up to make it look like we are denying academic rights.”

The New York Law Journal reported that “several angry Albany Law School professors deny the faculty ever suggested the school should lower standards to boost enrollment and avert layoffs.” On February 3, 2014, the board of trustees reportedly quashed the idea anyway:

“A review of our declining bar passage statistics (we are now the second lowest law school in New York State for bar passage), combined with the extremely difficult employment market for our graduates, compels us to believe that we must focus on quality of applicants, not quantity. To admit students in order to increase revenues due to projected operating deficits would be both unethical and in violation of ABA standards.”

A Way Out?

Presumably, offering voluntary buyouts to tenured professors could solve the problem for now. If a sufficient number of faculty members accept, layoffs won’t happen. That would defer for another day the fight over whether the school truly faces “financial exigency” justifying involuntary terminations of tenured faculty.

Others can debate whether Albany is operating at a loss and/or should draw down it’s endowment to cover shortfalls. More interesting questions relate to any law school’s possible responses to the larger phenomenon of declining applicant pools.

Some Albany Law School professors reacted with indignant outrage at the suggestion that a colleague might have urged the school to counter declining applications with lower admission standards. But the fact is that many schools have responded in exactly that way. Overall acceptance rates have risen from 50 percent in 2003 to 75 percent in 2012. It’s a cynical strategy, but it keeps seats filled with tuition-paying student dollars from federally-backed loans.

Other schools are cutting costs and economizing where possible. Those efforts are laudable, but they are short-term fixes. Any long run solution requires the involvement of tenured faculty who now have a choice: be part of the solution or become a growing part of the problem. Tenure is an important and valuable aspect of higher education. But it won’t be worth much to those whose institutions disappear.

In the end, the question is whose interests matter most. Dean Andrews deserves praise for confirming what sometimes gets lost in the noise as various stakeholders scramble to preserve their positions in the legal academy:

“Cutbacks are very, very hard. But what is motivating everything about what I’m doing is my student-centric approach,” Dean Andrews said. “Albany Law School and law schools exist to train students and it’s all about the students.”

Indeed it is.

THE ONGOING LAW SCHOOL BAILOUT

Recently, Senators Dick Durbin (D-IL), Jack Reed (D-RI), and Elizabeth Warren (D-MA) introduced the “Protect Student Borrowers Act of 2013.” The bill would allow the Secretary of Education to require that colleges and universities pay a penalty for federal student loans in default. The penalty would increase with the school’s default rate.

Default is too long to wait before creating a better nexus between educators’ incentives and their graduates’ fate. Thousands of recent law graduates are living with the consequences of a system that immunizes schools from financial accountability for their students’ poor employment outcomes. Eighty-five percent of today’s newest lawyers have six-figure law school debt. Only about half of all 2012 graduates found full-time long-term jobs requiring a JD. The most recent Bureau of Labor Statistics employment report indicates that between December 2012 and December 2013, employment in the “all legal services” category actually declined by 1,000 people.

Demand down; supply still growing

As the profession was losing a thousand jobs last year, law schools graduated a record number of new lawyers — 46,000 — and big classes are in the pipeline. Sure, law school applications are down, but acceptance rates have gone way, way up to compensate. Recent BLS estimates suggest an ongoing lawyer glut for years to come. (For a more detailed analysis, take a look at Matt Leichter’s recent article in Am Law Daily.) And in the midst of this disaster, law school tuition keeps increasing. It’s all quite perverse.

Unfortunately, it’s also a predictable consequence of structural incentives. Most university administrators (and their law school deans) run their institutions as businesses. In the current system of financing higher education, that approach produces a myopic focus: maximizing short-term tuition revenues by filling classrooms. Added encouragement comes from U.S. News rankings criteria that, for example, actually reward expenditures regardless of added value or lack thereof. The vast majority of students borrow enormous sums to pay tuition. But — and here’s where educational institutions lack the constraints that they would encounter as true businesses — any later failure to repay those loans never becomes the school’s problem.

Instead, virtually all student loans come with the backing of the federal government. In case of default, the schools remain protected. So far, graduate student default rates have remained below those for colleges and vocational schools, but across the board, all rates are trending higher. (I wonder if low JD default rates are attributable, in part, to lawyers’ better understanding of the procedural steps that can forestall default. Attorneys also grasp the counterproductive futility of defaulting: educational debt survives bankruptcy and forcing the government to pursue a default just adds monetary penalties and collection costs to the tab.)

IBR is no panacea

Income-based tuition repayment plans may become an important potential relief valve to some indebted graduates. But IBR is new and it comes with lots of caveats. For example, during the time that a graduate remains in the program, interest on his or her overall debt continues to accrue. Exiting the system before completing the requisite repayment period (typically 25 years; 10 years for public service jobs) can produce an even greater debt than existed upon graduation.

Those who make it all the way to the end of the repayment period are off the hook for their loans and accrued interest, but debt forgiven through IBR is considered taxable income. If Congress doesn’t fix that problem, the result will be a big tax bill for a person who, by definition of ongoing participation in the IBR program, can’t afford it. Moreover, the forgiven amounts still have to come from the federal treasury at taxpayer expense, so there never was or will be a free lunch – except for the schools that received tuition but thereafter had no financial skin in the game. It has the feel of a law school bailout, doesn’t?

A better way

Maybe this three-step approach would help to restore a functioning market: 1) allow educational loans to become dischargeable in bankruptcy; 2) in the course of such a proceeding, require the bankruptcy court to determine whether educational debt was a significant factor in the debtor’s need for bankruptcy protection; and 3) in those cases where it is such a factor, permit the federal government guarantor to seek recompense from the educational institution whose conduct lies at the heart of the mess. (Requiring need-blind admissions as a prerequisite to participation in the federal loan guaranty program generally might counteract a school’s temptation to bias admissions in favor of those who can afford to pay.)

Most people profess confidence in free markets — some with an evangelistic zeal. If they really want to give the market a chance to work in the student debt setting, they’ll support a serious effort to cure the system’s current failures. Personal educational debt currently exceeds $1.2 trillion — more than all consumer credit card debt combined. Every day, that bubble is growing. Just ask a law student.

“I AM A DICTATOR.”

Some people think that law professors are boring. A dean in Cleveland is proving them wrong.

A year ago, Case Western Reserve Law School Dean Lawrence Mitchell burst onto the national scene with a New York Times op-ed selling a law degree as a great deal. Shortly thereafter, he gave a Bloomberg Law interview in which he continued to press his case. For his efforts, Mitchell took center stage in my article, “The Law School Story of the Year – Deans in Denial.”

Well, he-e-e-e-e’s b-a-a-a-a-c-k! Mitchell is now the leading man in what is becoming a tragedy for his school.

The principal antagonists

Raymond S.R. KU, became a tenured professor at Case in 2003, co-director of the Center for Law, Technology & the Arts in 2006, and associate dean for academic affairs in 2010. On Halloween 2013, Ku filed an amended complaint against Lawrence Mitchell and Case Western Reserve University for alleged retaliation because he opposed “Dean Mitchell’s unlawful discriminatory practice of sexually harassing females in the law school community.”

Lawrence Mitchell became dean in 2011. The complaint alleges that he arrived from George Washington University Law School with some personal baggage, including several marriages culminating in divorces, one of which involved a student. If the allegations about his conduct after becoming dean at Case are true, his behavior was both stupid and reprehensible. (Spoiler alert: the details are less titillating than most voyeurs might like — and the juiciest stuff is hearsay. UPDATE: Dean Mitchell has moved to strike many of the allegations as “immaterial, impertinent, and scandalous.)

Hubris revealed?

Buried in the salacious allegations that have generated media attention is paragraph 86 of the amended complaint: “In relation to the performance of his duties as dean of the Case Law School, Dean Mitchell stated vehemently, ‘I am a dictator.'”

Allegations aren’t evidence. Maybe he never said it. But what if he did? Maybe he was joking. Or maybe he believed it. Or, worst of all, maybe it was true.

In many respects — from framing a school’s mission to creating annual budgets to doling out office assignments — deans wield enormous power. But the best deans aren’t dictators; they’re consensus builders. They have line accountability to university provosts, presidents and trustees; however, they also have to deal effectively with students, alumni, and faculty. Any dean who likens his role to that of a dictator eventually becomes a problem for his institution.

Dollars behind the drama?

As the controversy swirls around Mitchell, a very good law school suffers. Case graduated 223 new attorneys in 2010. The entering first-year class of 2013 includes fewer than half that number — 100. Apparently, Mitchell’s year-end sales pitch landed on deaf ears.

In his Bloomberg Law interview last January, Dean Mitchell said, “Of course, we’re running a business at the end of the day.” From that perspective, perhaps Case University’s central administration doesn’t view things as badly as Case’s 1L numbers might suggest.

Specifically, there’s gold in law school LLM students, and Case has 85 of them entering its program this year. For a school with only 100 first-year JD students, that’s a lot. (The University of Chicago has 196 entering JD-students and 70 LLM-students.) In contrast to more extensive financial aid available for JD students, those seeking an LLM at Case are eligible only for “a limited number of merit scholarships…in the form of a partial reduction for tuition.”

What lies ahead?

Perhaps Mitchell’s business plan has been to follow the money, focusing on the lucrative LLM recruits. Maybe that’s his vision for the school as a profit-maximizing venture. Maybe that’s precisely the direction that his bosses want him to take. Maybe Case’s central administration has given Mitchell such latitude to wield power that he feels comfortable boasting about it. Or, as I suggested at the beginning, perhaps there’s no substance to any of the claims against him.

If it turns out that Mitchell’s superiors are rewarding what they regard as “business success” by allowing him to run the school as a dictator, they have forgotten an important truth. Sometimes dictators get deposed — especially if they’re defendants in lawsuits.

LATEST SYMPTOMS OF AN AILING PROFESSION

Together, three recent stories capture much of what ails the legal profession: 1) law schools continue to produce way too many lawyers for the number of anticipated jobs requiring a JD degree; 2) future attorneys incur staggering debt for a three-year degree that can and should be obtainable in two; and 3) many senior partners in big law firms at the pinnacle of the profession have lost an appreciation for their good fortune and a sense of perspective that comes with it.

The End of Lawyers?

The first story reports a continuing drop in the number of law school applicants — more than 30 percent since 2010! Could this be the beginning of what one law professor has predicted will be an actual shortage of lawyers by 2016?

No.

Using 2010 as a baseline against which to measure the comparative decline in applications is misleading. The Great Recession produced a surge of 2009-2010 applicants seeking a three-year reprieve from an impossible job market. At that time, law school still looked like a safe bet, largely because deans could tout 93 percent employment rates without disclosing which of their graduates held jobs that were short-term, part-time, school-funded, or didn’t require a legal degree.

Another fact is more salient: Overall acceptance rates have increased dramatically. In 2003, about half of the 98,000 applicants were admitted. In 2012, law schools took 75 percent of the 68,000 applicants. Bottom line: prior to the Great Recession, first-year enrollment totaled about 49,000; in 2012, it was 44,500. That drop is certainly affecting some law schools. But the overall decline is not as dramatic as the hyperbolic headlines. If first-year enrollment ever falls below 30,000 and stays there for a few years, that will be newsworthy.

What Are Students Getting For Their Money?

Meanwhile, President Obama weighed in on the subject of eliminating the third year of law school. It’s been a great idea for a long time. Of course, the third year will survive the President’s criticism because it accounts for one-third of law school tuition revenues. Such a central component of the law school business model won’t die easily.

Some members of the legal academy defend the third year of formal legal education as necessary for increasingly complex times. That argument may prove too much. After the first year teaches prospective attorneys to think like lawyers and the second year covers basic substantive legal areas, the most relevant legal training occurs outside the classroom under the tutelage of practicing lawyers. Many attorneys develop specialties, but that doesn’t result from taking one or two advanced courses during the third year of law school.

Deans can pass blame for the enduring third year onto the ABA. It has long been a victim of regulatory capture by the institutions it’s supposed to be supervising for the well being of all attorneys and the profession. The vast majority of states require graduation from an ABA-accredited law school and the ABA’s rules insist on course work that requires three academic years to complete. That’s why the few schools that offer accelerated two-year JDs are simply cramming three years of credits into two calendar years.

Moreover, the accelerated programs rarely reduce the cost of law school. Most of the schools offering accelerated programs charge the same total tuition as their traditional three-year programs.

Meanwhile, At Big Firms…

A final story is developing over financial reports concerning the overall performance of big law firms in 2013: Revenues are flat; demand is down. Partner profits might not rise this year!

Where you stand depends on where you sit, I suppose. But what does it say about the most lucrative segment of the profession when law firm management consultants can induce panic at the prospect that average equity partner profits might remain steady or — perish the thought — drop to still-astounding six- or seven-figure levels that seemed remarkably good less than a decade ago?

I think it suggests that too many partners have forgotten why they went to law school in the first place. Very few became attorneys because they thought it would make them rich. But they’ve grown accustomed to that pleasant surprise.

Maybe the next generation will do better.

ONCE MORE ON THE MILLION DOLLAR JD DEGREE

In late July, my article “The Dangerous, Million-Dollar Distraction” appeared here before its republication at Am Law Daily and Business Insider. In it, I discussed a study purporting to calculate the lifetime premium of a law degree compared to BA holders. The authors of the study, Professors Michael Simkovic and Frank McIntyre, weren’t pleased and Am Law Daily has now published their rejoinder. Were it not for their now pervasive claims relating to my alleged confusion, errors, and mistakes, I’d let it pass because the study has already received more attention than it deserves.

The real point

There were no errors in my analysis. My view – expressed in the article – is that the decision to attend law school should not turn on the hope of future financial rewards. In that respect, Simkovic and McIntyre take a strong position that looks like career advice based on predictions about the future: “[M]any college graduates who follow the critics’ advice and skip law school will forego a lucrative career and face higher long-term risks of financial hardship.” (p. 12)

The law is a great profession that I love, but it’s not for everyone. Through the years and for many undergraduates, law school has been a default position for liberal arts majors who can’t decide what to do next. For far too many, life after law school becomes a process whereby great expectations clash with harsh reality in a way that creates career dissatisfaction and worse.

As a consequence, for me, the most important problem with the Simkovic/McIntyre study is that it uses aggregate data in inviting students individually to choose a legal career in the pursuit of financial security or a safe return on their educational investment. That is the wrong reason for anyone to become a lawyer.

Multiple markets

No one talks much about the two markets for law schools. The Simkovic/McIntyre study ignores the differences among schools and, in a response to Professor Deborah Merritt’s critique, Simkovic asserted on Brian Leiter’s Law School Reports blog that he “doesn’t think the evidence for a bimodal distribution of lifetime earnings is very compelling.” One wonders what profession he’s looking at.

For some – especially but not exclusively graduates from top law schools who land (and keep) jobs in big firms – practicing law can be lucrative. But those outcomes are on the far end of a severely skewed distribution of attorney incomes. As NALP data confirm, that skewing begins from the moment of graduation. Big law firm first-year associates earn an average of more than $130,000 yearly and average partner profits for the Am Law 100 exceed $1 million.

But big law attorneys account for only about 10 percent of all practitioners. Far more people – mostly but not exclusively graduates from law schools outside the top group – wind up at the much lower end of the distribution. According to the Bureau of Labor Statistics, the median income for all lawyers in the United States in 2010 was $112,760.

Red herrings or real issues?

Professor Simkovic — initially via Professor Leiter’s blog — called my observations about income distribution a “red herring.” But the real red herring is using the average of a skewed distribution to tout a “Million Dollar Degree” – first in his study’s original title and then persisting in the final sentence of the article’s synopsis. Of course, it attracts more attention than even his dramatically lower median (midpoint) value. (In his Leiter blog post, Simkovic endorsed $330,000 as the lifetime (40-year career) net JD-degree premium for the median (midpoint) of his sample.)

At some point below the 25th percentile, even Simkovic’s study proves that the so-called JD-degree premium turns negative. That includes a lot of lawyers, although the study doesn’t disclose the number.

Contrived controversies

My other observations to which Simkovic took exception — initially in his Leiter blog post and now in his Am Law Daily response — relate to points that his own study acknowledges: the presence of a statistical correlation doesn’t prove causation (p. 25) or predict the future (p. 38); the conclusions of any regression analysis depend on its assumptions (pp. 39-41); none of the attorneys in his 1,382-person sample graduated after 2008 (p. 13 and n. 31; companion slide 13).

(One of the more perplexing criticisms in Simkovic’s Leiter blog post was that I was wrong about half of all JD-degree holders finding themselves below the median for all JD-degree holders. My statement simply embodied the definition of a median – half above and half below that midpoint. His related comment about median incomes relative to bachelor’s degree holders is irrelevant to anything I wrote.)

Others will decide the fate of the Simkovic/McIntyre study as an enduring scholarly work. My views will not move Professor Simkovic or anyone else to a different position on the underlying issue of whether law schools today should rethink their business models in light of the profession’s ongoing transformation.

Reality therapy

But the academic debate has little bearing on my mission. Rather, as I wrote, my concern is for young people who “rely on an incomplete understanding of the study’s limitations to reinforce their own confirmation bias in favor of pursuing a legal career primarily for financial reasons.”

Several years ago, I added an undergraduate course to my workload in the hope of providing students with information that might help them in deciding whether to pursue a legal career. The vast majority of those students go on to law school, but with an increased awareness of the road ahead. They understand that even in tough economic times, many JD-degree holders will do well, while others won’t.

The reality of those less fortunate creates challenges for the entire profession because: 1) most prelaw students have a difficult time imagining that they’ll ever find themselves in the lower 25th percentile of anything; and 2) even among the so-called “winners” who wind up a lot higher in the overall income distribution, attorney career dissatisfaction remains widespread.

In short, prelaw students should tread carefully along the path toward law school. The law can lead to a great career, but it’s not for everyone.

Even if the high-end market for new attorneys were booming – which it isn’t – pursuing a JD for financial reasons is a mistake. As a wise person said long ago, ”Not everything that can be counted counts; not everything that counts can be counted.”

PRESIDENT OBAMA AND THE THIRD YEAR OF LAW SCHOOL

My article, “Obama’s Good, and Hopeless, Idea for Law Schools,” appears on The Chronicle of Higher Education blog — “The Conversation.” Here’s the link: http://chronicle.com/blogs/conversation/author/sharper/ 

THE DANGEROUS MILLION-DOLLAR DISTRACTION

A new study, renamed “The Economic Value of a Law Degree,” is the latest effort to defend a troubled model of legal education. It’s especially disheartening because, before joining Seton Hall University School of Law in 2010, co-author Michael Simkovic was an associate at Davis, Polk & Wardwell in 2009-2010. At some level, he must be aware of the difficulties confronting so many young law graduates.

Nevertheless, Simkovic and co-author Frank McIntyre (Rutgers Business School) “reject the claim that law degrees are priced above their value” (p. 41) and “estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000 (p. 1).”

As the academic debate over data and methodology continues, some professors are already relying on the study to resist necessary change. That’s bad enough. But my concern is for the most vulnerable potential victims caught in the crosshairs of the “Million Dollar Law Degree” media headlines taken from the article’s original title: today’s prelaw students. If they rely on an incomplete understanding of the study’s limitations to reinforce their own confirmation bias in favor of pursuing a legal career primarily for financial reasons, they make a serious mistake.

The naysayers are wrong?

The study targets respected academics (including Professors Herwig Schlunk, Bill Henderson, Jim Chen, Brian Tamanaha, and Paul Campos), along with “scambloggers” and anyone else arguing that legal education has become too expensive while failing to respond to a transformation of the profession that is reducing the value of young lawyers in particular. Professors Campos and Tamanaha have begun responses that are continuing. [UPDATE: Tamanaha’s latest is here.] Professor Brian Leiter’s blog has become the vehicle for Simkovic’s answers.

One obvious problem with touting the $1 million average is that, for the bimodal distribution of lawyer incomes, any average is meaningless. Professor Stephen Diamond offered a rebuttal to Campos that Simkovic endorsed, calculating the net lifetime premium at the median (midpoint) to be $330,000 over a 40-year career. That might be closer to reality. But a degree that returns, at most, a lifetime average of $687 a month in added value for half of the people who get it isn’t much of an attention-getter. As noted below, even that number depends on some questionable assumptions and, at the 25th percentile, the economic prospects are far bleaker.

Causation

In the haze of statistical jargon and the illusory objectivity of numbers, it’s tempting to forget a fundamental point: statisticians investigate correlations. Even sophisticated regression analysis can’t prove causation. Every morning, the rooster crows when the sun rises. After isolating all observable variables, that correlation may be nearly perfect, but the crowing of the rooster still doesn’t cause the sun to rise.

Statistical inference can be a useful tool. But it can’t bridge the many leaps of faith involved in taking a non-random sample of 1,382 JD-degree holders — the most recent of whom graduated in 2008 (before the Great Recession) and 40 percent of whom have jobs that don’t require a JD — and concluding that it should guide the future of legal education in a 1.5 million-member profession. (p. 13 and n. 31)

Caveats

Simkovic and McIntyre provide necessary caveats throughout their analysis, but potential prelaw students (and their parents) aren’t likely to focus on them. For example, with respect to JD-degree holders with jobs that don’t require a JD, they “suggest” causation between the degree and lifetime income premiums, but admit they can’t prove it. (p. 25)

Likewise, they use recessions in the late 1990s and early 2000s as proxies for the impact of the Great Recession on current law graduates (compared to bachelor’s degree holders) (p. 32), minimizing the importance of recent seismic shifts in the legal profession and the impact on students graduating after 2008. (Simkovic graduated in 2007.)

This brings to mind the joke about a law professor who offers his rescue plan to others stranded on a deserted island: “First, assume we have a boat…” The study finesses that issue with this qualification: “[P]ast performance does not guarantee future returns. The return to a law degree in 2020 can only be known in 2020.” (p. 38)

Similarly, the results assume: 1) total tuition expense of $90,000 (presumably including the present value cost of law school loan interest repayments; otherwise, that number is too low and the resulting calculated premium too high); 2) student earnings during law school of $24,000; 3) graduation from law school at age 25 (no break after college); and 4) employment that continues to age 65. (pp. 39-41) More pessimistic assumptions would reduce the study’s calculated premiums at all income levels. At some point below even the Simkovic-McIntyre 25th percentile, there’s no lifetime premium for a JD.

Conclusions

After a long list of their study’s “important limitations” — including my personal favorite, the inability to “determine the earnings premium associated with attending any specific law school” — the authors conclude: “In sum, a law degree is often a good investment.” (p. 50) I agree. The more important inquiry is: When isn’t it?

In his Simkovic-endorsed defense of the study, Professor Diamond offers a basic management principle: any positive net present value means the project should be a go. But attending law school isn’t an aggregate “project.” It’s an individual undertaking for each student. After they graduate, half of them will remain below the median income level — some of them far below it.

The authors dismiss Bureau of Labor Statistics employment projections (pp. 6-7), but it’s difficult to ignore current reality. In 2012 alone, law schools graduated 46,000 new attorneys. For that class, nine months out only 10 percent of law schools (20 out of 200) had long-term full-time JD-required job placement rates exceeding 75 percent. The overall JD-job placement average for all law schools was 56 percent.

Some of the remaining 44 percent will do other things because they have no realistic opportunity for legal careers. Financially, it could even turn out okay for a lot of them. (In that respect, you have to admire the boldness of the authors’ footnote 8, citing the percentage of Senators and CEOs with JDs.)

But with better information about their actual prospects as practicing attorneys, how many would have skipped their three-year investments in a JD and taken the alternative path at the outset? That’s the question that the Simkovic/McIntyre study doesn’t pose and that every prospective law student should consider.

More elephants in the room 

Notwithstanding the economic benefits of a JD that many graduates certainly enjoy, attorney career dissatisfaction remains pervasive, even among the “winners” who land the most lucrative big firm jobs. That leads to the most important point of all. Anyone desiring to become an attorney shouldn’t do it for the money. Even the Simkovic/Mcntyre study with its many questionable assumptions proves that for thousands of graduates every year the money will never be there.

But the authors are undoubtedly correct about one thing: “The data suggests [sic] that law school loans are profitable for the federal government.” (p. 46) Law schools like them, too.

It doesn’t take a multiple regression analysis to see the problems confronting the legal profession — but it can be used to obscure them.

HOW THE LAWYER BUBBLE GROWS

In June, the legal services sector lost more than 3,000 jobs. According to the latest Bureau of Labor Statistics data, the sector has gained only 1,000 net jobs since June 2012. In the last two months, 6,000 positions disappeared.

No market solutions here

In a properly functioning market, reduced demand would prompt suppliers to cut output in search of equilibrium. But the legal profession consists of several distinct and dysfunctional markets.

For example, there’s plenty of unmet demand for lawyers from people who can’t afford them. Reduced federal funding for the Legal Services Corporation has exacerbated that problem. So has the rising cost of law school tuition and resulting student debt. Over the past 25 years, tuition increases for law school have far outpaced the rest of higher education.

In another segment of the legal market, demand for corporate legal work has been flat for years. But law schools business models generally have focused on filling classrooms, regardless of whether students will ever be able to repay their six-figure educational loans. Because most tuition revenue comes from federally guaranteed loans that survive bankruptcy, schools have no financial incentive to restrict enrollments — that is, until they run out of applicants.

When might that happen? Not soon enough, although recent headlines imply otherwise.

High-profile reductions in class size

Some schools have reduced the size of their entering classes. For example, the University of the Pacific McGeorge School of Law announced that it is reducing enrollment from the current 1,000 to about 600 — an impressive 40 percent drop.

But as Dan Filler observed at the Faculty Lounge, the reality may be less impressive. Although McGeorge graduated 300 new lawyers annually from 2010 through 2012, its first-year enrollment hasn’t kept pace with those numbers. In 2012, the school had 248 (day and evening) first-year students. In 2011, it had 215. A normalized class enrollment of 200 would be a 20 percent reduction from recent levels. That’s positive, but as explained below, not nearly enough.

About those declining applications

recent Wall Street Journal article about the “plunge” in law school enrollments noted that “applications for the entering class of 2013 were down 36 percent compared with the same point in 2010…” But a more relevant statistic should be more jarring: “Law school first-year enrollments fell 8.5 percent nationwide.”

Here’s another way to look at it: For the fall of 2004 entering class, law schools admitted 55,900 of 98,700 applicants — or about 57 percent. For the fall of 2012 class, law schools admitted 50,600 of 68,000 applicants — almost 75 percent.

About those jobs

The increase in the percentage of admitted applicants is one reason that the lawyer bubble is still growing. Another is the stagnant job market. In 2008, the Bureau of Labor Statistics projected 98,500 net additional attorney positions for the entire decade ending in 2018. In 2010, it revised that estimate downward to project 73,600 net additional positions by the end of 2020.

Even allowing for attrition by retirement, death and otherwise, the BLS now estimates that there will be 235,000 openings for lawyers, judges, and related workers through 2020 — 23,500 a year. Last year alone, law schools graduated 46,000 new attorneys.

If law schools as a group reduced enrollments by 20 percent from last year’s graduating class, they would still produce almost 37,000 new lawyers annually — 370,000 for a decade requiring only 235,000 — not to mention the current backlog that began accumulating even before the Great Recession began.

One more thing

Which takes us back to the University of the Pacific McGeorge School of Law. According to its ABA submission, only 42 percent of its class of 2012 graduates found full-time long-term jobs requiring a JD. Even if the school caps entering classes at 200, its resulting placement rate would rise to only 64 percent.

U.S. News rankings considerations loom large in all of this. Law schools fear that reducing LSAT/GPA admission standards would hurt their rankings. In that respect, McGeorge’s class size announcement overshadowed a more unpleasant disclosure that new ABA rules now require: scholarship retention rates.

Many law schools try to enhance their U.S. News rankings by offering entering students with high LSATs so-called merit scholarships. But those scholarships sometimes disappear for years two and three. According to Prof. Jerry Organ’s analysis, only 42 percent of students entering McGeorge in the fall of 2011 kept their first-year scholarships. Eleven schools (out of 140 that offered conditional scholarships) did worse.

The overall picture is ugly. Some schools are laying off faculty and staff to counter the financial impact of reduced enrollments. But they’re also keeping tuition high and spending money on LSAT-enhancing scholarships that disappear after the first year, presumably to be replaced with non-dischargeable loans. Meanwhile, almost all of today’s students are incurring staggering educational debt, but many of them won’t find jobs sufficient to repay it.

That’s not a march toward market equilibrium. It’s a growing bubble.

MAKING MONEY ON OUR KIDS

Where can an investor earn a 7.9 percent guaranteed annual rate of return? Not 30-year United States Treasury bonds; they pay around 3 percent. Not other countries’ sovereign debt; some of the most economically fragile nations in the Euro zone sell 10-year bonds bearing interest rates of less than 6 percent—and it’s certainly not guaranteed.

Try your kids. The interest rate on subsidized federal student loans is currently 3.4 percent, but it will jump to 6.8 percent on July 1 and covers just a slice of the market anyway. For undergraduates who don’t qualify for the subsidy, it’s already 6.8 percent. For graduate students (including law students), the rate is 7.9 percent.

Big returns with no risk

The program is a moneymaker for the government. According to a February 2013 Congressional Budget Office report, the federal government makes about 36 cents in revenue for every student loan dollar it puts out. Graduate (and law) student loans are especially lucrative — 55 cents on the dollar.

These eye-popping returns are especially juicy because the loans have virtually no risk of non-repayment. If a student defaults, the feds retain a collection agency to pursue the money (total cost of all federally retained debt collectors last year: more than $1 billion). Eventually, they’ll get it because such loans are in that small category of debts that survive a personal bankruptcy filing, along with alimony, child support, certain fines, and taxes. An exception for debtors who can demonstrate “undue hardship” rarely applies.

Bipartisan blame

How did this happen? Good intentions went awry. In the 1960s, Congress followed economist Milton Friedman’s earlier recommendation that the government provide direct loans for higher education. The underlying principle still resonates: a society’s investment in human capital pays long run dividends. The corollary is that those who benefit personally should repay loans for the education that gives them a better life.

Unfortunately, as that better life has become more elusive for so many, the student loan program has converted struggling young people into profit centers for the government. In the trillion-dollar world of educational debt, students entering the professions — including law — are among the most unfortunate victims, in part because both their tuition and their loan interest rates are the highest.

The special plight of young lawyers

Lawyers generate little sympathy from the rest of the population. But 85 percent of today’s law graduates have educational loans exceeding $100,000. The grim market for new attorneys means that only about half of them are finding full-time long-term employment requiring a legal degree. Even fewer earn enough to repay their staggering loans. (Before blaming these young people for their plights, take a close look at the behavior of many law school deans who misled them into the profession with deceptive information about post-graduate employment prospects. Meaningful transparency on that topic is a recent phenomenon.)

As the July 1 deadline nears, proposals that seem to be gaining traction in Washington would preserve all above-market rates and the student loan program’s profitability. They also suggest that we’ve learned little from the subprime mortgage debacle. The House recently passed Rep. John Kline’s (R-MN) bill, resetting the graduate student rate at 4.5 percent above the 10-year Treasury, subject to a 10.5 percent cap.

In the unlikely event that the House bill gets past the Senate, President Obama has threatened to veto it. However, he is willing to have students borrow at a lower variable rate that’s still significantly higher than the 10-year Treasury, but with no cap (although once set, the rate would remain for the life of the loan). Combining the floating rate elements of the House proposal with the president’s plan could produce a truly disastrous compromise. The president also wants income-based repayment and debt forgiveness. Because Republicans with blocking power oppose those partial remedies on the grounds that it will encourage students to take on bigger debt, those proposals seem doomed.

Recently, Sen. Elizabeth Warren (D-MA) offered her first bill. For a year, it would cut the student loan rate to 0.75 percent—the same rate that big banks get on their borrowing from the Fed. Unfortunately, a prospective one-year solution is no solution at all. Sen. Kirsten Gillibrand has the best current plan: set a 4 percent rate for all student loans and allow graduates with existing debt to refinance at that rate. But that won’t happen, either.

Guiding principles

As policymakers grapple with the growing educational debt bubble, they might consider two governing principles.

First, those running institutions of higher education should be held accountable financially for their graduates’ poor employment outcomes. Otherwise, federal dollars will continue to worsen the situation as administrators focus myopically on filling classroom seats to maximize tuition revenues. Allowing the discharge of educational debt in bankruptcy and permitting the federal government to seek recourse from schools that impoverish their graduates with tuition loans might alter some schools’ worst behavior.

A second principle should be even easier to implement. No mechanism for funding higher education should convert our kids into profit centers.

COMMENDABLE CONDUCT AWARD

Regular readers know that I’m often critical of many law school deans. But when one of them gets it right, let’s give credit where it’s due. As the glut of new attorneys persists, the University of Kansas School of Law Dean Stephen Mazza became the latest dean to announce significant reductions in incoming class size. With that action, he has earned a “Commendable Conduct Award.”

Not the first

The University of Kansas isn’t the first to implement such cuts. Last year, Frank Wu, chancellor and dean of the University of California Hastings School of Law announced a 20 percent reduction in class size for the fall of 2012.

“The critics of legal education are right,” Wu said. “There are far too many law schools and there are too many law students and we need to do something about that.”

George Washington University, Albany Law School, Creighton University School of Law, and Loyola University Chicago School of Law have reduced entering class size, too. In March, Northwestern Law School Dean Daniel Rodriguez said his school would reduce the fall 2013 class by 10 percent. “We can’t ignore the destabilizing forces that the legal industry is facing today,” he said.

KU deserves special praise

All of these efforts to reduce the size of entering classes are commendable. But there are several unique aspects to the University of Kansas announcement that make it especially noteworthy.

First, the reduction as a percentage of enrollment in prior years is large: from 175 students graduating this year to a target of 120 students for the 2013 entering class and for the foreseeable future.

Equally significant, it appears that KU didn’t have to take its laudable step. The dean said that applications were down only about 10 percent — far less than many other schools. Moreover, an impressive 82 percent of 2012 graduates secured long-term jobs where a JD was required or preferred — far above the national average.

As an added bonus, a KU legal education is a relative bargain compared to many other schools: $18,600 tuition for full-time students who are state residents; $31,500 for out-of-state.

Motivations matter; outcomes matter more

Everyone expects that the decline in the number of law school applicants will produce lower average LSATs and GPAs for the entering 1L class. That, in turn, would hit the selectivity component of a school’s overall U.S. News ranking. It’s possible that some deans have reduced entering class size as part of a strategy to protect their rankings. But if the overall net outcome is that law schools as a group produce fewer lawyers three years from now, then the rankings may have helped to mitigate damage that they have caused since their first appearance in 1987.

Ay, there’s the rub. Will there be fewer total law graduates, or will other schools (and new ones in the pipeline) enroll the students that KU and others don’t accept? Indeed, will some schools expand enrollments solely to increase their tuition revenues? Asking those institutions to consider the long-term well being of the marginal students they recruit, or the sad state of the profession itself, would be asking too much, I guess.

One way to counteract the agendas of deans who refuse to do the right thing is to recognize those who do. Even more important is the task of helping prospective law students make informed decisions before they apply to law school. Over time, perhaps more of them will take advantage of increased transparency to assess realistically their own suitability for a satisfying and successful legal career. But at any age, encounters with confirmation bias are never easy.

Meanwhile, kudos to Dean Stephen Mazza and the University of Kansas School of Law. He’s been dean only since April 2011, but he’s already making a profound difference in the way that matters most — one person at a time. (And thanks to one of my regular readers who brought Dean Mazza’s announcement to my attention.)

LAW DEANS SCRAMBLE

Some law school deans are revealing what they regard as innovation in the face of the legal profession’s continuing crisis. Plummeting law school applications have tested their creativity in selling classroom seats. But recent trends — fewer applications amid a dismal job market for law graduates — haven’t deterred some efforts to preserve an unsustainable business model.

Moving through the five stages of grief

As deans confront declining applicant pools, many are moving through the five stages of grief — denial, anger, bargaining, depression, and acceptance.

Previously, I looked at deans in stage 1 — especially those who took to the editorial pages of major newspapers, touting the inherent value of a $150,000 legal degree for students who couldn’t get jobs practicing law. Apply now, they urged, because declining applications improved prospects for admission. Then you can do lots of great things that don’t require a JD.

Case Western Law School Dean Lawrence Mitchell made himself a poster child for such deans in denial, but he wasn’t alone. Other deans and former deans have similarly offered analyses that miss the mark on the causes of the lawyer bubble and offer proposals that distract attention from their own culpability. Some have advanced to stage 2 — anger over the situation and anyone who publicizes it.

From anger to bargaining

A few deans have reached stage 3 — bargaining. Some schools have reduced tuition and/or guaranteed freezes during a student’s three years. But Touro Law recently announced a special kind of bargain that targets the least informed potential applicants who are most vulnerable to law schools’ superficial sales pitches.

Under a partnership with the University of Central Florida, prospective law students can apply to an accelerated program whereby they attend UCF for three years and then complete their fourth year at Touro Law. They would receive their UCF bachelor’s degree upon completion of their 1L year at Touro.

Quite a deal, right?

Some things you should know

Touro Law inhabits the world of U.S. News and World Report’s unranked nether regions. Readers know that I’m no fan of those rankings, but it’s safe to say that no one would regard Touro as a top law school by any measure. According to U.S. News, it accepted 64 percent of all applicants last year.

Touro’s recent trends are especially revealing. (The following statistics come from the archives of the LSAC “Official Law School Guide.”)

In 2005, the school awarded 158 JD degrees. Tuition was around $26,000 a year.

In 2009, the school awarded 200 JDs. Annual tuition had increased to more than $36,000.

In 2011, the school awarded 221 JDs. Sixty percent found full-time long-term jobs requiring that degree.

In 2012, the school awarded 244 JDs, but only 53 percent had long-term full-time jobs requiring a JD. Tuition is now $43,000 a year.

In other words, as the Great Recession worsened and the demand for lawyers collapsed — especially for graduates of places such as Touro Law — the school increased both tuition and class size, even as its ability to place graduates in legal jobs declined.

The business model at work

Perhaps it’s unfair to single out Touro for behavior that has pervaded legal education: increasing class size and raising tuition as demand for new lawyers declined. But the school’s latest initiative invites close scrutiny of its motives.

According to Touro Law’s new dean, Patricia Salkin, “It’s a financial bargain for the UCF undergraduates and takes some pressure off the law school application process.”

My guess is that it’s a financial bargain for Touro Law, too, especially if it gets to keep most of the tuition that the UCF students pay to attend first year law school classes. (Annual tuition at UCF is $6,200 for residents; $22,300 for non-residents — compared to $43,000 for Touro Law.)

As for relieving the pressure of the law school application process, Touro can claim that benefit for itself, too. There’s nothing like locking in a law student three years before he or she might otherwise apply.

What are we doing to our kids?

It’s bad enough that current UCF undergraduates are eligible for this “fast-track program.” (Even the name implies a selectivity that sounds enticing, doesn’t it?) But encouraging — or even allowing — woefully uninformed high school students to apply to law school as entering UCF freshmen is something else.

The next step for some law schools seems painfully clear: setting up recruiting tables in middle school cafeterias across the country.

THREE EMBARRASSING DATA POINTS

Three recently released numbers tell an unhappy tale of what ails the legal profession in particular and society in general. Specifically, those data points reveal profound intergenerational antagonisms that are getting worse.

Dismal job prospects persist

First, the ABA reports that only 56 percent of law school graduates in the class of 2012 secured full-time, long-term jobs requiring a legal degree. The good news is that this result is no worse than last year’s. The bad news is the number of 2012 law graduates reached an all-time record high — more than 46,000. The even worse news is that the graduating class of 2013 is expected to be even bigger.

Sure, the number of students taking the LSAT has trended downward. So has the number of law school applicants. But students seeking to attend law school still outnumber the available places. Meanwhile, the number of attorneys working in big law firms has not yet returned to pre-recession levels of 2007. If, as many hope, the market for attorneys is moving toward an equilibrium between supply and demand, it has a long way to go.

Law school for all the wrong reasons

A second data point is even more distressing. According to a survey that test-prep company Kaplan Inc. conducted, 43 percent of pre-law students plan to use their degrees to find jobs in the business world, rather than in the legal industry. Even more poignantly, 42 percent said they would attend business school instead of law school, were they not already “set to go to law school.”

I don’t know what “set to go” means to these individuals, but if they want to go into business, first spending more than $100,000 and three years of their lives on a legal degree makes no sense. That’s especially true in light of another survey result: Only 5 percent said they were pursuing a career primarily for the money; 71 percent said they were “motivated by pursuing a career they are passionate about.”

Maybe these conflicted pre-law students are confused by the chorus of law school deans now writing regularly that a legal degree is a valuable vehicle to other pursuits. Let’s hope not. Many deans are simply trying to drum up student demand for their schools in the face of declining applicant pools.

Follow the money

The third data point relates to the money that fuels this dysfunctional system: federal loan dollars that are disconnected from law school accountability for student outcomes. Recently, the New York Times reported that on July 1, many student loan rates were set to double — from 3.4 percent to 6.8 percent.

Young law school graduates are among the unenviable one-percenters in this group because 85 percent of them hold, on average, more than $100,000 in debt (compared to the overall average of $27,000 for all students). Like all other educational loans, those debts survive a bankruptcy filing.

In the current economic environment, an investor would search in vain for a guaranteed 6.8 percent return and virtually no risk. According to one estimate cited in the Times article, the federal government makes 36 cents on every student loan dollar it puts out.

Kids as profit centers

Ironically, those who favor raising the current 3.4 percent interest rate on many federal student loans to 6.8 percent are the same people who express concerns that growing federal deficits will saddle the next generation. The reality is that we already treat that generation as a profit center. For too many people, there’s money to be made in sustaining the lawyer bubble.

Until it bursts.

THE LAWYER BUBBLE — Early Reviews and Upcoming Events

The New York Times published my op-ed, “The Tyranny of the Billable Hour,” tackling the larger implications of the recent DLA Piper hourly billing controversy.

And there’s this from Bloomberg Business Week: “Big Law Firms Are in ‘Crisis.’ Retired Lawyer Says.”

In related news, with the release of my new book, The Lawyer Bubble – A Profession in Crisis, my weekly posts will give way (temporarily) to a growing calendar of events, including:

TUESDAY, APRIL 2, 2013, 10:00 am to 11:00 am (CDT)
Illinois Public Media
“Focus” with Jim Meadows
WILL-AM – 580 (listen online at http://will.illinois.edu/focus)

TUESDAY, APRIL 2, 2013, 1:00 pm to 2:00 pm (CDT)
“Think” with Krys Boyd
KERA – Public Media for North Texas – 90.1 FM (online at http://www.kera.org/think/)

THURSDAY, APRIL 4, 2013, 11:00 am to Noon (EDT)
Washington, DC
The Diane Rehm Show
WAMU (88.5 FM in DC area) and NPR

FRIDAY, APRIL 5, 2013, 10:45 am to 11:00 am (EDT)
New York City
The Brian Lehrer Show
WNYC/NPR (93.9 FM/820 AM in NYC area)
(http://www.wnyc.org/shows/bl/)

SATURDAY, APRIL 6, 2013, Noon (EDT)
New Hampshire Public Radio
“Word of Mouth” with Virginia Prescott
WEVO – 89.1 FM in Concord; available online at http://nhpr.org/post/lawyer-bubble)

WEDNESDAY, APRIL 10, 2013, 8:00 am to 9:00 am (CDT)
The Joy Cardin Show
Wisconsin Public Radio (available online at http://www.wpr.org/cardin/)

FRIDAY, APRIL 12, 2013
The Shrinking Pyramid: Implications for Law Practice and the Legal Profession” — Panel discussion
Georgetown University Law Center
Center for the Study of the Legal Profession
600 New Jersey Avenue NW
Location: Gewirz – 12th floor
Washington, D.C.

TUESDAY, APRIL 23, 2013, 7:00 pm (CDT) (C-SPAN 2 is tentatively planning to cover this event)
The Book Stall at Chestnut Court
811 Elm Street
Winnetka, IL

Here are some early reviews:

The Lawyer Bubble is an important book, carefully researched, cogently argued and compellingly written. It demonstrates how two honorable callings – legal education and the practice of law – have become, far too often, unscrupulous rackets.”
—Scott Turow, author of Presumed Innocent and other novel

“Harper is a seasoned insider unafraid to say what many other lawyers in his position might…written with keen insight and scathing accusations…. Harper brings his analytical and persuasive abilities to bear in a highly entertaining and riveting narrative…. The Lawyer Bubbleis recommended reading for anyone working in a law related field. And for law school students—especially prospective ones—it really should be required reading.”
New York Journal of Books

“Anyone looking into a career in law would be well advised to read this thoroughly eye-opening warning.”
Booklist, starred review

“[Harper] is perfectly positioned to reflect on alarming developments that have brought the legal profession to a most unfortunate place…. Essential reading for anyone contemplating a legal career.”
—Kirkus Reviews

“[Harper] burns his bridges in this scathing indictment of law schools and big law firms…. his insights and admonitions are consistently on point.”
—Publishers Weekly

“Imagine that the elite lawyers of BigLaw and the legal academy were put on trial for their alleged negligence and failed stewardship. Imagine further that the State had at its disposal one of the nation’s most tenacious trial lawyers to doggedly build a complete factual record and then argue the case. The result would be The Lawyer Bubble. If I were counsel to the elite lawyers of BigLaw and the legal academy, I would advise my clients to settle the case.”
—William D. Henderson, Director of the Center on the Global Legal Profession and Professor at the Indiana University Maurer School of Law

“With wit and insight,The Lawyer Bubble offers a compelling portrait of the growing crisis in legal education and the practice of law. This book is essential reading for anyone concerned about the profession or contemplating a legal career.”
—Deborah L. Rhode, Professor of Law and Director of the Center on the Legal Profession, Stanford University

“This is a fine and important book, thoughtful and beautifully written. It makes the case – in a responsible and sober tone – that we are producing far too many lawyers for far too small a segment of American society. It is a must-read for leaders of law firms, law schools, and the bar, as the legal profession continues its wrenching transition from a profession into just another business.”
—Daniel S. Bowling III, Senior Lecturing Fellow, Duke Law School

“In this superb book, Steven Harper documents, ties together and suggests remedies for the deceit that motivates expanding law school enrollment in the face of a shrinking job market, the gaming of law school rankings and the pernicious effect of greed on the leadership of many of our nation’s leading law firms. The lessons he draws are symptomatic, and go well beyond the documented particulars.”
—Robert Helman, Partner and former Chairman (1984-98), Mayer Brown LLP; Lecturer, University of Chicago Law School

“Every sentient lawyer realizes that the legal profession is in crisis, but nobody explains the extent of the problem as well as Steven Harper. Fortunately, he also proposes some solutions – so there is still room for hope. This is an essential book.”
—Steven Lubet, author of Fugitive Justice and Lawyers’ Poker

“Steven Harper’s The Lawyer Bubble is an expression of tough love for the law, law firms and the people who work in them. The clear message is take control of your destiny and your firm to avoid the serious jeopardy that confronts far too many firms today. Whether you are a partner, associate, or law student, you should read this compassionate and forceful work.”
—Edwin B. Reeser, Former managing partner, author, and consultant on law practice management

“Harper chronicles the disruption of his once-genteel profession with considerable sadness, and places the blame squarely at the wing-tipped feet of two breeds of scoundrel: law school deans, and executive committees that have run big law firms …” –“Bar Examined” – Book Review in The Washington Monthly (March/April 2013)