Tuesday, December 20, 2011

Law school dean publishes realistic economic analysis of legal education

This morning, as I was out for a pre-dawn jog, I saw an unusual sight: the bronze statute of Frank Shorter in front of the CU football stadium spontaneously detached itself  from the podium and flew around the stadium three times.  I wondered if this event might be an augury of some sort, and sure enough when I turned on my computer I found the first page of this article had materialized on the screen.

Jim Chen, who is not merely a law professor, but who is at this moment an actual dean of an actual ABA-accredited law school, has written a concise, accessible, and quite devastating indictment of the current financial structure of American legal education.  Chen's analytical frame is based on a simple, plausible assumption: a lawyer's eligibility for a home mortgage is a good proxy for whether a law degree is a good investment.

Chen's analysis divides eligibility into three categories: those who qualify for a mortgage quite comfortably, those who qualify by what might be termed normal conservative assumptions, and those who will be, as the expression goes, "house poor," but will be marginally qualified under liberal (and government-subsidized) qualification terms.

The first category requires a ratio of annual income to law school debt equal to six times a year's worth of law school tuition.  The second requires a ratio of three times, while the third stipulates a ratio of two to one.  For example, if the graduate paid $40,000 per year in tuition (average mean tuition at private law schools last year was $38,292, so it's probably just about $40,000 this year.  Current 1Ls at T-14s will pay an average of more than $50,000 per year in tuition by the time they graduate, as mean tuition at those schools last year was already $47,298) that means the graduate would need to earn $240,000 per year to qualify for a mortgage quite comfortably, $120,000 per year to qualify for a mortgage under normal front-end to back-end debt ratios, and $80,000 per year to scrape into a mortgage that will leave the homeowner markedly house-poor.

Chen makes the following assumptions:

(1) The graduate borrowed the full cost of tuition to attend law school, but did not borrow anything for living expenses.

(2)  The graduate's law school debt will be amortized over 25 years at a fixed interest rate of 6%.

(3)  The graduate entered law school -- and presumably left it -- with no other educational or consumer debt.

It should be obvious that all these assumptions are quite favorable to law schools.  A very significant percentage of current law graduates -- about half -- are graduating with law school debt loads larger than the total three-year cost of their tuition.  (Average law school debt among 2010 private law school graduates was in fact just about exactly three times the annual average tuition those students paid.  Among public law school graduates it was closer to four times).  Current law school loans average about 7.5% (6.9% for the first $22,000 borrowed per year, 7.9% for amounts beyond that).  Current average undergraduate educational debt is $25,000.  Most law students enter law school with at least some consumer debt.

So it's fair to say that Chen's analytical framework very much gives law schools the benefit of the doubt when evaluating the long-term economic value of the services they provide to their students.  This is even more evident when we consider the salary figures Chen adduces for the purposes of his analysis.  Chen quotes NALP via the BLS occupational outlook for the proposition that recent law school graduates earn, on average, $68,500 nine months after graduation.   I will not belabor here how this is a wholly fictitious figure. Consider that Ohio State, much to its credit, just released salary date for its 2010 class revealing that the 45% of the class that reported "salary" (more accurately wage) data reported a median figure of $65,000.  The real median figure for the class is of course much lower than that, since we can be quite certain that the 55% of the class that did not report income figures is making considerably less than the 45% who did.  Now consider that, terms of law school rankings, OSU is currently in the 83rd percentile.

Indeed it's quite likely that, on a national level, the true nine-month out median wage for Class of 2010 graduates of ABA-accredited schools is less than $40,000.  Following Chen's analysis, this suggests that, for the current modal graduate, law school would be a very good investment if average law tuition were $6,000 per year, a reasonably solid investment if it were $13,000 per year, and a very marginal investment if it were $20,000 per year.  And again, all these figures are based on Chen's markedly optimistic assumptions about the actual amount of debt law graduates have, the cost of servicing that debt, and the ability of law graduates to do so.

In short, a law school dean is in the process of publishing a scholarly paper that all but explicitly argues that, at present, law school is a bad investment for the vast majority of current and prospective law students.  This is truly what can be called a sign of real progress.


  1. I thought Mr. Chen's article was outstanding and articulated the situation very well. His creation of a "salary = 3x tuition" rule of thumb was also great.

    I don't mean to get racial, but it's curious that two of the leaders of the law school value proposition movement are Asian (Tamanaha and Chen) and they are a huge portion of the small Asian academic population. Compare this to white professors, who are more likely to brag at cocktail parties about how they make so much money for nothing at a law professor.

    I wonder if Asian culture has less tolerance for bullshit and chicanery.

  2. Thanks for the link 853. Mr. Segal is a blessed soldier in the cause.

  3. All these lawyers out there but still little justice for the common man.

  4. If your salary needs to be 3x your tuition, and law school is three years... Isn't it simpler to just say your salary needs to be at least as big as your total debt load?

    That would also let you easily add in undergrad and consumer debt.

  5. Rules of thumb are not meant to be precise. That's why they're beautiful. Your rule of thumb is good too.

  6. sigh


  7. BL1Y have you applied here?


    I imagine it's the only biglaw firm in all of alabama.

  8. I guess law is going the way of architecture--there are plenty of architects that make a lot of $$, but merely getting the degree doesn't guarantee a well-paid job.

  9. Ohio State should lower tuition, then, but the real problem is likely that Central University Administration views it as a cash-cow and won't let them.

  10. 12:31, is architecture a UG degreee or a gradaute one?

  11. Both undergrad and grad, interestingly enough.

  12. is it hard to get a job regardless of whether it's an UG or grad degree? or do the grad degree folks generally get jobs?

  13. Undergrad very very hard; grad very hard. Would help if undergrad degree is in engineering or interior design. But then query whether the arch grad degree helps.

  14. i'm surprised that there aren't any architecture jobs, since people are always constructing buildings.

    did they just open way too many architecture schools?

    also, architecture is a global talent. meaning you can go to Dubai or something and practice it just as well as you could in the US. The same can't be said of law.

  15. It will one day be true of many aspects of law. It will be a more global profession.

  16. Just a few, others are behind walls.



  17. @11:15. I liked the question: "If you got a one time"REWIND" pass in Law-School, how would you use it? Let us know in the Comments section!"

    50% are a variation on "not go."

  18. On a tangential note to demonstrate again with numbers how the biglaw lottery is for only for a few, and the ticket is not good for a long tenure for the overwhelming majority, the total numbers of lawyers working for AmLaw200 firms increased by only 50,000 from about 50,000 in 1993 to about 100,000 in 2003. (citing, http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1341&context=ijgls
    referenced above) In effect, only about roughtly 10% of American lawyers were working for AmLaw200 firms in 2003, and the numbers working there increased by 50,000 over a decade, at the same time as about 400,000 or more new law graduates were produced.

  19. There is still an alarming and detatched tone to this blog, when the lives that have been destroyed by the law school scam are....well....the history of the world if full of crazy upheavals, and that is probably the only thing that will bring change by now.

    How do the law professors in this country sleep at night, when they well know that they are creating so much human suffering for many of their students?

    Campos, can't you return to the tone of your first 2 or 3 posts?

    We are way beyond calm discussion by now.

    What are you worried about? Your pension?

  20. 6:21, I think OWS and the Davis protests put a damper on the more militant aspects of protest across the country. We used to talk about staging a sit-in or something that effect, but it's pretty clear that if you dared do such a thing Dean Joan Wexler (or whoever) would just order the guards in, spray you with chemicals and whip you with batons until you submitted.

    In response to your question about how people sleep - they sleep in comfortable beds in nice houses, two things they don't want to lose.

  21. "Chen's analytical frame is based on a simple, plausible assumption: a lawyer's eligibility for a home mortgage is a good proxy for whether a law degree is a good investment."

    Are home mortgages eligible for IBR and a federal guaranty?

  22. @10:42,

    No, home mortgages are not eligible for IBR or a federal guaranty, but I don't think that is relevant to chen's analysis.

    If you take on 140,000 in consumer debt, and your income is below X, you won't be eligible for a home loan based on lender guidelines.

    I believe chen's analysis is, if you take out 100,000 in student loans, how much do you have to make to qualify for a home loan based on lender guidelines?

    The terms of the student loan don't seem relevant to that analysis.

  23. @9:01
    "I wonder if Asian culture simply has less tolerance for bullshit and chicanery"

    No. No, don't even go there.

    First off, there is not a monolithic thing called "Asian culture." That is a fiction of Westerners going back to Herodotus. China is not Korea is not Japan is not Vietnam is not Thailand is not Indonesia (etc). Think of the differences between, say, Germany, France, Italy, and Ireland -- yeah there's "European culture" but few of the general rules fit all four of those examples, and we haven't even talked about Finland and Moldova yet.

    But that said, even within the big examples of "Asian" culture there's plenty of bs and chicanery. Google the phrase "Socialism with Chinese Characteristics" (aka "capitalism with an industrial policy") or see the Wikipedia page for the phrase "river crab" for some basic contemporary examples in a mainland-China context.

  24. Tiercelet, How do either of those disprove the statement that Asians are, on average, much more honest than whites?

  25. *Modern baby boomer/gen-xy whites. Whites 50 years ago had far more integrity.

  26. I've been posting these comments to the Dean of my law school on twitter.

    She responded to my first post about how the majority of her recent law graduates were completely fucked.

    Now she simply ignores my posts, and continues to retweet complete garbage from the ABA and other various news sources.

    Welcome to the law school scam. Where criminals continue to reign supreme. These people need to be taken out and hung.

    The young generation will remember how you old farts fucked us over. WE WILL REMEMBER.

  27. link to comment from Dean about how her students are f*cked?

    any way, what do you expect from her? you expect her to give up her huge salary and office so she could join you in the gutter known as the overflooded legal job market?

  28. I love the following quote from a commenter in response to another post on another site. The commenter discusses the tragic comedy of the current situation among the perpetrators:

    "...[T]he number of law school graduates obtaining meaningful employment continues to plummet, while law schools continue to raise tuition and increase the number of seats for law students....starting salaries for lawyers are also on the decline ....

    In a classic game of passing the buck, the law schools blame the ABA for imposing costly requirements, law school professors disclaim any responsibility, claiming that to attribute blame to them is akin to blaming the proliferation of roaches because of the ban on DDT ...[on] the roaches [themselves], ... Law firms blame the schools because new associates need to earn enough to pay for their student loans. Law firm clients are saying 'whoa, this is none of our business; we’re not paying for training first and second year associates.'

    This whole Alphonse and Gaston thing is slowly crumbling, while nobody seems to be paying attention, as unregulated providers of legal services, not having even attended law schools or having been admitted to any bar, are gaining significant market share.

    The entire existing eco structure is simply crumbling before our very eyes."

    see, http://truthonthemarket.com
    (another interesting post demonstrating how one instance of shocking behavior by the American Association of Law Schools (AALS) reminds one of Nero's fiddling while Rome burned)

  29. I wouldn't analogize it so much as to Rome's burning, but Rome's glory days when they profited by enslaving and abusing slaves. Rome would be law schools. Students and taxpayers would be the slaves. Not literally of course, but by a loose analogy. The point, though, is that the law school "scam" is not at any risk of unravelling.

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