Skin in the game

Akhil Amar and Ian Ayres have a piece in Slate that features an ingenious scheme for requiring law schools to tie their own financial welfare more closely to that of their graduates.  Amar and Ayres insist that if law schools want to continue to fund their operations via federal loan money, they should have to disclose the professional and economic status of their graduates -- and not merely after graduation, but for a decade afterwards.

The latter point is becoming more important all the time, as it becomes increasingly the case that even those "lucky" graduates (perhaps 15% of all law school grads) who acquire high-paying big firm jobs at graduation find themselves scrambling for much-lower paying and less glamorous positions a few years later, while still carrying educational debt loads that can no longer be managed on the salaries they'll now be making. (This assumes -- and with every passing year it becomes a more problematic assumption -- that laid-off big firm associates go on to get other legal jobs).

The authors also make an excellent point when they argue that schools should have to dis-aggregate graduate information in a way that would allow prospective students and people completing their first year to consider the long-term outcomes of graduates with records similar to their own (It's one thing to think you'll be the exception to the rule when you're making that bet in a relative informational vacuum: it's quite another when you realize before you enroll or after your first year that literally no graduate from your law school with your credentials is making as much as $60,000 per year three years after graduation).

But Amar and Ayres are well aware that greatly increased transparency only begins to address what they with refreshing straightforwardness call "the crisis facing legal education."  Their analysis recognizes that better information about employment and debt ties the financial fortunes of law schools to those of their graduates only indirectly.  Further, as long as law schools don't pay any collective price for the lottery ticket mentality of their more irrationally optimistic students, they'll have no self-interested reasons not to continue to cultivate that mentality.  Hence what's needed is a device that will both help more students sober up before tossing good money after bad, and hit law schools in their pocketbooks when students who should drop out are given some powerful incentive to do so.

Amar's and Ayres' refund proposal -- which would require law schools to give back half a student's first-year tuition if the student drops out -- does just this.  It's of course not the only way to force law schools to put more of their own skin in the game, but it's a thoughtful attempt to grapple with what is perhaps the most fundamental financial problem with the current structure of legal education: that the rewards that flow from the billions of dollars in federal government loans taken out by law students every year are front-loaded onto the current bottom lines of law schools, while the risks of those loans are back-loaded onto students and (eventually) taxpayers.

I'm also glad to see the authors deal head on with the question of a potential conflict of interest:

In making this proposal, we might be accused of having an institutional conflict of interest.  We’re pretty confident that few students at Yale (like few employees at Zappos) would take the bribe to quit early. But if we’re right, this is something about which to be proud. If 20 percent of the students at another school took the offer, applicants might think twice before enrolling. And if the percentage taking the rebate becomes too large, government should think twice before lending.

 Precisely. No one (as far as I'm aware) has yet argued that a JD from Yale Law School is, all things considered, a bad bargain.  On one level, the whole problem with contemporary legal education is that 199 other law schools are to greater and lesser extents trying to be Yale Law School, when it makes sense for perhaps five or ten of them to engage in that particular enterprise.  The Yale model appears to work, by and large, for Yale graduates.  A cheap knockoff (although cheap is hardly the right word) of the Yale model doesn't work -- in either academic or economic terms -- for the vast majority of law students who are subjected to it.

This article is a very encouraging sign that people at the top of the legal academic hierarchy are coming to grips with the extent to which the basic economics of law school no longer make sense. Even more encouraging is Amar's and Ayres' recognition that what they quite properly call the crisis of contemporary American legal education requires a much more creative response than the kind of mildly reformist tweaking almost always advocated by people at the top of the social heap.  That two people at the top of our particular heap have come up with such a response is very good news indeed.