Tag Archives: Law school applications

HOW THE LAWYER BUBBLE GROWS

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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

A 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.

LAW SCHOOLS AS PROFIT CENTERS

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Recently, I wrote about law schools using merit scholarships to fill seats in their entering first-year classes. Economists would say that such price-cutting makes sense in a declining market for new students. Today’s topic considers what may seem at first to be a contradictory trend: Average law school tuition continues to rise at more than double the rate of inflation.

An article in The National Law Journal mused that perhaps rising tuition in the face of reduced demand meant that the fundamental laws of economics might not apply to law schools. In fact, rising tuition along with the proliferation of non-need-based scholarships are parts of the same failing model that regards law school as a business for which U.S. News & World Report rankings provide the definitive metric.

Is relevant demand sufficiently low?

There were 68,000 applicants for the fall 2012 entering class. But in 2011, law schools admitted 55,800, of whom 48,700 enrolled. Two points about these numbers are key.

First, admissions and enrollments may be down, but not nearly enough to create equilibrium with the far fewer available legal jobs for new graduates. In fact, the recent drop in enrollments has simply returned them to 2006 levels. (Law schools were producing too many lawyers in those days, too.)

Second, the laws of economics are performing as expected. Student demand (68,000 applicants in 2012) still outstrips supply (48,700 enrollments in 2011). That sends a signal to deans that they can raise the list price that they charge for tuition, provided that the quality of the applicants doesn’t matter to them.

But quality — as measured by U.S. News rankings methodology — does matter to them. That’s where discounts enter the equation. Published tuition is the list price, but many schools are offering individual scholarships (discounts from list price) in an effort to bolster the U.S. News ranking credentials of their entering first-year classes.

As part of a total profit-maximzing strategy, increasing the list price accomplishes two objectives. First, it generates additional revenues from students willing to pay (or borrow to pay) the full amount. That’s easy money for the school.

Second, it enhances pricing flexibility to recruit so-called desirable candidates (that is, those who will enhance the school’s U.S. News ranking). A higher starting price creates more room to maneuver — through selective and even bigger discounts (scholarships) that seal the deal.

What’s ahead?

In this scenario, U.S. News wields stunning power to determine the characteristics of the next generation of lawyers. But the magazine can’t solve the problems that arrive at graduation time. At the current rate of attorney production, only about half of new graduates will find jobs requiring a legal degree. Since the Great Recession began, the Bureau of Labor Statistics has already revised downward its projection of new legal jobs over the next decade. But even that revision results in an estimate that is probably overly optimistic.

Meanwhile, in case you missed it, yet another law school dean departed recently in a dispute over her university’s efforts to funnel law school revenues back to the mother ship. That implicates another U.S. News rankings item as it relates to rising tuition: The ranking methodology incentivizes deans to spend more, regardless whether it adds value to a student’s education or employment prospects.

The victims

Put it all together: Declining admissions aren’t declining enough, rising tuition is rising too much; discounts go to students with desirable LSATs and GPAs at the expense of other students who really need financial aid; law schools return a portion of profits to their universities; and every year the system is still producing far too many attorneys. Added to this is the exploding educational debt that is financing this mess.

The current hype that borders on hysteria suggests that declining student interest in law school heralds a major self-correction of the market that will remedy all of these problems. But the sad truth is that the problems are still growing and the end is nowhere in sight.

TOO LITTLE; TOO LATE

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The ABA is thinking about punishing law schools that lie. What courage!

At the front end of the experience, intentionally inflated undergraduate GPAs and LSATs for Villanova’s admitted students led to an ABA censure in August. The school must now employ an independent compliance monitor for two years. Next up in the hot seat: the University of Illinois College of Law. Now, at the back end, the ABA is considering imposing penalties on law schools that misrepresent graduate job placement data.

This one-school-at-a-time approach misses the larger targets. Along with many law schools’ dubious sales tactics, the ABA itself has contributed to the chronic oversupply of lawyers.

Don’t let a recent Wall Street Journal article about the declining number of law school applicants fool you. Excess supply persists. Although total applicants are down ten percent from last year, the number of students starting law school has actually been rising. Meanwhile, the projected growth in new attorney jobs remains far below what’s required to achieve full employment for lawyers hoping to work as lawyers.

In the fall of 2002, first-year enrollment was 48,400. By 2009 — the last year for which the LSAC has published information — it had climbed to 51,600. In other words, demand still exceeds supply. This year’s ten percent applicant drop — to 78,900 — won’t prompt schools to reduce capacity. Rather, it will encourage growth.

And the ABA isn’t stopping them. Between 1970 and 2010, the number of law schools increased from 144 to 200. During the same period, the total number of law students soared from 64,000 to 145,000.

Meanwhile, the Bureau of Labor Statistics estimates that there will be only 98,000 net additional legal jobs for the entire decade ending in 2018. At current enrollments, law schools will produce five times that many graduates; baby boomer retirements won’t bridge that gap.

Last year’s drop in applicants may mean that some recent graduates are giving more thought to whether law school is the right path. That would be great news for them and the profession. Unfortunately, the accreditation of new schools and the growth of existing ones is bad news for many would-be lawyers.

Having facilitated a situation that continues to inflict tragic consequences on many unsuspecting victims, the ABA has avoided leading serious remedial efforts. In light of its recent punt on the requirement that law schools report meaningful information about their graduates’ employment status, its now-contemplated scrutiny of individual schools’ placement statistics rings hollow. To wit: the Wal-Mart greeter with a law degree still counts as employed.

The ABA’s piecemeal approach won’t solve the problem. Most law schools are prisoners of short-term profit-maxizing business models and metrics. That’s why too many resort to half-truths or outright deception to enhance U.S. News rankings, pump up demand, and put tuition-paying butts in classrooms.

Until students understand the deep methodological flaws in the U.S. News rankings, too many deans will continue manipulating them. Independent audit of the data that schools submit would help. But it should be part of a larger strategy: providing better information to prospective law students long before they sit for the LSAT.

The law can be a noble calling, but it’s not for everyone. When those enrolling in law school understand what’s ahead — including the possibility that their dream jobs won’t be there — they make better decisions and the entire profession wins. Here’s the harsh truth that will surprise many recruits: Some deans don’t act with much nobility when it comes to pursuing tuition dollars.

In an 1891 letter to his fiance, Louis Brandeis wrote: “If the broad light of day could be let in upon men’s actions, it would purify them as the sun disinfects.” Twenty years later, he was less optimistic about improving human behavior when he focused instead on practical remedies for misconduct: “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

The ABA isn’t going to start stripping schools of their accreditations, but it can put them under brighter lights. Adding surveillance cameras and a few more cops on the beat wouldn’t hurt, either.