ANOTHER SHOT AT STUDENT LOAN DEBT

A recent Department of Education initiative has not attracted the public attention that it deserves. But it could have important implications for the federal loans that fuel higher education, including law schools. The Department seeks to create a framework for dealing with the thousands of students who recently filed “defense of repayment” claims.

The Wall Street Journal’s recent summary of the program could strike fear in the hearts of many law school deans and university administrators:

“In the past six months, 7,500 borrowers owing approximately $164 million have applied to have their student debt expunged under an obscure federal law that had been applied in only three instances before last year. The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as lying about their graduates’ earnings.”

But it could get even worse for the schools, as the Journal explains:

“Last week, the department began a months-long negotiation with representatives, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans.”

Will the Department’s latest effort to impose meaningful accountability on institutions of higher education fare any better than predecessor techniques that have failed? There have been too many of those.

Lawsuits Haven’t Worked

Law schools have become poster children for the accountability problem and ineffectual efforts to solve it. In 2012 some recent alumni sued their law schools, but they didn’t get very far. The vast majority of courts threw out claims that the schools had misrepresented graduates’ employment opportunities. The winners on motions to dismiss or summary judgment included Thomas M. Cooley (now Western Michigan University Cooley School of Law), Florida Coastal, New York Law School (not to be confused with NYU), DePaul, IIT Chicago-Kent, and John Marshall (Chicago), among others.

Judge Melvin Schweitzer’s March 21, 2012 ruling in favor or New York Law School set a tone that other courts followed: Prospective students “seriously considering law school are a sophisticated subset of education consumers…” In other words, they should have known better. That might be true today, but at the time Judge Schweitzer wrote his opinion, he was wrong. So were the courts who followed his rationale to reach similar results. At a minimum, there were serious factual disputes concerning his conclusory assessment of an entire cohort of prelaw students.

In particular, the plaintiffs in the New York Law School case graduated between 2005 and 2010. Back in 2002 through 2007 — when those undergraduates were contemplating law school — NYLS claimed a 90 to 92 percent employment rate for its most recent graduating classes. But that stratospheric number resulted only because all law schools counted any job for purposes of classifying a graduate as “employed.” A part-time worker in a temporary non-JD-required position counted the same as an assistant U.S. attorney or a first-year associate in a big firm. Only after 2011 did the ABA finally require schools to provide meaningful data about their recent graduates’ actual employment results.

A notable exception to the dismissal of the cases against the law schools was one of the first-filed actions, Alaburda v. Thomas Jefferson School of Law, which is set for trial in March 2016. In that case, Judge Joel Pressman correctly found that a jury should decide the clearly disputed issues of fact. He got it right, but he’s an outlier.

The ABA and the AALS Haven’t Helped

Anyone expecting the profession to put its own house in order continues to wait. The changes requiring greater law school transparency in employment outcomes came about only because the public outcry became overwhelming and Congress threatened to involve itself. When political opposites such as Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA) agree to gang up on you, it’s time to wake up.

Since then, the organization has returned to form as a model of regulatory capture. Twice in the last four years, it has punted on the problem of marginal law schools that survive on student loan debt. School that would have closed long ago if forced to operate in a real market continue to exist only because the legal education market is dysfunctional. That is, the suppliers — law schools — have no accountability for their product — far too many graduates who are unable to obtain full-time long-term JD-required employment after incurring the six-figure debt for their degrees.

And while we’re on the subject of regulatory capture, the current president of the AALS has now declared that there is no crisis in legal education. Her interview produced an article titled, “As Law Professors Convene, New Leader Looks to Unite the Profession.” Why all law schools should unite to protect marginal bottom-feeders exploiting the next generation of students remains a question that no one in the academic world is willing to ask, much less answer.

Now Comes the Fun Part

Ignoring problems does not make them go away. As the profession refuses to acknowledge a bad situation, it loses the opportunity to influence the discussion. Which takes us to the recent Department of Education activity relating to criteria for applying the burgeoning volume of “defense of repayment” applications.

Special interests are likely to resist meaningful change. From institutions of higher education to debt collectors who have made student loan debt collection a multi-billion dollar business, lobbyists will swamp the process. Still, attention seems assured for marginal schools exploiting a dysfunctional market. That’s a good thing.

As the disinfecting qualities of sunlight intensify, someday the ABA and the AALS may realize that an old adage is apt: If you’re not part of the solution, you’re part of the problem. Perhaps another round of bipartisan congressional interest will help them see the light.