TRUMP AND BETSY DEVOS DELIVER A ONE-TWO PUNCH

Posted on June 22, 2017 by thebellyofthebeast

Since 2007, the federal student loan forgiveness (PSLF) program has been an escape hatch for law graduates (and others) saddled with overwhelming educational debt. The idea was that the graduate would take a public service job at low pay and reduced monthly loan requirements. After ten years of service, any remaining loan debt was forgiven. The well-known backstory is that student loans are not dischargeable in bankruptcy. They can follow a person to the grave.

There were and still are problems with PSLF, such as the resulting tax on the imputed income from the forgiven loan. And 10 years is a long time to toil in low wage positions. But the country and many recent graduates have been the better for it.

New Problems

Serious administrative issues surfaced when the ABA sued the Department of Education for retroactive denials to lawyers who thought they were employed in qualifying PSLF programs. After original approval, the suit alleged, the department then reneged and said, in effect, “No soup for you.”

According to one report, “The ABA, which views the program as an essential part of its recruiting and retention efforts, was only informed that it was no longer an eligible employer for PSLF purposes earlier this year – nine years into a 10 year program. The association has lost employees who were in the program and has been told by possible hires that the loss of qualification was an important factor in not joining the ABA.”

Problems Solved, Trump-Style

For young lawyers hoping that public service loan forgiveness was the answer to a lifetime of student debt burdens, Trump has some bad news. Rather than remedy the problems with a program that can provide enormous help to many recent grads and the organizations for which they work, he wants to eliminate it altogether. It’s analogous to his approach to the Affordable Care Act. Fixing something is more difficult than eliminating it altogether. So Trump proposes to eliminate it.

Amid the attention surrounding Trump’s scandals involving Russia, obstruction of justice, and business conflicts of interest, many important stories got lost. What’s happening in the U.S Department of Education is one of them. On May 17, The Washington Post reported, “Funding for college work-study programs would be cut in half, public-service loan forgiveness would end and hundreds of millions of dollars that public schools could use for mental health, advanced coursework and other services would vanish under a Trump administration plan to cut $10.6 billion from federal education initiatives.”

Why? Because Education Secretary Betsy DeVos’ lifelong mission has been to promote private and religious schools. According the Post story, she seeks to put $400 million into expanding “charter schools and vouchers for private and religious schools, and another $1 billion to push public schools to adopt choice-friendly policies.”

Who’s Affected?

By the end of 2016, 550,00 people had been approved for the federal loan forgiveness program. The first beneficiaries of the program will receive their rewards this year. If Trump and DeVos have their way, they will become the vanguard of a dying breed. Trump and DeVos are not just throwing out the baby with the bathwater; they’re ripping out the tub and all of the plumbing, too.

STUDENT LOANS AND BETSY DeVOS

Posted on March 28, 2017 by thebellyofthebeast

Into the teeth of the student loan crisis walked Trump’s Secretary of Education Betsy DeVos. She’s already making it worse.

The problem goes far beyond DeVos’ embarrassing ignorance on display at her confirmation hearing, Her main qualification for Trump’s cabinet appears to have been her status as a Republican billionaire-donor. She knows nothing about basic educational policy, the decades-old Individuals with Disabilities Education Act, fraud by for-profit colleges and graduate schools exploiting students, or any other subject about which an aspiring Secretary of Education should have at least some rudimentary knowledge.

Why DeVos?

None of DeVos’ shortcomings kept Trump Party senators from confirming her. With an expertise in lobbying, she pushed Michigan money away from public education and into charter schools that had little or no accountability for their dismal performance. And Michigan now leads all states in the number of charter schools operated for a profit.

For law students, DeVos’ actions in Michigan are more than just a troubling analogy. In an earlier post, I wrote about Jerry Falwell Jr., the president of Liberty University, which has a marginal law school. His newest assignment is leading Trump’s task force on deregulating higher education. Most law schools — especially those whose graduates have the toughest time finding meaningful JD-required jobs — love the idea of deregulating an already dysfunctional market that props them up.

Law School Winners

If marginal schools had to operate in a completely competitive market, many would have closed their doors long ago. As they lowered admission standards and admitted students who produced declining bar passage rates, federal student loan dollars have kept them afloat. Trump embraces deregulation as a panacea. But that’s because, as with so many things, he lacks an understanding of how the absence of regulation would make the currently dysfunctional market in legal education even worse.

Only federal student loans keep the worst law schools in business. Educational debt is not dischargeable in bankruptcy, and federal guarantees add another layer of protection for schools that don’t deserve it. Meanwhile, schools themselves have no accountability for their students’ poor bar passage rates or dismal employment prospects.

The Obama administration had been making life more difficult for schools that exploit students and leave them deeply in debt from which many will never recover. Specifically, schools that grossly underperformed for their students faced the prospect of losing eligibility for the federal student loan program. Charlotte Law School felt that heat directly.

The Other Shoes Dropped

Less than a week after Falwell’s task force appointment, Vice President Mike Pence’s tie-breaking vote in the Senate confirmed Devos as Secretary of Education. Immediately, she chose advisers:

— Robert S. Eitel, an attorney, is on unpaid leave of absence from his job as a top lawyer for Bridgepoint Education, Inc., a for-profit college operator whose stock is up 40 percent since November 9. Bridgepoint faces multiple government investigations, including one that ended in a $30 million settlement with the federal Consumer Finance Protection Bureau over deceptive student lending.

— Until July 2016, Taylor Hansen was a lobbyist for the Association of Private Sector Colleges and Universities, the largest trade group of for-profit colleges. In June 2016, his mission was to eliminate the government’s “gainful employment” rule, which can cost a school federal funding if too many of its recent graduates fail to repay their student loans. But then Hansen became a DeVos adviser and a member of the Education Department’s “beachhead” team — a group of temporary employees that doesn’t require Senate approval. On March 6, the Department announced a three-month delay in deadlines associated with the gainful employment rule.

On March 14, ProPublica reported on Hansen’s unseemly status. On March 20, Sen. Elizabeth Warren sent the ProPublica article with a letter to DeVos asking for an explanation. Hansen resigned the same day.

Bottom line: If you’re counting on help in dealing with the worsening student loan crisis, count the Trump administration out.

THE ABA IS RAISING THE WRONG BAR

Posted on November 30, 2016 by thebellyofthebeast

“[W]hen we look at these low performing schools, you guys are doing absolutely nothing.”

So said a member of the Department of Education’s National Advisory Committee on Institutional Quality and Integrity last June. I wrote about the painful session in August. The question on the table was whether the American Bar Association should lose its power to accredit law schools. The ABA leaders on the receiving end of that stinging rebuke had expected routine approval. What they got instead was a three-hour thrashing.

Disaster Avoided

The ABA beat back the committee’s recommendation of a 12-month suspension of its accreditation power. Even worse, it learned nothing from the episode. That became apparent in October, when the ABA’s Section of Legal Education and Admissions to the Bar recommended a rule change that it thought was monumental. It’s actually far too little coming far too late.

The new rule would require at least a 75 percent of a law school’s graduates to pass a state bar exam within two years of receiving their degrees. The current standard requires a 75 percent pass rate within five years. Since 2000, only four law schools have faced difficulty under the current standard, and all were restored to full accreditation.

Looming Disaster Remains

The Department of Education’s heat directed at schools taking advantage of their students could cool significantly under President Trump, who recently paid $25 million to settle former students’ fraud claims against Trump University. The troubling law school backstory is a less dramatic variation on the same theme.

Plummeting national bar passage rates coupled with growing student debt for degrees of dubious value are the culmination of a dysfunctional market in legal education. That dysfunction is taking a cruel toll on a generation vulnerable to exploitation by elders who know better. Sooner or later, we’ll all pay the price.

The ABA’s latest misfire toward a remedy misses the key point: even passing the bar doesn’t mean getting a law job. Within 10 months of graduation, fewer than 60 percent of 2015 graduates obtained full-time long-term employment requiring bar passage. Compared to the class of 2014, the number of such positions declined by 10 percent (from 26,248 to 23,687). The total number of 2015 graduates: 40,000.

Students attending marginal schools bear the greatest burden. Their schools use a business model that relies on federal student loan dollars to fill classrooms. Because schools have no accountability for their graduates’ poor employment outcomes, they are free to dip ever deeper into the well of unqualified applicants. Prospective employers have noticed.

Disaster For Many Students

The ABA’s persistent refusal to confront the employment rate problem brought the Department of Education into the picture. At the June hearing, committee members posed tough questions that ABA Managing Director Barry Currier had a tougher time answering. As some marginal schools received huge federal dollars, the committee noted, the vast majority of their graduates couldn’t get law jobs.

Now the ABA proposes tinkering at the edges. Even at that, based on the outrage generated from some inside the professorial ranks, you’d think it was trying to do something truly revolutionary. Some educators complained that shortening the 75 percent bar passage rate period from five years to two would discourage schools from admitting minority candidates, thereby leading to a less diverse profession.

That’s a non sequitur. If an additional three years after graduation is needed for some graduates to pass the bar, whatever they’re learning during that post-graduate period can’t be coming from their former classrooms. And, of course, nothing in the ABA proposal solves the employment problem.

Disaster Rewards a Few

As educators rely on student debt to keep their law schools operating, they’re getting paid, regardless of how their graduates fare in the job market. That frames the issue with which the ABA should be grappling but continues to dismiss: Marginal law schools are unable place most of their graduates in full-time long-term bar passage-required jobs.

Solving that problem requires schools to have financial skin in the game. Here’s one suggestion: tie the availability of a student’s federal loan dollars to a law school’s employment outcomes. That would create accountability that no dean or administrator currently possesses. And they sure don’t want it.

The ABA is institutionally incapable of embracing the change required to create a functional market in legal education. Vested interests are too embedded. The clout of the marginal schools is too great.

For example, the head of the ABA’s last “task force” on the challenges of financing legal education was also serving as the chairman of the national policy board of the Infilaw consortium of for-profit law schools, including the Charlotte School of Law. In fact, Dennis W. Archer still chairs the Infilaw national policy board. On November 15, Charlotte was the subject of a rare event: the ABA placed the school on probation because of its admissions practices. The ABA also ordered public disclosure of its bar passage rates.

But the ABA didn’t address the bigger problem with Charlotte that afflicts students at similar schools: dismal full-time long-term bar-passage required employment rates. Charlotte’s rate for the class of 2015 was 26 percent — down from 38 percent in 2012. Here’s the real kicker: from 2011 to 2015, the number of graduates at Charlotte increased from 97 to 456.

Growing supply in response to shrinking demand. That’s what happens when the people running law schools view students as revenue streams for which the schools will never have any financial accountability. The federal government backs the loans; educational debt survives personal bankruptcy; many in a generation of young would-be attorneys begin adulthood in a deep, six-figure financial hole.

Perhaps President-elect Trump will identify with the plight of the student-victims of this continuing disaster. Where would he be today if he had not been able to discharge his business loans through a string of bankruptcy filings? Not in the White House, that’s for sure.

INDIANA TECH: ANOTHER COSTLY LESSON IGNORED

Posted on November 10, 2016 by thebellyofthebeast

I’ll have more to say about the election, but not today. Instead, let’s take a closer look at a story that got lost in the shuffle of presidential politics. It deserves more attention than it received.

Back in 2013, when Indiana Tech opened the state’s fifth law school, I wrote that the decision was the latest example of pervasive legal market dysfunction. As the number of applicants declined, marginal schools increasingly were admitting students who wouldn’t be able to pass the bar, much less get decent jobs requiring a JD. Schools such as Indiana Tech were continuing to inflate the growing lawyer bubble, which was also the title of my 2013 book. (Proving that some things never change, it came out in paperback earlier this year.)

The central contributor to that bubble remains in place. Specifically, the federal student loan program absolves marginal law schools of accountability for their graduates’ poor employment outcomes, while encouraging administrators to fill classrooms with tuition-paying bodies. The results are predictable: lower admission standards, lower bar passage rates, and burgeoning law student debt for degrees of dubious value from marginal schools.

Victims of a Doomed Experiment

Indiana Tech’s inaugural class of first-year students began their studies in August 2013. Two years later, the school failed in its first attempt to get ABA accreditation. Further proving the ABA’s failure to address the continuing crisis in legal education, it granted Indiana Tech provisional accreditation earlier this year. The school graduated its first twelve students in 2016; only one passed the bar exam. Another passed on appeal, and a third passed the bar in another state.

On October 31, 2016, the school’s 71 students received an unwelcome Halloween surprise. The board of trustees announced its unanimous vote to close forever on June 30, 2017.

Indiana Tech President Arthur Snyder’s statement said, “[F]or the foreseeable future, the law school will not be able to attract students in sufficient numbers for the school to remain viable.”

Here’s the thing. President Snyder’s observation was equally true in 2011 — when the school completed its feasibility study and announced the decision to move forward. But rather than confront obvious facts about the demand for legal education that were apparent to everyone else, President Snyder insisted in 2013:

“We have given this decision careful research and consideration, and we believe we can develop a school that will attract and retain talented individuals who will contribute to our region’s economic development.”

Thanks to President Snyder and Indiana Tech’s board of trustees, those individuals — students and faculty — now face a tough and uncertain road.

Seeking Answers

What could have motivated such an obviously bad decision to open a new law school in the teeth of a lawyer glut? The answer is pretty simple. Snyder is a business guy. He has an MBA in strategic management from Wilmington University and a doctorate in education (innovation and leadership) from Wilmington University. Before joining the academic world, he spent more than 20 years in the telecommunications industry, rising to the position of vice president for the Data Systems Division of AT&T.

For someone focused on a bottom line approach to running higher education, adding a law school probably seemed like a no-brainer. In a 2011 interview for the National Law Journal, Snyder explained his strategy. Noting that about half of Indiana residents who attended ABA-approved law schools were doing so out of state, he said, “There are potential students who desire a law school education who cannot get that education in this area….”

Capturing that segment of the market was a strange premise upon which to build the case for a new law school. Which Indiana students admitted to established out-of-state schools did he expect to jump to an unaccredited newcomer?

The Real Play For Dollars

Like most law schools that should have closed their doors long ago, Indiana Tech’s business strategy sought to exploit market dysfunction. If the school could attract a sufficient number of aspiring attorneys to Fort Wayne, student loan dollars for tuition would take care of everything else, including a spiffy new building:

“The Indiana Tech Law School contains eight state-of-the-art classrooms, a courtroom, several learning and relaxation spaces for students including lounges and an outdoors patio, a three-story library, and everything else our students need to make their time here a successful and rewarding experience.”

Would graduates obtain decent full-time long-term jobs requiring the Indiana Tech JD degrees costing them close to $100,000? That would never become President Snyder’s problem.

The Opposite of Leadership

After the ABA denied Indiana Tech provisional accreditation in 2015, the handwriting was on the wall. But Snyder doubled down on a bad bet. The school tried to bolster admissions with a loss leader: a one-year tuition scholarship to students who enrolled in the fall of 2015. Anyone who took that deal is now twisting in the wind.

Indiana Tech reportedly lost $20 million. But its failed business strategy, followed by gimmicks that could never save it, produced dozens of real-life human victims whose damage is immeasurable. Those people don’t count in calculating Indiana Tech’s profit-and-loss statement. Except as conduits for federal student loan dollars, it’s fair to ask if they ever counted at all.

In his 2011 interview about the then-planned new law school, President Snyder suggested that Indiana Tech law school could be the first to offer a joint JD and master in science degree in leadership. He thought it would be an especially good fit because the university already has several programs in leadership.

Sometimes the most important learning in life comes from careful observation of negative role models. Speaking of negative role models, as I said at the beginning, I’ll have more to say about the election results in the days and weeks to come.

THE ABA’S TERRIBLE, HORRIBLE, NO GOOD, VERY BAD DAY

Posted on August 10, 2016 by thebellyofthebeast

It’s a mere formality. Every five years, the Department of Education renews the ABA’s power to accredit law schools. The June 2016 session before a DOE advisory committee (NACIQI) was supposed to be just another step in the rubber-stamping process. The NACIQI staff had recommended approval. The committee’s three-day session contemplated action on a dozen other accrediting bodies, ranging from the American Psychological Association to the American Theological Schools. Sandwiched between acupuncture and health education, the agenda contemplated an hour for the ABA.

What could go wrong?

For starters, committee members grilled the ABA’s representatives for an entire afternoon.

Questions About Law Student Debt?

First up for the ABA was the chair of the Section of Legal Education and Admissions to the Bar, Arizona Supreme Court Justice Rebecca White Berch. A committee member asked how the ABA assessed schools based on the interrelationship between student debt, bar passage rate, and graduate placement rates. Justice Berch said the ABA was looking “for a bar passing rate of 75 percent…. [W]as that part of your question?”

Actually, that was just a proposal set for an ABA Section hearing on August 6, but it wasn’t what the NACIQI had in mind.

NACIQI Member: “Sorry, no. I think my question also went to concern related to debt that students incurred while in law school and relationship of that to placement.”

ABA Managing Director Barry Currier tried to field that one:

“With respect to debt, we have been following a disclosure model for a number of years now and a lot of information is disclosed… [W]e collect information about student borrowing, but it is currently not part of the consumer information that schools are required to post with us… [T]here is no standard about how much debt is too much debt at this point in time.”

Let the squirming begin.

“So it may be,” Currier continued, “that as evidence mounts that students don’t shop very effectively and that as uncapped student loans are available, that we need to be more paternalistic, if you will, or more — we may need to make more information required and adopt standards around how much debt is too much debt.”

Placement Rates?

NACIQI: “What would be an appropriate placement rate for a law school?”

Currier: “Well our standards do not require any specific employment…[W]e don’t have a specific standard that a school must achieve in terms of placement.”

…

NACIQI: “But you are the ones who identified that legal education is very expensive… And if they can’t find a job it wrecks their lives.”

…

NACIQI: “[Y]ou can tell a lot from some of these low performing schools. And a school that sticks out to me is Whittier Law School in California… [T]he enrollment has dropped 51 percent since 2010, yet tuition has increased 31 percent since 2008.”

He wasn’t finished.

“Over 105 million dollars of Title IV funding has gone into this school. All the while, one in four graduates of this law school has obtained a full-time attorney job within nine months… Appalachian School of Law, University of LaVerne, Golden Gate, all have abysmal placement rates… [S]o I guess my question is specifically related to these low performing institutions: what are you guys doing?”

Then he answered his own question:

“[W]hen we look at these low performing schools, you guys are doing absolutely nothing.”

Can We Talk About Something Else?

Justice Berch’s attempt to change the subject was unavailing.

NACIQI: “We are talking about student debt, right, so — I guess you are not answering my question, and so I would like for us to stay on that… I just want to make sure we are talking about what is your responsibility and your response to these lower performing schools. I mean, have they been put on probation? That’s my first question.”

Justice Berch: You make a valid point. The answer is — has anyone yet been put on probation? No…”

…

NACIQI: “How many institutions have you denied accreditation to for low pass rates?

Justice Berch: For low pass rates alone, none.”

…

NACIQI: “Over the past five years how many institutions have you withdrawn your accreditation from?”

Currier: “Zero, zero.”

You Think The ABA Can’t Do The Job?

During the NACIQI’s discussion on the motion to recommend renewal of the ABA’s accreditation power, one member put the problem bluntly:

“I am troubled that the ABA just simply isn’t independent enough for this responsibility… I find it very difficult to think that they are going to be objective enough to continue to carry out this responsibility. And I reluctantly conclude that the ABA is not the appropriate accreditor for our law schools…[T]he crushing debt load on thousands and thousands of students is too serious for us… And I think the debt load is not going to get better if we say yes to this motion.”

Another member added: “I think that objectivity is important as you go through this process, so I would think an independent body that does not have the conflict of interest that the ABA has.”

It’s Worse Than They Thought

The NACIQI didn’t consider a recent illustration of the ABA’s independence problems. Former ABA President Dennis Archer is chairman of the national policy board of Infilaw — a consortium of three for-profit law schools. At those schools — Arizona Summit, Florida Coastal, and the Charlotte School of Law — students graduate with six-figure debt and dismal prospects for a meaningful job requiring bar passage. (Full-time long-term JD-required job placement rate ten months after 2015 graduation: Arizona Summit — 40 percent; Florida Coastal — 39 percent; Charlotte — 26 percent.)

On November 18, 2013, Archer and Infilaw’s chief executive officer co-signed a seven-page tour de force warning the DOE about the perils of applying the “Gainful Employment Rule” to “proprietary law schools and first professional degree schools in general.” The letter (on Infilaw stationery) argued, among other things, that the proposed rule was unnecessary because the ABA — as an accrediting body — ensures that InfiLaw “must offer an education that will help students achieve their goals.”

Six months later, Archer became chairman of the ABA’s Task Force on the Financing Legal Education. A year later — June 2015 — the Task Force acknowledged that 25 percent of law schools obtain at least 88 percent of their revenues from tuition. But it refused to recommend an obvious remedy: financial penalties for schools where students incur massive law school debt in exchange for dismal long-term JD-required job prospects.

The Task Force’s recommendations were embarrassingly inadequate, but the ABA House of Delegates accepted them.

One More Chance?

The ABA’s culture of self-interest and insularity has now created a bigger mess. Some NACIQI members favored the “nuclear” option: recommending denial of the ABA’s accrediting authority altogether. The committee opted to send a “clear message” through less draconian means.

The final recommendation was to give the ABA a 12-month period during which it would have no power to accredit new law schools. Thereafter, the ABA would report its progress in addressing the committee’s concerns, including the massive debt that students are incurring at law schools with poor JD-required placement rates.

As one member put it, “It is great to collect data, but they don’t have any standard on placement. What’s the point of collecting data if you can’t…use the data to help the students and protect the students…”

Another member summarized the committee’s view of the ABA: “This feels like an Agency that is out of step with a crisis in its profession, out of step with the changes in higher ed, and out of step with the plight of the students that are going through the law schools.”

The day of reckoning may not be at hand, but it’s getting closer.

LSAT v. GRE – RHETORIC v. REALITY

Posted on February 24, 2016 by thebellyofthebeast

[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books, 2016) — complete with an extensive new AFTERWORD — is now available at Amazon.]

The Wall Street Journal reports that the University of Arizona College of Law has begun accepting GRE scores in lieu of LSATs. Two other schools — the University of Hawaii and Wake Forest — are performing validation studies to determine whether they, too, should make the move to GREs.

At Arizona, Dean Marc Miller said, “This isn’t an effort to declare war on anybody. This is an effort to fundamentally change legal education and the legal profession.”

To “fundamentally change legal education and the legal profession,” accepting GRE scores instead of LSATs seems like a misfire. Beyond the rhetoric is a reality that might reveal what else could be going on.

The GRE Is Easier

According to the executive director of prelaw programs at Kaplan Test Prep, Jeff Thomas, “The GRE is regarded as the easier test. The entirety of the LSAT was meant to mimic the law-school experience, while the GRE was not created for that particular purpose.”

But the fact that the GRE is easier doesn’t explain why some law schools want to use it. Self-interest and U.S. News rankings might.

LSATs Are Telling a Sad Story

As LSAT scores of entering classes have dropped at many schools, so have bar passage rates. According to the University of Arizona School of Law’s ABA Reports, its median LSAT for matriculants in 2012 was 161. For 2015, it was 160. That’s not much of a decline, but at the 25th percentile, the LSAT score went from 159 to 155.

According to the school’s website, in July 2013, 92 percent of first-time test takers passed the Arizona bar exam. In July 2015, the passage rate was 84 percent.

The GRE Isn’t the LSAT

Such trends suggest another possible reason for allowing students to substitute the GRE for the LSAT: It buys law schools time and complicates prelaw student decision-making. At many schools, year-over-year LSAT score comparisons have documented the willingness of many deans to accept marginal students. The easiest way to stop such time series analyses is to make that test optional.

The GRE will be a new data point. Until schools report those scores for two or three years, it won’t reveal trends in admitted student qualifications. That will deflect attention away from the “declining quality of admitted students” narrative that has become pervasive. Never mind that the narrative is pervasive because, based on LSATs and undergraduate GPAs for matriculants at many schools, it’s true. (Between 2012 and 2015, the University of Arizona School of Law’s undergraduate GPA for matriculants dropped at all three measuring points — the 25th, 50th, and 75th percentiles, according to its ABA reports for those years.)

The Heavy Hand of U.S. News rankings

In addition to confusing the story on the declining quality of applicants, law schools have another reason to accept the GRE. Applicants will take both exams and pick the better result for law school consumption. It’s analogous to the current ABA rule allowing schools to use only a student’s highest LSAT score.

Prelaw students who do badly on the LSAT will submit the GRE score instead. The ongoing self-selection of poor LSAT scores away from the applicant pool will increase the 25th, 50th and 75th percentile LSAT values for the scores that remain. Until all schools adopt the GRE option, it will help the U.S. News rankings of the schools that do it.

There’s precedent for such behavior. Most high school students take the SAT and the ACT. Where a college allows either score, students submit the higher one.

Look Beyond the Rhetoric

Trends at the two other schools mentioned in the WSJ article might be relevant to all of this. At the University of Hawaii, compare the 2012 and 2015 ABA forms reporting LSATs for matriculants:

75th percentile: 2012 – 160; 2015 – 158

50th percentile: 2012 – 158; 2015 – 154

25th percentile: 2012 – 154; 2015 – 151

Likewise, at Wake Forest the results are:

75th percentile: 2012 – 165; 2015 – 162

50th percentile: 2012 – 163; 2015 – 161

25th percentile: 2012 – 159; 2015 – 157

At this point, the appropriate legal phrase is res ipsa loquitur — the thing speaks for itself.

The ABA is planning to determine independently whether the GRE meets its accreditation requirement allowing schools to use the LSAT or another “valid and reliable” test when making admissions decisions. The profession’s leading organization is likely to approve the switch. That’s because doing so will perpetuate what has become the ABA’s central mission in legal education: protecting many law schools from scrutiny and meaningful accountability.

That’s about as far as you can get from trying “to fundamentally change legal education and the legal profession.”

ANOTHER SHOT AT STUDENT LOAN DEBT

Posted on January 27, 2016 by thebellyofthebeast

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.

THE CRISIS IN LEGAL EDUCATION IS OVER!

Posted on January 13, 2016 by thebellyofthebeast

[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books) — complete with an extensive new AFTERWORD — will be released on March 8, 2016. That’s just in time to put in proper perspective the latest annual rankings from U.S. News & World Report (law schools in mid-March) and Am Law (big firms on May 1). The paperback is now available for pre-order at Amazon and Barnes & Noble. Now on to today’s post…]

Wishful thinking is never a sound strategy for success.

“I don’t see legal education as being in crisis at all,” said Kellye Testy, the new president of the Association of American Law Schools and dean of the University of Washington Law School. She made the observation on January 5, 2016 — the eve of the nation’s largest gathering of law professors.

Perhaps her declaration made attendees more comfortable. Unfortunately, it’s not true.

The Trend! The Trend!

Law deans and professors cite the dramatic declines in applicants since 2010 as proof of law school market self-correction. Dean Testy echoed that approach: “I think there is a steadying out now after quite a crash in the number of students our schools are admitting….”

Two points about that comment. First, the decline in the number of applicants since 2010 is real, but that year may not be the best baseline from which to measure the significance of the drop in subsequent years. From 2005 to 2008, the number of applicants was already declining — from 99,000 to 83,000. But the Great Recession reversed that downward trend — moving the number back up to 88,000 by 2010 as many undergraduates viewed law school as a place to wait for three years while the economy improved.

Viewed over the entire decade that began in 2005, the “drop” since 2010 was from a temporarily inflated level. If the roughly four percent annual reduction that occurred from 2005 to 2008 had continued without interruption to 2014, the result would have been about 65,000 applicants for the fall of 2014, compared to the actual number of 56,000. That difference of 9,000 applicants doesn’t look like a “crash.”

A More Troubling Trend

Second and more importantly, many law schools solved their reduced applicant pool problem by increasing admission rates. Overall, law schools admitted almost 80 percent of applicants for the fall of 2014. Compare that to 2005 when the admission rate was only 59 percent.

During the same period, the number of applicants dropped by 40,000, but the number of admissions declined by only 12,000. Countering the impact of fewer applicants to keep tuition revenues flowing meant lowering admission standards. The ripple effects are now showing up in declining bar passage rates for first-time takers.

Student Enlightenment Interrupted

Transparency has given students access to data that should produce wiser decisions. Until the current application cycle, better information was contributing to the recent decline in the number of law school applicants. But the relentless promotional efforts of law school faculty and administrators may be interrupting that trend. Compared to last year, the number of applicants is up.

But law schools aren’t solely to blame. Responsibility for persistently dubious decisions also rests on those making them. A December 22 article in The Wall Street Journal, “U.S. Helps Shaky Colleges Cope with Bad Student Loans,“ includes this unfortunate example:

“Anthony C. Johns, 32 years old, regrets accumulating $40,000 in debt while attending Texas College, a private college in Tyler. He says he graduated in 2007 with an English degree but couldn’t land a full-time job.

“‘I think I applied for everything on CareerBuilder from teaching to banking,’ says Mr. Johns, who has defaulted on his Texas College loans. ‘Default was very embarrassing.’ Since then, he has enrolled in law school and borrowed $30,000 to pay for his first year.'”

The emphasis is mine.

The Biggest Problems Remain

According to LinkedIn, someone named Anthony C. Johns graduated from Texas College in 2007 and is currently a student at the Charlotte School of Law. That’s one of the Infilaw consortium of three for-profit law schools — Charlotte, Arizona Summit, and Florida Coastal. Owned by private equity interests, the Infilaw schools — like many others — survive only because unrestricted federal student loans come with no mechanism that holds schools accountable for graduates’ poor employment outcomes.

Ten months after graduation, Charlotte School of Law’s full-time long-term bar passage-required placement rate for 2014 graduates was 34 percent. The average law school loan debt of its 2014 graduates was $140,000. If Anthony Johns regretted accumulating $40,000 in college debt, wait until he’s taken a retrospective look at law school.

You Be The Judge

Perhaps Dean Testy is right and there is no crisis in legal education. Or perhaps it depends on the definition of crisis and how to measure it. When a problem gets personal, it feels different.

Since 2011 when the ABA first required law schools to report the types of employment their graduates obtained, over 40 percent of all graduates have been unable to find full-time long-term employment requiring bar passage within ten months of receiving their degrees.

Now let’s make those numbers a bit more personal. Saddled with six-figure law school debt, many recent law graduates might consider crisis exactly the right word to describe their situation. Where you stand depends on where you sit.

LEGAL EDUCATION’S STRANGE BEDFELLOWS

Posted on November 4, 2015 by thebellyofthebeast

The recent New York Times editorial on the law student debt crisis didn’t attack all law schools as “scams.” Rather, along with Law School Transparency’s recent report, it exposed a soft underbelly. But in defending the bad behavior of others, many law professors and deans are doing themselves, their schools, and the profession a great disservice.

It’s a puzzling situation.

In my 30-year career as a litigator at Kirkland & Ellis, I encountered plenty of bad lawyers. I regarded them as embarrassments to the profession. But I didn’t defend their misconduct. Good doctors don’t tolerate bad ones. Gifted teachers have no patience for incompetent colleagues.

The Opposite of Leadership

Yet the top officers of the Association of American Law Schools sent a letter to the Times editor that began:

“The New York Times fails to make its case on law school debt.”

AALS president Blake Morant (dean of George Washington University Law School), president-elect Kellye Testy (dean of the University of Washington School of Law), and executive director Judith Areen (professor and former dean at Georgetown Law and former AALS president) then explained why all is well.

If those AALS leaders speak for the organization, a lot of law deans should consider leaving it. Rather than serving the best interests of most law schools, publicly defending the bottom-feeders — while saying “no” to every proposal without offering alternatives — undermines credibility and marginalizes otherwise important voices in the reform process.

Using a Poster Child to Make a Point

The Times editorial looked at Florida Coastal, about which certain facts are incontrovertible: low admission standards; dismal first-time bar passage rates; average debt approaching $163,000 for the 93 percent of its 2014 graduates with law school loans; poor JD-employment prospects (ten months after graduation, only 35 percent of the school’s 2014 class had full-time long-term jobs requiring bar passage).

Florida Coastal isn’t alone among those exploiting law school moral hazard. Without any accountability for the fate of their graduates, many schools feed on non-dischargeable federal loans and the dysfunctional market that has allowed them to survive.

Predictable Outrage from a Inside the Bubble

In June, Scott DeVito became Florida Coastal’s new dean. In an interview about his strategic plans, he said, ““We’re going to have to build more on the parking garage because people will want to go here.”

Predictably, DeVito pushed back hard against the Times’s op-ed. (The newspaper published only a portion of his two-page letter.) He boasts that his school’s first-time bar passage rate was 75 percent in February 2015 — third best of the state’s 11 law schools. That’s true.

But the February session typically includes only 50 to 60 Florida Coastal first-time test-takers annually. DeVito doesn’t mention more recent results from the July 2015 administration, which usually includes 200 to 300 Florida Coastal grads each year: 59.3 percent first-time bar passage rate — eighth out of eleven Florida law schools.

From 2010 to 2014, the school’s July results were:

2010: 78.8% (7th out of 11)

2011: 74.6% (8th)

2012: 75.2% (9th)

2013: 67.4% (10th)

2014: 58.0% (10th)

Who among America’s law school deans is willing to defend that performance record? Their professional organization, the AALS, seems to be.

Facts Get in the Way

DeVito acknowledges that his students’ law school debt is high, but says that’s because, as a for-profit school, “taxpayers are not paying for our students’ education.” That’s a remarkable statement. Florida Coastal and every other law school receives the current system’s inherent government subsidies: non-dischargeable federal student loans, income-based repayment (IBR), and loan forgiveness programs.

Likewise, DeVito asserts that Florida Coastal students “repay their loans,” citing the school’s low default rate. The AALS letter makes the same point: “[M]ost law students…are able to repay and do. The graduate student default rate is 7 percent versus 22 percent for undergrads.”

That argument is disingenuous. The absence of a default doesn’t mean a graduate is repaying the loan or that the day of reckoning for deferred or IBR-forgiven debt will never arrive for students and taxpayers. In fact, it’s inconsistent to assert that law students “repay their loans” while also touting the benefits of IBR and loan forgiveness because students in those programs will never have to repay their loans in full. (And they still won’t be in default!)

Not Defaulting Is Not the Same as Repaying

A recent Department of Education report on colleges highlights the extent to which the absence of default is not equivalent to repayment. There’s no similar compilation for law schools, but an April 2015 Federal Reserve Bank of New York Report on Student Loan Borrowing and Repayment trends generally notes that while only 11% of all educational loan borrowers are in default, “46% of borrowers are current in their loans but are not in repayment. Only 37% of borrowers are current on their loan and actively paying down.” (Emphasis supplied)

As the New York Fed reports, the worsening repayment rate is exacerbating the long-term debt problem for students and taxpayers: “The lower overall repayment rate [compared to earlier years] helps explain the steady growth in aggregate student debt, now at nearly 1.2 trillion dollars.”

Righting Wrongs?

Finally, D eVito takes a noble turn, claiming that it “takes a for-profit entity to right a wrong — in this case the lack of diversity in law schools.”

In “Diversity as a Law School Survival Strategy,” St. Louis University School of Law Professor Aaron N. Taylor explains that marginal schools with the worst graduate employment outcomes have become diversity leaders: “[T]he trend of stratification may only serve to intensify racial and ethnic differences in career paths and trajectories.”

Rather than righting a wrong, it looks more like two wrongs not making a right.

A Few Profiles in Courage

To their credit, Professors William Henderson (Indiana University Maurer School of Law) and David Barnhizer (Cleveland-Marshall College of Law), among others, have embraced the Times’s message that Brian Tamanaha (Washington University School of Law) offered years ago: The current system is broken. Recognize it; accept it; help to lead the quest for meaningful reform.

Likewise, Loyola School of Law (Chicago) Dean David Yellen worries about schools that are “enrolling large numbers of students whose academic credentials suggest that they are likely to struggle gaining admission to the bar… [T]he basic point is an important one that legal education must address.”

The Real Enemy

DeVito’s effort to spin away Florida Coastal’s problems is understandable. Properly implemented, school-specific financial accountability for employment outcomes would put maximum pressure on the weakest law schools. Frankly, the demise of even a single marginal law school would come as a welcome relief. Since the Great Recession we’ve added law schools, not eliminated them.

That’s why most law schools and their mouthpiece, the AALS, should side with Dean Yellen and Professors Henderson, Barnhizer, Tamanaha, and others urging meaningful reform. To test that hypothesis, try this:

The next time someone says that introducing financial accountability for individual schools would be a bad idea, ask why.

The next time someone says that respectable law schools serving their students and the profession should not distance themselves from marginal players that could never survive in a functioning market for legal education, ask why not.

The next time someone says that a united front against change is imperative, ask who the real enemy is.

Then offer a mirror.

GAME-CHANGER?

Posted on October 28, 2015 by thebellyofthebeast

Almost overnight, a persistently sad situation finally has many legal educators squirming. And rightly so.

The problem has been years in the making, as has been the profession’s unwillingness to address it. Federal funding mechanisms have combined with lack of accountability and non-dischargeability in bankruptcy to block the effective operation of market forces in legal education. Well-intentioned policies have gone terribly awry; they actually encourage misbehavior among many law school deans.

As law student debt soared into six-figures, calls for change produced the equivalent of catcalls from the “voice of the profession” — the ABA. Its latest Task Force report on the subject should embarrass anyone associated with it, including the House of Delegates that approved it. As the profession’s echo chamber convinced itself that all was well, hope for meaningful change was leaving the building.

But as it did four years ago, The New York Times has now aimed its spotlight on one of the profession’s dirtiest secrets.

The Paper of Record Speaks

In January 2011, The New York Times’ David Segal wrote a series that exposed the cynical gamesmanship whereby law schools inflated their recent graduates’ employment statistics. Through the deepening Great Recession, the profession still generated 90-plus percent employment rates for recent graduates. How? By counting every short-term, part-time, and non-JD-related job as if it were a position that any law graduate would want. Part-time greeters at Wal-mart, temporary baristas at Starbucks, and associates at Cravath were all the same in the eyes of that metric: employed.

The ugly truth surprised many prospective law students, but not the ABA, which had approved the schools’ misleading reporting methods. It turned out that within nine months of graduation, only about half of all new J.D.-degree holders were obtaining full-time long-term (defined as lasting a year) jobs that required bar passage. Within two years of the Times’ expose’, the ABA succumbed to public embarrassment and required law schools to detail their employment outcomes.

And It Speaks Again…

The overall full-time long-term JD-required employment rate has barely budged since the new age of transparency began, but law school tuition and resulting student debt have outpaced inflation. As applications to law school plummeted, many deans responded by increasing acceptance rates to keep student loan revenues flowing.

So now the focus has shifted from full disclosure to flawed funding, and the Times has entered the field of battle:

— On August 25, it published my op-ed on the law school debt crisis and the ABA”s feeble response. It went viral.

— On October 24, the Times’ lead editorial was “The Law Student Debt Crisis.” It, too, went viral.

— On October 26, the first page of the Times’ business section completed the trifecta with “Study Cites Lower Standards in Law School Admissions.” The article discusses Law School Transparency’s report documenting that bottom-feeder schools are exploiting unqualified applicants.

And Still the Naysayers Resist…

Previous posts discussed two letters-to-the-editor responding to my August 25 Times piece — one from a law professor at Texas A&M; the other from Northeastern’s dean. There’s no need to review them here. The latest Times’ editorial is generating similarly defensive vitriol from some law professors and deans who are determined to defend the indefensible.

For example, Professor Frank Pasquale at the University of Maryland School of Law (where the full-time long-term JD-required employment rate for 2014 graduates was 57 percent) fears that the Times’ October 24 op-ed will accelerate privatization:

“Private lenders are sure to be pleased by the editorial,” Pasquale writes at Balkanization. “Law school loans are lucrative for them because of extremely low student loan default rates for law school borrowers… The stage is now set for a bootlegger/baptist coalition: as prohibitionists cut off the flow of federal loans, private lenders line up to take their place.”

But The Naysayers Are Wrong…

Pasquale offers a clever turn of phrase, but his premise is incorrect. The widespread use of deferral and income-based repayment programs means that the default rate is not the most meaningful measure of whether a loan will be repaid. Actual repayment rates are. Depending on the school, repayment rates can be pathetic.

Professor Bill Henderson at Indiana University Maurer School of Law doesn’t share Pasquale’s confidence that private lenders would step into any breach that the loss of federal funds created. Henderson also notes, correctly, that private loans don’t come with deferral and IBR options that have kept nominal default rates low as non-repayment rates have surged:

“[P]rivate lenders would need to be confident that loans would be repaid. That likelihood is going to vary by law school and by law student, raising the cost of lending.”

Precisely correct. As I’ve suggested previously, tying the availability of law school loans to school-specific employment outcomes could allow the market begin exercising its long-denied power to correct the situation. It could also mean big trouble for marginal schools.

How About Holistic?

Pasquale also chides the Times for its narrow-minded approach: “[T]he paper’s biased view of higher education in general is inflecting its take on law schools. We can only hope that policymakers take a more holistic approach.”

How about a holistic approach that permitted educational debtors to discharge their private loans in bankruptcy? In that case, Pasquale’s “stage” would no longer be “set for a bootlegger/baptist coalition” whereby “prohibitionists cut off the flow of federal loans [and] private lenders line up to take their place.” Private lenders wouldn’t rush to make fully dischargeable loans to students seeking to attend marginal schools that offered little prospect of employment generating sufficient income to repay them.

How About A Constructive Suggestion?

Policymakers could revise the federal loan program to tie student funding at a school to that school’s employment outcomes for recent graduates. In fact, it could do that while preserving deferral and IBR programs. Add dischargeability of educational debt in bankruptcy and you have the beginnings of a holistic recipe for hope.

In that respect, Professor Henderson notes: “I have faith that my legal colleagues would do a masterful job solving the problems of higher education.”

Based on the profession’s track record to date, I fear that my friend’s sentiment reflects a triumph of hope over reality. But his key message is right on target: If the profession does not put its own house in order soon, someone else will.

Marginal law schools exploiting market dysfunction may have triggered the current round of scrutiny, but outside interveners will not limit their systemic fixes to the bottom feeders. Deniers of the ongoing crisis can persist in their positions, or they can propose solutions, as I have.

The Times has pulled a loose thread on the entire legal education establishment’s sweater.

LEARNING FOUR LESSONS FROM FAILURE

Posted on October 7, 2015 by thebellyofthebeast

On October 2, 2015, Northwestern University ended a six-year experiment — the two-year accelerated JD. Dean Daniel B. Rodriguez deserves credit for pulling the plug. Now comes the important part: learning the right lessons from failure.

Lesson #1: Beware of Public Relations Hype

With much fanfare in June 2008, Dean Rodriguez’s predecessor, David Van Zandt, released a document outlining his new long-range strategic vision: “Plan 2008: Preparing Great Leaders for a Changing World.” The centerpiece was an accelerated JD program whereby the school jammed three academic years of ABA-required curriculum into two calendar years.

Van Zandt worked tirelessly to sell the program. From local talk show appearances to speeches at law schools, he never let up. But one of his stated goals should have generated concern. Even as the market for lawyers plummeted, his keynote address at a February 2009 Southwestern Law Review symposium explained that he hoped to “tap a different population of students to expand our pool of potential applicants.” In particular, he wanted to “reach those who were planning on going to MBA programs.”

In other words, he offered a prescription for what the profession needed least: more law students who had been on their way to business school until the prospect of a Northwestern accelerated JD appeared.

Lesson #2: Dig Deeper

A program that “accelerated” a student through law school in two years instead of three sounded like an unambiguously good idea. But beyond the superficial appeal were troubling realities.

Students in the program started with a Web-based course even before they arrived on campus. In May, they began full-time study. In the fall, they joined first-year students in the traditional three-year program while also adding an extra course. For anyone on the two-year accelerated path, an already precious commodity — time during the first year to integrate experiences while contemplating one’s place in a diverse, challenging and changing profession — disappeared.

Even worse, Northwestern missed an opportunity. Total tuition for the two-year program was the same as that for the three-year degree. Accelerated students just paid more in tuition each semester. According to Van Zandt, students still benefitted financially because they could enter the job market sooner. Never mind how dismal that market remained.

Lesson #3: Ignore the Spin

Many deans claim to be remaking their schools in ways that respond to the current crisis in legal education. For the sake of the profession, let’s hope that’s true. (But see Lesson #1 above.)

Even so, cramming three years of legal education into two was never particularly creative or innovative. For example, Southwestern Law School started its accelerated JD program in 1974. (Southwestern also has dismal full-time long-term JD-required employment rates for recent graduates.)

After leaving the deanship to become president of the New School in 2010, Van Zandt continued his defense of the Northwestern AJD in an online July 25, 2011 New York Times op-ed. In the process, he earned one of my “Unfortunate Comment Awards.” That was four years ago.

Lesson #4: Beware of Motivated Reasoning

Van Zandt spoke often about the importance of markets and market-based decisions. But it took six years (and a new dean) before Northwestern responded to what the markets were telling it about the AJD. As Dean Rodriguez announced on October 2, the program failed to achieve its aspirational target of 40 AJD students per year (Van Zandt had hoped eventually to enroll 65 AJD students annually):

“[D]ealing with this smaller program,” he said, “has impacted our ability to serve the objectives and needs of all our law students.”

As schools pursue various efforts to reduce the cost and improve the content of legal education, perhaps they’ll learn one more lesson: Don’t wait years to admit a mistake.

MORE ON MY NY TIMES OP-ED

Posted on September 18, 2015 by thebellyofthebeast

Professor Milan Markovic (Texas A&M) and Dean Jeremy Paul (Northeastern) responded to my recent post analyzing their letters to the New York Times about my Times op-ed.

On September 17, The American Lawyer published Dean Paul’s response (and my reply) here: http://www.americanlawyer.com/home/id=1202737553089/Is-Legal-Education-in-Crisis-A-Dean-Responds?mcode=1202617075486&curindex=0

On September 10, the Tax Prof Blog summary of my earlier post prompted Professor Markovic’s response (and my reply), here: http://taxprof.typepad.com/taxprof_blog/2015/09/more-on-the-ny-times-op-ed-too-many-law-students-too-few-legal-jobs.html

The Tax Prof Blog entry also included a comment from someone identifying himself as Gary Lucas. A person with that name also teaches at Texas A&M. I replied to that one, too.

At this point, I’m content to invoke the legal principle of res ipsa loquitur (“the thing speaks for itself”) and let readers decide this one.

NY TIMES OP-ED FOLLOW UP

Posted on September 9, 2015 by thebellyofthebeast

My August 25 Op-Ed in The New York Times went viral. It became number one on the Times’ “most-emailed” list. It rose to the top-five in “most viewed,” “most shared on Facebook,” and “most tweeted.” Within hours of publication, it generated more than 600 comments.

It also produced letters to the editor, three of which the Times chose to publish on September 2. Two are from law professors whose responses reveal why the current crisis in legal education is so intractable.

Letter #1

Milan Markovic is an associate professor of law at Texas A&M. He argues that current law students will soon have better job prospects because there are fewer of them:

“Not all of these students will graduate and pass the bar, but those who do will face much less competition for legal jobs even if the economy fails to improve.”

Professor Markovic perpetuates the sloppy analysis infecting virtually all academic discussion about law student debt and the crisis in legal education. In particular, his macroeconomic prediction about the fate of future graduates ignores a crucial fact: job opportunities vary dramatically according to school.

A 2018 graduate from Professor Markovic’s school — Texas A&M — will not have employment prospects comparable to students at top schools that regularly place more than 90 percent of their new graduates in full-time long-term bar passage-required positions. In that key category, Texas A&M’s employment rate for 2014 graduates was 52 percent.

Likewise, only three Texas A&M graduates in the class of 2014 began their careers at firms where attorney compensation is highest (that is, firms with more than 100 lawyers). Like the JD-required employment rate, big firm placement is another indicia of a school’s relevant market. That’s not a value judgment; it’s just true.

In fact, Professor Markovic is a living example of the distinct legal education submarkets. In 2006, he graduated from the Georgetown Law Center, which placed 281 of its class of 2014 graduates — more than Texas A&M’s entire 232-member class — in firms of more than 100 lawyers. Before Professor Markovic began teaching in 2010, he spent four years as an associate in two big law firms — Sidley Austin and Baker & Hostetler.

Let’s Run the Experiment

Professor Markovic objects to introducing law school accountability for employment outcomes. He argues that any reduction in federal funding “will not lead to less demand for law school or other graduate programs. Rather, students will turn to the private loan market, and private lenders will be only too happy to lend because graduate school loans — and particularly those allocated to law students and medical students — have historically been very profitable.”

Let’s run that experiment. But first, let’s create something resembling a functional market for legal education. Start by adopting my proposed sliding scale of federal loan guarantees based on each individual law school’s employment outcomes. In such a system, a school’s poor job prospects would mean a reduced loan guarantee amount for its students. Then implement one more change to the present regime: make law school debt dischargeable in bankruptcy.

Will private lenders be “only too happy” to make six-figure loans to students at any marginal law school, including places where fewer than half of graduates are finding jobs requiring a JD? Let a real market decide.

Letter #2

Professor Jeremy Paul is dean at Northeastern University School of Law. His letter to the Times editor notes correctly that many Americans cannot afford legal services and analogizes the situation to doctors.

“No one would say we had an oversupply of medical students if millions of Americans resorted to self-medication and treatment because they could not pay for a doctor,” he writes.

One commenter to Tax Prof Blog countered Professor Paul’s analogy with this one: “How can anyone say there are too many restaurants when there are still so many starving and malnourished people in the world? That’s how 12-year-olds think, not lawyers, which I’ve heard is law school’s reason for being.”

For the indigent needing legal services, there are not enough lawyers. But that’s because our society isn’t willing to pay for them. Based on the funding trends for the Legal Services Corporation and the federal government’s current obsession with austerity, the future in that respect is bleak. Compared to 1985, Congressional appropriations to the LSC are down 50 percent (in constant 2013 dollars).

Other than complain about the government’s failure to make the universal right to counsel in civil cases a priority, I can’t do anything about that problem. Neither can Professor Paul. But politicians’ reluctance to fund legal aid positions does not justify burdening today’s graduates with enormous educational debt for a JD that won’t lead to a paid position requiring that degree.

Experiments with Other People’s Student Loan Money

Professor Paul also observes that some law schools and bar associations are launching “incubator programs aimed at helping law graduates to serve clients of modest means.” That’s true. I was on the committee that developed such a program with the Chicago Bar Foundation. Will they result in more solo practitioners who, over the long-term, can squeeze out a living and a satisfying legal career? No one knows. But the participants in those programs are a drop in the bucket compared to the vast numbers of law graduates annually who can’t find JD-required jobs.

Like Professor Markovic, Dean Paul knows there’s no unitary legal education market. He graduated from Harvard Law School in 1981. For Northeastern Law School — where he has been dean since 2012 — the full-time long-term bar passage-required employment rate for the class of 2014 was 53 percent.

Completing the Circle

Professor Paul’s final observation is that “studies show that a law degree remains a sound investment…”

Which takes us back to the pervasive and persistent academic canard that aggregate data matter to individual decisions about attending particular schools. What study tracks outcomes by individual law school to “show that a law degree remains a sound investment” for graduates of every school?

No such study exists. But for those determined to resist necessary change in the broken system for funding legal education, magical thinking combines with confirmation bias to trump reality every time. Federal student loan subsidies unrelated to student outcomes encourage otherwise thoughtful legal academics to become unabashed salespeople.

Think of it as your tax dollar at work.

Would Professor Markovic and Dean Paul — among many others who similarly ignore the crisis in legal education — counsel their own children to attend a marginal law school that, upon graduation, assured them of six-figure debt but offered only dismal JD-required employment prospects? It probably depends on how they feel about their kids.

NPR’S MARKETPLACE REPORT

Posted on July 29, 2015 by thebellyofthebeast

I was interviewed for this brief NPR Marketplace Report airing Wednesday, July 29, 2015: “Should Law Schools Pay If Students Don’t Get Jobs?”

Listen all the way to the end, when Dennis Archer, chairman of the ABA’s Task Force on the Financing of Legal Education, offers his defense of the Task Force’s non-response to the current crisis resulting from a dysfunctional system.

WHEN SUPPORTING A CAUSE UNDERMINES IT

Posted on June 10, 2015 by thebellyofthebeast

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

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

Lee Siegel’s Pitch

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

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

He urges others to follow his example: default.

Who is Lee Siegel?

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

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

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

The Problem with Siegel’s Support

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

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

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

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

The Enduring Power of a Big Lie

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

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

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

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

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

ON THE COLUMBIA LAW SCHOOL BLUE SKY BLOG…

Posted on May 28, 2015 by thebellyofthebeast

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

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

LAW SCHOOL MORAL HAZARD

Posted on April 29, 2015 by thebellyofthebeast

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

Here’s a teaser.

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

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

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

BULLET DODGED? OR REDIRECTED TOWARD YOU?

Posted on November 5, 2014 by thebellyofthebeast

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 Times, University 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.

STUDENT LOANS, MORAL HAZARD, AND LAW SCHOOL LOANS – CONCLUSION

Posted on October 1, 2014 by thebellyofthebeast

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.

MAKING MONEY ON OUR KIDS

Posted on May 29, 2013 by thebellyofthebeast

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.

THE LAWYER BUBBLE — Early Reviews and Upcoming Events

Posted on March 29, 2013 by thebellyofthebeast

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)

TWO YEARS TO WHAT?

Posted on January 23, 2013 by thebellyofthebeast

It’s no panacea. It may not even be a good idea. But in a recent New York Times op-ed, Northwestern Law School Dean Daniel B. Rodriguez and NYU law professor Samuel Estreicher endorsed a proposal allowing students to sit for the New York bar exam after only two years of law school:

“[I]t could make law school far more accessible to low-income students, help the next generation of law students avoid a heavy burden of debt and lead to improvements in legal education across the United States.”

The state’s top judge told a gathering of “legal educators, practitioners and judges that the concept deserves serious study,” according to the National Law Journal.

Sorting out the facts

If the New York proposal is adopted, what aspects of legal education might change? No one really knows, but the answer may be: less than some people think. That alone doesn’t make it a bad idea, but it could produce unintended consequences, too.

Most students who leave law school after two years will still have staggering debt. The average private law school graduate incurs $125,000 in loans; for public schools, it’s $75,000. Lopping off one-third would help, but it would still leave graduates with significant five-figure burdens.

No degrees

Unfortunately, the current discussion isn’t about eliminating the third year altogether and awarding JD degrees after two years, although it should be. ABA accreditation requirements block that definitive innovation. So do most law schools because many of them couldn’t survive the resulting loss of third-year tuition revenues.

Would a student who has already sunk $100,000 into two years of legal education decide that passing the bar alone was sufficient reward for that investment? Only if the value of the degree itself was worth less than the cost of a third year to get it.

Improving the third year

Finally, even assuming that many students availed themselves of the two-year option, how would most deans respond? In their op-ed, Rodriguez and Estreicher suggest that schools might improve third-year curriculum so that students would stay. But couldn’t schools do that now? Only a handful do.

Perhaps inadvertently, Rodriguez and Estreicher implicitly make the real point: only the threat of losing significant third-year tuition revenues will dramatically change most deans’ behavior. Deans may say that they’re in the business of trying to get students through law school economically, but when they have opportunities to act accordingly, few seem to make the effort. That’s because they’re actually in the business of maximizing their schools’ short-term metrics, including revenues and U.S. News rankings.

The decades-long explosion in tuition costs is one example. Another one appears in the Times op-ed, where Dean Rodriguez identifies his school’s “accelerated program that lets students pursue a three-year course of study in two years, allowing them to take the bar and enter the job market a year earlier.”

Rodriguez doesn’t mention that rushing through in two calendar years (thanks to summer classes and course overloads) won’t save students a penny on their total tuition expense. It’s two years for the price of three because, the school’s website observes, “The Law School prices tuitions based on the degree pursued rather than the length of enrollment.”

In fairness to Dean Rodriquez, he inherited the accelerated JD program and its pricing model from his predecessor, David Van Zandt. Among the program’s stated — and more dubious — goals has been to attract students who otherwise might not have gone to law school at all. Just what the profession has needed, right?

Taking chances with other people’s lives

Given their business models, many law schools seem likely to counteract any loss of third-year tuition revenues with larger entering classes. After all, that adjustment requires less work than improving curriculum, and total applicants overall still exceed the number of available spaces. Moreover, if the two-year option became popular, lowering the price of a legal education by one-third should increase demand, although the profession doesn’t need that, either.

What’s the correct approach to all of these unknown possibilities? According to the NLJ, Verizon’s general counsel Randall Milch urged throwing caution to the wind: “Analysis paralysis is our worst enemy here. If we are going to overanalyze, we’re never going to figure this out. In my opinion, we have to move and see what happens.”

There’s nothing quite like observing a real-life experiment on someone else.

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The Belly of the Beast

Steven J. Harper, Esq.

Tag Archives: law student debt

TRUMP AND BETSY DEVOS DELIVER A ONE-TWO PUNCH

STUDENT LOANS AND BETSY DeVOS

THE ABA IS RAISING THE WRONG BAR

INDIANA TECH: ANOTHER COSTLY LESSON IGNORED

THE ABA’S TERRIBLE, HORRIBLE, NO GOOD, VERY BAD DAY

LSAT v. GRE – RHETORIC v. REALITY

ANOTHER SHOT AT STUDENT LOAN DEBT

THE CRISIS IN LEGAL EDUCATION IS OVER!

LEGAL EDUCATION’S STRANGE BEDFELLOWS

GAME-CHANGER?

LEARNING FOUR LESSONS FROM FAILURE

MORE ON MY NY TIMES OP-ED

NY TIMES OP-ED FOLLOW UP

NPR’S MARKETPLACE REPORT

WHEN SUPPORTING A CAUSE UNDERMINES IT

ON THE COLUMBIA LAW SCHOOL BLUE SKY BLOG…

LAW SCHOOL MORAL HAZARD

BULLET DODGED? OR REDIRECTED TOWARD YOU?

STUDENT LOANS, MORAL HAZARD, AND LAW SCHOOL LOANS – CONCLUSION

MAKING MONEY ON OUR KIDS

THE LAWYER BUBBLE — Early Reviews and Upcoming Events

TWO YEARS TO WHAT?

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