Wednesday, March 7, 2012

The 30 per cent solution

Monday's discussion at Stanford is now available on Youtube. It's in five segments (updated for better sound quality; my thanks to Thom Wolf):



I'd like to thank Dave Jackson of Stanford's Computer Science department for taking the time to record the event and put it up on the Internet. I also want to thank him for reminding me that, when Harvard College announced its new financial aid model in December 2007, other elite universities fell in line with it almost immediately.  This fact has obvious significance for any law school willing to consider gaining the considerable first mover advantages that would accrue to it if it were to cut tuition significantly.

In the course of Monday's discussion, I suggested that SLS should immediately reduce tuition for its JD students by 30%, i.e., to around $33,000 per year.  (This would reduce tuition to where it was, in nominal terms, in 2004.  In real dollar terms the reduction would be somewhat larger).   The cost of doing so would be about seven million dollars, assuming that the school continued to spend what it's spending now on scholarships and grants.  

Now it's true seven million dollars is not a small sum of money, even in Palo Alto.  But consider that Stanford University's endowment is currently about $17 billion dollars.  The law school's endowment isn't a public number, but given that it was supposedly around $270 million 12 years ago, and that over that same time the university's general endowment has nearly tripled, a conservative estimate would put it in the $600-$700 million range (HLS's endowment is said to be $1.7 billion, although it's a much larger school).

In other words, SLS's endowment throws off several tens of millions of dollars in income every year.  Of course much of this income is dedicated to specific purposes, so it's not a simple matter to dip into it for the purpose of cutting tuition.  Nevertheless, it's not hard to imagine how some combination of redirection of endowment monies and a fundraising appeal premised on the attractive proposition that SLS is going to take the lead in moving American legal education toward crucial structural reforms (and become the top-ranked law school in the country in the process) could shake seven million dollars per year out of the seat cushions.

What would happen then?  My guess is that Martha Minow and Robert Post, and their respective university presidents, would have a bad day or two.  Then they would announce they were doing the same thing. (As a law professor points out law school deans and faculties will in many cases have to fight battles with central administrations to make these sorts of changes. This is another reason why transparency is crucial: the myth that it's either fair or efficient to charge law students a cross-subsidized university tax because of the great jobs they'll be getting needs to be killed sooner rather than later).  After all, who other than the Winklevoss twins will choose to go to HLS or YLS at $50K per year, if you can go to SLS for two-thirds as much?

The consequences of this would also be fairly predictable.  Can CCN charge 30% more than SYH? Obviously not. What about MVPD? Nope.  Etc.  Now at some point as one slides down the hierarchy schools will find that they have to engage in truly major long-term (as opposed to moderately uncomfortable short term) restructuring in order to return their tuition to what it was, in real terms, a dozen years ago.  And somewhat further down the line, some schools may find it not merely difficult but actually impossible to do this.  In other words, some schools will find it impossible to charge a price of attendance that even comes within rough hailing distance of something that would produce a reasonable expected return on investment for a reasonable proportion of their students.  Those schools would go out of business -- which, it should be unnecessary to point out, is exactly what should happen.

The idea that there's something inherent about the nature of legal education that requires it to cost at least twice as much as it did in real terms 20 years ago, and third more than it did a decade ago, is so absurd that it could only be believed by people who have an enormous ideological-economic stake in that belief.  Stanford was a pretty good law school a dozen years ago, and there's no reason it can't return its financial structure to what it looked like then.  The same goes for many, many other law schools (not, as noted above, all).  And there's no reason why the process needs to stop there: longer-term structural reforms could reduce the cost of law school to what it was 20 years ago -- i.e., half of what is now -- with little or no loss of real educational quality. 

The first law school dean who is bold enough to assert that fact through concrete actions will be remembered for a long time.

98 comments:

  1. To beat a dead horse, if CUNY Law can cost $, a year to attend, why should Stanford cost anymore than $25,000 a year? Why shouldn't all public law schools be capped at nothing over $20,000 a year? These states keep opening schools for additional lawyers because they claim they are needed, but then they have these obscene prices for them. If education is so needed in this society, why isn't the society paying for it? Why is it being left to the individual to pay for it? It is like on the one hand they want to use the public good when it suits them for reasons to have the law schools, and market arguments when it suits them regarding tuition. The people who should be most in favor of low tuition rates aren't in favor of it. Why?

    Bruh Rabbit

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  2. I said this same thing, more or less, re: Cloud and Shepherd's article a few days ago. Except then I was talking about Emory and other quasi-prestigious schools. I think there is more pressure on schools in that tier to lower the cost. And the first one to do it will bathe in good will.

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  3. If education is so needed in this society, why isn't the society paying for it? Why is it being left to the individual to pay for it?

    ...first time visiting America, huh? Ya gotta understand, son, paying for education is a "personal responsibility." Having the state help out individual people would deprive them of their Drive and Industry and make them child-like dependents on The Public Dime and spawn all the evils of Soshalizms.

    Which is exactly what it's not at ALL like when the state helps out banks by subsidizing loans, providing bailouts, or rendering educational debt non-dischargeable in bankruptcy.

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  4. I don't think Stanford's dean decides the tuition. But the dean and the faculty and students can be a powerful force in advocating for change.
    It would be nice to find out their process for setting tuition rates. There is no reason for a school to be raising law school tuition in this market, other than their own greed and because they can get away with it. That Stanford has billions of dollars in endowment and won't part with any of it to reduce law tuition is shameful. They should be an example of how to run a law school, not an example of how much a school can charge and still get students.

    I commented the other day that NYLS could not charge its outrageous tuition if Columbia and NYU charged less. They simply couldn't sustain it.

    Susan

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  5. Tiercelet,

    Which is exactly why I advocate (1) stop feeding the narrative (2) by directly confronting it (3) rather than trying to find ways to accommodate it.

    The inevitable result of "reforms" such as those proposed here with student loans is not that we see policies that are better for the American public. It is that we see policies that are ultimately geared towards corporate interests.

    An argument about student loans in the sausage making of D.C. will be twisted into splitting the baby by reducing public loans, while increasing private ones.

    How do I know this? We have seen this before. The public legitimate concern of the spiraling cost and quality of health care (which abroad has been effectively addressed through single payer financing (and which we also do here in VA Hospitals and Medicare) was transformed into mandates for us to buy private insurance.

    From what I can tell, people here are well meaning, but I am looking down the road of what happens when you place these sort of issues into the machine, and what it does with these sorts of arguments.

    The "solutions" will not be to address loans comprehensively. They will be to reduce public loans, and leave students at the mercy of private ones. If you don't confront the public good versus market argument directly- this shell game will continue.

    If you don't argue there's something wrong with the clearly double standards, then the double standards will continue. In short, I don't see how you promote real reform without directly confronting what is preventing reform.

    IN short, if you get to a place where people are considering the public good again, you get to a place where bankruptcy for student loans would be on the table. If you don't get to that point, the bankruptcy for student loans is never going to happen. People will be too busy saying its about personal responsibility and thinking its not fair for someone to get an advantage they don't personally have.

    Bruh Rabbit

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  6. I think this was discussed before, or maybe it was on another site, but isn't the thinking at places like Stanford that you charge the tuition that people who can pay should pay, take the money and provide discounts for people who cannot pay?

    @Susan, no the dean and law school faculty could not decide unilaterally to reduce tuition by 30 percent. The obsessive focus on law faculties, giving them all sorts of power they do not have, obscures the fact that there are other major players in this drama. Whenever those players have been pointed out, a hue and cry arises that mentioning them is nothing but an attempt to downplay the responsibility of faculty, who are presented as all powerful.

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  7. In response to Bruh (at 8:08 am):

    You say reducing public loans would leave students "at the mercy of private ones." Why wouldn't properly underwritten private loans serve to curb tuition prices?

    If the problem stems from government loans to the full cost of attendance (PLUS) with zero consideration of the borrowers ability repay (which is actually prohibited by the HEA), then why not turn off the easy money spigot? If students no longer have access to easy money, how can the tuitions sustain themselves?

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  8. I am a tenured faculty member at a Tier 2 school whose faculty is either average or slightly above average in terms of our sense of urgency about the crisis in legal education. I agree with the prescription in this post 100%. Unfortunately, I also agree with the commentator who suggested that university administrators are likely to reject proposed tuitions that include big cuts. As a data point, our law school proposed a budget that freezes tuition for next year and our university administration rejected it, requiring us to impose a small increase in order to soften the complaints of the deans from other units who were imposing much higher percentage increases.

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  9. If the problem stems from government loans to the full cost of attendance (PLUS) with zero consideration of the borrowers ability repay (which is actually prohibited by the HEA), then why not turn off the easy money spigot? If students no longer have access to easy money, how can the tuitions sustain themselves?

    Exactly. If instead the government provides even more financial assistance to law students, tuition will simply rise even faster.

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  10. Law School Dean ZaiusMarch 7, 2012 at 9:30 AM

    All my life I've awaited your coming ... and dreaded it!

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  11. Assuming two facts:
    1. Law school tuition is too high.
    2. There are too many law school graduates.

    For better or for worse, reducing the price of tuition might worsen problem number 2.

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  12. Student debt hobbling my generation is going quasi-mainstream on the finance industry blogs:
    Our "Let's Pretend" Economy: Let's Pretend Student Loans Are About Education

    For the love of God, don't read the comments.

    Also, Student Debt Clock

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  13. @9:20-- thanks very much for that real world example. If you are going to effect change, you have to have a realistic assessment of the lay of the land. Your did what it could--something concrete--, and if you hadn't said anything, people on this site would continue to act as if no one is focused on this but the folks on this blog.

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  14. "your faculty did what it could"

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  15. New article by former Dean criticizes law schools http://lawprofessors.typepad.com/legal_skills/

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  16. 9:12

    If you are going to make a market argument, the problem doesn't stem from public loans alone.
    It stems from all loans, including private loans. Your argument is precisely how the right moves the ball. There is a cap right now on public loans. The result has been an increase in private loans.

    The comment below does not address it, but it goes into how consumers are hurt by this.

    "The private student loan market is showing clear signs of growth after increasing at double-digit rates through the late 1990s and early 2000s and then abruptly falling as a result of the 2008 financial market crisis.1 Private loans are not a form of financial aid and are among the riskiest ways to pay for college. Private student lenders are not required to provide the important borrower options and protections that come with federal student loans, such as unemployment
    deferments, income-based repayment, public service loan forgiveness, and cancellation if the borrower dies, is severely disabled or is defrauded by a school. Like credit cards, private loans typically have variable, uncapped interest rates and offer little, if any, repayment flexibility. But unlike credit cards, private loans are virtually impossible to discharge in bankruptcy.2 Nevertheless, at the peak of the private loan market in 2007-08, a majority of private loan borrowers could have borrowed more in safer, more affordable federal student loans.3"

    http://ticas.org/files/pub/Private_Student_Lending_on_the_Rise.pdf

    Bankruptcy relies on arguments over the public good. Just as low cost education does. You have to make that argument either way since the core of each is that there are some things we should not allow for the public good. We don't want people stuck with massive debt in either case.

    So, what will people do if public loans are limited? They will do this:

    "How does one get to $100k as an undergraduate? It’s not through federal loans to attend a state school. The federal loan limit for dependent undergrads is $31,000 and $57,500 for independent students. After exceeding the limit, most students turn to private lenders, many of which don’t have caps on interest rates or fees, they’re not dischargeable in bankruptcy and may not even be discharged in death. Private loans represented about 25 percent of educational borrowing in 2008, but have declined since then due to the Ensuring Continued Access to Student Loans Act that raised federal loan borrowing limits."

    http://www.thefiscaltimes.com/Articles/2011/10/26/The-Huge-Student-Debt-Burden-Obama-Wants-to-Lift.aspx#page1

    As I have said, I have seen this game so much with "reform" efforts in the last few decades that at this point that I can name every step of the dance. Already, we can see attempts to focus on (1) public loans are the problem rather than all loans (2) ignore private loans (3) claim deregulation as a cure all.

    It happened with health care. It will happen with this.

    A discussion about how all student loans is the problem becomes how "public student loans" is the problem. Its a shell game.

    So, any proposal that does not include all loans including private should be DOA in my book if anyone is serious about using this as a route. However, my instinct about American politics given prior battles is that this will turn into a give away to the private sector rather than a means of addressing debt for students. This is why the narrative must first be what's in the public good.

    Bruh Rabbit

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  17. So,it would cost 33k to go to Stanford Law School, but 50k to go to Stanford as an undergraduate?

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  18. @10:03

    That's another major part of the problem here -- the law school price bubble does not exist in isolation; it's part of a general bubble in higher education which also needs to be addressed. Undergrad tuition should also be decreased. And grad tuition. And other professional tuition.

    Let's not even get into the giant trough which is continuing education.

    And yet, some institutions (we euphemistically call them "tuition-driven") would fold if they tried to do this because they do not have the billion-dollar endowments of the Ivies and their peers, and presumably closing universities is reducing the accessibility of education to the public.

    What's the answer? We need to increase state funding to the public universities. Give them as much money as they need, so long as they uphold their part of the bargain via low tuition and broad access to education for everyone in the community who qualifies. This will require both printing money at the federal level and raising taxes at the state level, but there's plenty of people in our society who wouldn't really notice -- if our public discourse weren't in the grip of an ideology that elevates selfishness as a point of departure for all other inquiry (raising taxes is "stealing my money" and anti-competitive, while dishonoring labor contracts is just hard-headed sense, etc).

    The law school problem is a sign that our nation's political priorities have been corrupted. We need to address everything, not just this one thing.

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  19. Tiercelet: I agree, but unfortunately saying things like "we need to address everything" often ends up being a prelude to not only failing to do that, but to not even addressing the one thing we can most do something about.

    I very much agree it would be better if Stanford's undergrad tuition was a lot lower (although Stanford undergrad gives out vastly larger amounts of need-based aid than the law school does). But lowering the law school's tuition would be both good in itself, and something that might indirectly put downward pressure on undergrad tuition.

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  20. I'm not quite sure that "Frank's" objection in Pt. 4 (that lowering tuition would mean a drop in the rankings) makes much sense. If Stanford lowered it's tuition to 33K per year, but still supported the same level of services by drawing from the endowment/alumni donations, that would not impact it's Expenditures Per Student at all, which is what goes into the USNWR ranking. It would probably have greatly benefit to Stanford's LSAT profile (which has been traditionally low among elite schools). There is no doubt they would be winning the cross-admit battle with H and perhaps taking more people with high scholarships and top numbers away from the T6. This would impact the selectivity rankings- a full .25 of the USNWR score. Am I off base here?

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  21. "What's the answer? We need to increase state funding to the public universities. Give them as much money as they need, so long as they uphold their part of the bargain via low tuition and broad access to education for everyone in the community who qualifies. This will require both printing money at the federal level and raising taxes at the state level"

    Right, and then we can solve our energy and environmental problems by manufacturing cars fueled by air.

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  22. Don't forget to mention that 30% of all ABA-accredited law schools, at least, should shut down - in the next 5-10 years. In the alternative, each school could decrease overall enrollment by 30 percent, in the same time frame. (That is if they truly "care" about students and providing them with the "tools to compete in the job market." Watch these selfish in$titution$ peck each other apart.)

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  23. The glaring problem with that joke is that we used to have a system of good and cheap public institutions of higher learning. It was not that long ago. The analogy/joke you are making does not work because such a thing has never existed and there is no reason to think it could ever exist.

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  24. For the commenters who fear cutting public loans and leaving students at the mercy of private loans, an anecdote: The variable interest on my private loan is currently at 2.95 percent, whilst the interest on my consolidated direct loan stands firm, forever, at 5.75 percent (6 percent with the .25 deduction for electronic pay). This leaves me in the situation of paying over 600 dollars in interest alone every month on my direct loan, while making 200/month payments on my private loan (much smaller, granted) and getting to watch that loan balance actually decrease every month. The direct loan either stays the same or goes down 10-100 dollars, depending on what I can scrape together for it that month. Yes, the private loan could fluctuate back up to a higher interest rate, but it's been at rock bottom rates for years now, and that has hugely helped me to pay it down. Meanwhile, I can never refinance my direct loan to a lower interest rate. I guess it's in the public's interest to keep sucking interest money out of me - my little part to help solve the budget crisis. The point of all this is only that sometimes private loans are far better than public ones.

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  25. 912

    You are wrong, but I don't have time to rewrite what I wrote or figure out why is nos howing up.

    Here's a short blurb for the person asking about private versus public debt, and student behavior when public loans are capped:

    "How does one get to $100k as an undergraduate? It’s not through federal loans to attend a state school. The federal loan limit for dependent undergrads is $31,000 and $57,500 for independent students. After exceeding the limit, most students turn to private lenders, many of which don’t have caps on interest rates or fees, they’re not dischargeable in bankruptcy and may not even be discharged in death. Private loans represented about 25 percent of educational borrowing in 2008, but have declined since then due to the Ensuring Continued Access to Student Loans Act that raised federal loan borrowing limits."


    http://www.thefiscaltimes.com/Articles/2011/10/26/The-Huge-Student-Debt-Burden-Obama-Wants-to-Lift.aspx#page1


    My wider point was that I have seen this play before. There will be "reforms" in which public loans are capped, no bankruptcy issue is addressed, and people are left to the mercy of far worse private loans, and then, everyone will get on board or not based on partisan identity.

    From there, what will likely be a crappy bill will pass, and people will think the issue has been addressed/

    What happened with health care reform, for example, is that "reform" ended up requiring everyone to buy crappy private insurance, which when you look at the data- the heart of the cost problem in the U.S. is private insurance when compared to other countries.

    The same advantage to the private sector will play out here.


    Bruh Rabbit

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  26. Tot he person babbling on bout his interest rate, you face worse terms on the private loans. The point here is repayment. Not just your interest rate.

    Here's more

    http://www.finaid.org/loans/privatestudentloans.phtml

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  27. Just to emphasize how manipulative some of the comments here are

    "The best private student loans will have interest rates of LIBOR + 2.0% or PRIME - 0.50% with no fees. Such loans will be competitive with the Federal PLUS Loan. Unfortunately, these rates often will be available only to borrowers with great credit who also have a creditworthy cosigner. It is unclear how many borrowers qualify for the best rates, although the top credit tier typically encompasses about 20% of borrowers."

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  28. I ran the numbers - in 1991 or thereabouts the largest firms were paying I think $60,000 and my tuition was $14,400 I think. In 2012 that is about $96,000 and about $24,000 - so a year's tuition was 40% of the big-law pay check. Today, law schools are charging around $48,000 - or twice in real terms the tuition in 1991 - top firm first year pay has risen to $160,000 - so tuition is at 30% of first year pay (a decline which I found surprising.)

    However, the spreads have increased. Median income for a man with a college degree in 1991 was about $40,000 ($66,000 in 2012) and in 2009 about $51,000 ($54,000 in 2012 dollars). Also the big-law pay checks were to my recollection, not that much more than the smaller firms were paying - maybe 10-20%, but not hugely more.

    There are a lot of points to take away from this. First, the deceptive pay numbers the law schools published had a much bigger impact over time. A lot of college graduates go to law school because they see becoming a lawyer as a fast way to get to a larger pay check and indeed one greater than they could expect without entering a profession. But the big issue is that a first year in big law today earns about 3 times the median college degree holder - whereas in 1991 they made about 50% more - while law school tuition in 1991 was about 35% of such a pay check while today it is about 100%

    Now let's be real - first year associates are waaaaay overpaid - they simply are not worth $160k a year - hell they are not worth $100k - I think maybe $70k today might be fair. It should take several years to work up to the starting pay that associates in Big Law get as a starting salary.

    The excessive pay in Big Law has had several effects. First, it has contributed to associate churn. Second, it got the attention of law schools who all though "I want a piece of that." But worst of all, it attracted a lot of people to law school who had no real interest in being lawyers beyond the sense that it was a fast way to vault up the pay ladder and escape what they saw as low pay for holding just a college degree. Finally - it is so uneconomic that it has created an aspect of the student loan problem - that only a minority of graduates can expect such pay - and even for them it is unlikely to be for more than a few years.

    This raises a sticky issue - fixing the law school mess may require looking at the ludicrous sallies Big Law pays newly minted lawyers. Thos ludicrous salaries also by the way explain the complaints that law schools hear so often about their failure to teach practical skills - they are not creating graduates worth $160k

    MacK

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  29. What does it mean to say they are not "worth" 160k. How do you determine what a thing, job, person is "worth"? How does it work in other arenas, not just law?

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  30. One of the oddities of this discussion is the idea of "private" student loans. These loans are only called "private." In reality, they are in many respect public because they are (a) non-dischargeable in bankruptcy and (b) effectively underwritten by the fact that the student has public loans which are guaranteed (the private lender can collect sooner or later while the public loan acts to make the private loan more secure.)

    The bigger issues remains reckless lending which allows tuition to soar, financial fecklessness by law schools and the treatment of law schools as a "cash cow" by their colleges (if the huge rake-offs from law schools were to be terminated in many cases they probably could easily cut tuition by 30%) and the ludicrous starting salaries that Big Law pays and the perception that most lawyers earn that or more.

    MacK

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  31. What does it mean to say they are not "worth" 160k. How do you determine what a thing, job, person is "worth"?

    It is called a market. Buyers and sellers. I know that my "worth" does fully capture my love of antique cookie jars, or the fact that my mother loves me, but that's capitalism.

    In finance, you have a "number." It is how much you are "worth" to the company. Or, said another way, what a year's worth of labor is worth to the company.

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  32. *does not capture*

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  33. @11:23

    Because in most instances it is nearly impossible to justify the pay - clients don't want first and second years - they are over-priced at $300+ to do work that a semi-house trained monkey could do, and as a result there few jobs at these salaries and those that do exist require stakhanovite levels of work, at activities that most deride as "brain dead" and still the associates last 3 years or so.

    MacK

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  34. 1. Actually it's about $350 / hr for a first year.
    2. If clients had a problem with it there are plenty of other places they can take their money. That article said there are "some" matters clients don't want first and second years on, not all matters.

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  35. 3. First years are worth a portion of what they bring in. Whether the billing rate for first years is out of line is another story. Lowering associate comp won't lower the billing rate. Clients demanding lower rates may push salaries down.

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  36. 11:01 and :03, what good are direct loans if you're never able to pay them off due to high fixed interest rates? And please don't come back with "IBR will fix it all."

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  37. I think one point that needs emphasizing about Stanford re: funding is that Stanford is already to a large extent not operating on the same model as most other schools. Like Harvard and Yale, it uses need-based funding. But it is also more generous than Harvard (Yale is closer) when it comes to need-based funding.

    (As something of an aside: I had zero expected contribution when I was accepted to Harvard and Stanford. My need-based grant at Stanford meant I'd pay about 5k or so on tuition 1L year; at Harvard the figure was about 18k or so. Nothing in the school's two finances explained to me why there was such a such a difference in their maximum aid packages, and that played a part in my choice of Stanford (and not merely for financial reasons).) In any event, I think part of the reason HYS stick to this need-based model, other than the fairness involved, is that it allows them to take in funds and then distribute them, which is a benefit for the USNews ranking.

    The problem this raises is that I think most HYS grads are more safe from the rise of law school tuition because (a) our employment prospects are better (b) those pulling full freight are usually those who can afford to pull full freight. So the internal incentives/pressures for Stanford taking on a 30% reduction in tuition costs is changed substantially. There is, of course, still the "market/social leader" rationale, but I just wanted to emphasize that a large part of the movement for lowered costs you'll find at other schools is at least muted here because of how well those of from lower SES backgrounds have been treated.

    In any event, thank you again for coming out to SLS--I too hope that Stanford takes the lead here and finds some innovative solutions to what has become a full blown crisis.

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  38. @ MacK--Clients have always complained about first years. And as as another commenter correctly notes, the situation is more nuanced than you are suggesting. Adjustments have been made-- outsourcing to other countries and contract attorneys-- but 160k remains for top firms. You are right, fewer people are making this, because fewer people are being hired. But that is the rate. When the market won't bear it, the pay will go down. As for right now, this is the world as it is, and no amount of insults about trained monkeys and brain dead activities will change that. The market will, if that's the way things go.

    And If trained monkeys could really do the job, firms would get them to do it.

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  39. @11:54. Could it be because Stanford has a class of about 170 and HLS has a entering class of 550? I mean on the difference in the aid offered. Wouldn't there be more people to take care of at Harvard?

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  40. Mac K

    (a) Bankruptcy is a government operation. To not be subject to bankruptcy is to make a loan private in the strongest sense of the word in that it prevents all government interaction from interfering with the contract.

    (b)Your second comment, like the first on the subject, intellectually dishonest, conservative babble.

    Bruh Rabbit

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  41. 11:54: Imagine Stanford was to lower tuition but make up the loss in revenues through soliciting alumni donations or dipping into the endowment (in real life this is probably extremely difficult to do for reasons of internal politics) so that the level of aid and services stayed the same. Would this mean more people would choose Stanford over Harvard, Yale, or CCN with a large scholarship so that Stanford's entering LSAT/GPA profile rises?

    I'm asking because I'm curious about the decision-making processes of HYS students. Obviously finances are not important for a certain % of students, but would some students who attend HY over S switch because of lower debt, or would people who otherwise would take full or half scholarships at CLS, Chicago, or NYU would find that paying slightly more at Stanford instead of a lot more is worth it?

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  42. 12:12: I don't think so, because HLS has 3X Stanford's endowment (endowment/cash-intake per student being the meaningful figure here). It might account for a small part of the difference, but I'm pretty sure it doesn't account for most of it. And if anything Harvard probably saves on costs due to its size.

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  43. 12:23: Good question, and I'm not sure how much it would affect their behavior. I suspect it would have a small effect on HYS matriculants, but I think the majority of the students in that expected contribution bracket who end up at HYS are probably choosing among the schools on non-financial factors (e.g., location, school culture, etc.) and 50k or so isn't going to make or break that many decisions. After all, if you're choosing between at least two HYS schools there is a very good chance you received and turned down a full scholarship to at at least one top ten school. On this same reasoning, I think your latter category of students, those who choose the money at lower schools, would be the real target of Campos' suggested plan.

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  44. this conversation about private sector covering the cost of government function is also a part of the normal play. what of public schools without large endowments from alumni?

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  45. 11:44

    I keep linking to data, an dyou the rest keep being intellectual dishonest. One fo the reasons I think you are conservative is how you magically spin the facts to make private loans better than public, and when challenged claim as Mac K does that the private loans are actually private. If all you can do is to make shit up like somehow one is really according to the data paying off their private any better than the public, then you have no arguments, just ideology.

    Bruh Rabbit

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  46. that should read "private loans are actually public:

    Bruh

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  47. Now let's be real - first year associates are waaaaay overpaid - they simply are not worth $160k a year - hell they are not worth $100k - I think maybe $70k today might be fair. It should take several years to work up to the starting pay that associates in Big Law get as a starting salary.

    Ahh, the boomer lawyer bogeyman raises its ugly head. I am paid $160,000 per year. I billed over 2300 hours last year. Let's call it 2000 to make it nice and round and account for charge-offs (certainly an overstatement, but that's okay). That means that at my $350 rate I grossed $700,000 for my firm last year. Even accounting for overhead, my (shared) administrative staff, etc., explain to me again why I should be paid 10% of the revenue I generate?

    And before you even start, don't try the Beyonce argument ("I can find another you in a minute"). Because that, of course, goes for just about every job today. There are 1,000 people in line when McDonald's posts a job opening, but does that mean the burger flipper isn't "worth" $7.15 an hour? But more specifically, there simply aren't that many law students or new lawyers who have the credentials that most top law firms are looking for. Sure, there are 45,000 JDs every year, but most of them don't come from good schools with good grades.

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  48. I billed over 2300 hours last year. Let's call it 2000 to make it nice and round and account for charge-offs (certainly an overstatement, but that's okay).

    If you're a first or second year associate, you need to account for time that the partners wrote off.

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  49. 2:06,
    Agreed.

    I would also add that law firms skimp on a lot of the extra comp that others take for granted. No big law firm matches 401(k) contributions and the employer paid share of health insurance premiums is very low. It's basically cash only comp.

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  50. I think its clear that the change must come from the elite schools.

    What about an even cheaper way for Stanford (or any/all of the top law schools) to effect change: Do not give data to, participate in, or be included in the USNWR rankings? The fact that the rankings of a magazine are so important is crazy. If top schools refused to be included in the ranking system, USNWR would either have to use publically available information (which is not a lot) or not have the rankings at all. A ranking system without Harvard, Yale, Standford, etc. has no value. Without the pressures of the USNWR ranking, you would hope that lower ranked (and all) schools would make choices based on what is best for the students and the institution as opposed to how a decision would change their ranking (which is clearly what many schools do now). Firms and 0Ls will still view the top schools as the best, but lower ranked schools would have prove their value to attract canidates (this is especially true of trap schools).

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  51. MacK @11:29 AM....exactly right. Bruh, your brain is clouded by ideology. You live in a fantasy world where states (already over budget) will now magically fund higher ed. Most of us wish for this to happen...I always wish it would rain lollipops and rainbows but we have to be realistic. State funding is a great long term goal once the major issues of our economy is settled. For now I would settle for the ability to discharge student loans through bankruptcy. How the hell is that a conservative position? Guess what happens next? Almost nobody qualifies. For the ones that do, if the terms are onerous...bye bye loans. Voila, less available cash =lowered tuition.

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  52. Ahh, the boomer lawyer bogeyman raises its ugly head. I am paid $160,000 per year. I billed over 2300 hours last year. Let's call it 2000 to make it nice and round and account for charge-offs (certainly an overstatement, but that's okay). That means that at my $350 rate I grossed $700,000 for my firm last year. Even accounting for overhead, my (shared) administrative staff, etc., explain to me again why I should be paid 10% of the revenue I generate?

    As someone who has actually paid the bills - the hours that biglaw associates are compelled to put in sends GCs through the roof - because most of what is billed unless you manage the firm very carefully is bullshit billing - massive overstaffing of cases and matters, pointless and unnecessary activity. You need to read the bill with the jaundiced eye of an experienced lawyer. I just had a case with 20+ defendants spend 9 months to agree a joint defense agreement - 9 pointless months - collectively hundreds of hours billed - with initially 4 people on the call per firm - for a friggin JDA which should be agreed in 10 minutes. A few more years and you will be very cynical about some of the games biglaw plays and the ways that associates hit their targets - and the tricks big firms use to motivate them.

    MacK

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  53. And you don't take your money elsewhere because?

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  54. Bruh - do I have to put on everyone of my posts that you are not invited to respond - because anymore of your bullshit ideological comments are tiresome to me and everyone else.

    But since you did - let me point out that your comments reveal that you are pretty well dumb and well, most law students did get the technical issue behind Shelley v. Kraemer but since you were not listening when paying so much, let me wearily explain why you are wrong when you say:

    "Bankruptcy is a government operation. To not be subject to bankruptcy is to make a loan private in the strongest sense of the word in that it prevents all government interaction from interfering with the contract."

    The enforcement of debt - other than the type you get from the mob - is a government operation. To get someone to repay a "private loan" the lender needs state action - the enforcement powers of the state through the courts. Bankruptcy is the state telling the courts and the worlds that - as far as the state is concerned - the debt is no longer enforceable. Making a class of debts always enforceable means that they are always enforced by state action - by the courts. If you cannot grasp that, well then reconsider practicing law altogether.

    The second point is a simple one. Given the reality the the bulk of most student loans are public loans - and the student who has debts thus has a mix of subsidised public loans and a usually a smaller ratio of private debt (always enforceable against that student) the reality is that the private loans are economically very similar to public loans with the exception that the lender has a risk arbitraged-down both by the non-discargeability and the public share of the students loans. The lender is in effect subsidised by the state.

    And if you think that is a conservative point you are really deeply challenged intellectually and have no idea - ideologically - what you are talking about. And if anyone who knew me heard you call me conservative - they would laugh their asses off.

    In short Bruh - you are an idiot.

    MacK

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  55. A client who thinks he or she is being cheated should go elsewhere. No one is forcing a client to stay with one group of lawyers.

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  56. @3:30pm "why don't you take your money elsewhere"

    I do. So do many clients. That is why the leverage model is in trouble.

    MacK

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  57. It has been in trouble for many years now.

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  58. LawProf:

    I bet the law schools must hate you. I bet, the least favorite part of a law school's dean day is checking out what your blog has to say for the morning. I bet the deans come to this blog only with the most extreme sense of reluctance, because it's part of their job duty to do so. And I enjoy imagining all that.

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  59. @12:07pm

    "@ MacK--Clients have always complained about first years. "

    That is not entirely accurate. Yes, 10 and 20 years ago clients did complain about first years - but it usually was concern about whether they were not experienced enough. Partners tended to write down first years' time anyway when they though that the first year had spent too long on a task and the bill was not justifiable. However, in the last 5-7 years you have seen an increasing number of clients saying "no first years" on my matters - some even "no second years." That demand reflects the very high rates at which associates are billed out at.

    A typical first year associate will bill around 1900 raw hours - maybe as much as 2300 (but that would be massive document review.) That is around about $700,000 to $800,000 in raw hours - but in collections you would probably knock off at least 20% and perhaps as much as 1/3 - that takes it down to around $5-600,000 - and that assumes that the client does not negotiate a discount - which is typically between 10% and 20%. Allowing for allocated overhead of about 1/3 of the revenue and it is about $350,000 to $400,000. Take out pay and benefits and about $200-220,000 might be profit. However, most firms claim - and I believe them - that they lose money on first years (in part because of recruitment cost), maybe break even ion second years and start to really profit on third years.

    In any event the reality is that GCs are under much more pressure to control costs and one demand they regularly deploy is to limit team sizes and keep first years off their matters. That is new-ish.

    MacK

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  60. Looking over my numbers and considering FICA and other costs you are probably looking actually at a profit (before recruitment costs) of about $160,000-$180,000 in an ideal world where the associate billed 2000 raw hours at hourly rates - and that is before partner origination is taken out.

    MacK

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  61. It's always different this time.

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  62. Here's another interesting thought:

    I believe there was a post on a thread not too long ago which sort of gave the origins of the dreaded USNWR rating system. If I recall correctly, they kept tweaking their formula until HYS and the like came out on top of their rankings, basically self-perpetuating what people already assumed were the top schools. This was done to add legitimacy to the rankings.

    My question is, what if HYS and the T6 decided to buck the criteria of USNWR? HYS are pretty rock solid from a prestige standpoint. Would this cause USNWR rankings to lose their legitmacy? Or, would USNWR shift their criteria to insure HYS were the top 3, and, in effect, changing the way all of the other schools operated?

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  63. 2:06 here

    As someone who has actually paid the bills - the hours that biglaw associates are compelled to put in sends GCs through the roof - because most of what is billed unless you manage the firm very carefully is bullshit billing - massive overstaffing of cases and matters, pointless and unnecessary activity. You need to read the bill with the jaundiced eye of an experienced lawyer. I just had a case with 20+ defendants spend 9 months to agree a joint defense agreement - 9 pointless months - collectively hundreds of hours billed - with initially 4 people on the call per firm - for a friggin JDA which should be agreed in 10 minutes. A few more years and you will be very cynical about some of the games biglaw plays and the ways that associates hit their targets - and the tricks big firms use to motivate them.

    Nonresponsive. What does this have to do with your argument that first years are overpaid? The PPP at my firm has gone up nearly 25% in the last five years. How much has associate pay gone up? You guessed it: $0.

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  64. I think we're all overlooking probably the biggest issue in this whole discussion:

    I live in the upstairs bedroom, not the god damn basement!

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  65. Mac K

    1. I grasp that the private contract for the loan has little to do with what the state does in bankruptcy other than interest rate on the loan. The contract outside of bankruptcy is enforceable even if there were a right to bankruptcy for student loans. If we take your argument seriously, all contracts are by your definition "government" action because bankruptcy exists. That would be a rather extreme Libertarian argument, but not a legal or political mainstream one.

    I also grasp that the case you cite is about racial discrimination, and that all contracts so written would be unenforceable by the government, and that this constitutional prohibition is not what you can claim is a factor with private loan contracts:

    http://en.wikipedia.org/wiki/Shelley_v._Kraemer

    The case does not stand for the idea that the contract is not private. It stands for the idea government cannot enforce certain provisions that are prohibited by the constitution. There is no similar constitutional prohibition with bankruptcy here as there is with the equal protection clause.

    Even if there were a right to bankruptcy, the contract would still be enforceable. One could go to court and the courts would enforce judgment for damages, and, if the debt were secured debt, the courts would not allow the person to keep the underlying property. There are, within bankruptcy, still rights that creditors maintain. So, your entire argument is sophistry.

    (3) As for your second argument, I have to conclude you really aren't capable of thinking through your policy prescriptions. Either that, or, what is more likely just intellectual dishonesty that wants to fog up the issue.

    I am not discussing where the loans are right now. I am discussing what happens if you change public loans (such as by capping them) without changing private loans. Thus the direct example given of what happened when public loans were capped. Namely, the exampled demonstrates that private loans increased.

    Saying public loans drives the market is a rather strange argument to a debate in which some comments are claiming public loans need to be dealt with first because they are far worse than private loans.

    Although this is quite clearly the meaning of what people here have said, I await your comment claiming this is not what people here have said because denial is also another part of your lack of honest debating.

    (4) This is the third or forth post in which you whine that I dared to say something about what you wrote here, and you just were compelled by the Great Smoke Monster to respond. If you want to respond, do so, man up about it, and let your arguments stand on their own terms.

    Bruh Rabbit

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  66. Just in anticipation o f the audience, when I say above that the contract is private, but the bankruptcy is not, that is to separate out the two ideas as separate ideas rather than fogging up the conversation as Mac K does by claiming the existence of bankruptcy (a public action) somehow makes the contract (a private action) not a private action.

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  67. I agree that law school tuition has to come down; I've started to talk about this with my dean and some colleagues. The moral argument, I think, is unassailable: We are saddling graduates with unbearable amounts of debt and endangering the ability of lawyers to serve clients. As professionals benefiting from restraints of trade, we're supposed to take those interests into account--not just charge whatever a government-subsidized loan market will bear.

    As LawProf suggests, there's also an argument from self-interest: Surely at some point in the next few years, this system will break. Either the government will cap the loans and/or some students will finally stop assuming these crazy financial obligations. In either event, our revenues and/or student credentials will suffer, so why not get ahead of the curve? If we can establish ourselves as the school that cares about student debt and affordability of legal services, and that offers a good education at lower price, won't we reap a market advantage?

    But, of course, there are lots of administrative forces pushing in the opposite direction. There's the higher education culture, which has assumed for the last 20 years that bigger and more expensive is always better. And there is the central administration, which may insist on receiving the same revenues (or revenues plus percentage increases) even if the law school freezes or reduces tuition.

    On the latter score, law schools at some universities may pay a price for their prior greed. By raising tuition faster than other parts of the university (e.g., 9% increases in years when other parts of the university increased only 5%), law schools have greatly inflated the base on which university "taxes" are calculated. In this sense, some schools may have helped create their own cash cow position. If we try to freeze or ratchet down our tuition, the university may not be willing to give up its share of the pie. The central university will say, "we gave you special permission to raise tuition faster than other units during all those years--and you persuaded us that your students could bear those costs. Now that we've adjusted all of our central services to include that revenue stream, why should we cut back?"

    Of course, it's not really the law schools that are paying this price for greed: It's students who have paid this price every year during the last decade.

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  68. This comment has been removed by the author.

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  69. It is great that solutions are being offered, but is it possible to do that without recrimination?

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  70. Current student of LawProf and an unhappy 1LMarch 7, 2012 at 11:32 PM

    Awesome job, Professor!
    It took me 5 months to accept the fact that law school is a joke.

    I'm paying for a politically slanted, yet highly hierarchical and authoritarian "education" that so far has made me lose 35K, 5 lbs, sleep and my sanity.

    I pop valiums like they're candy just to not fall apart.
    Fellow students tell me they drink on a daily basis.

    And we're only 1Ls!
    Just imagine what great lawyers/people we'll be if (1) we graduate, (2) get a job.

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  71. 9:32 - Exactly. William Ockham

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  72. 9:12 - You stated that HEA prohibits consideration of the borrowers ability to repay. Do you have a cite for this? William Ockham

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  73. Bruh:

    Now I'm a libertarian! You really are obsessed with ideology. Every issue is taken to be hammered into your fixation, and every statement everyone makes - and that fixation is that Bru is liberal left and everything he disagrees with is conservative-libertarian-right and wrong. Have you considered the other possibility - that you are simply being stupid and annoying. I really would not say this to anyone else, but this inability to show any intellectual flexibility or accept anything anyone else says without reflexively calling them a "two leg" and ranting "four legs good, two legs bad" is illustrative of one of the issues with the current law school regime - candidates are being admitted who should not be lawyers (assuming you did attend.)

    That you failed to understand the practical issue made about Shelley v. Kraemer is remarkable. So let me explain - the Supreme Court in that case was confronted with a tension and a practical problem. The tension was between the first amendment and the fourteenth form a legal standpoint and the practical reality that a very large number of deeds, especially in the North East (even though the case was about a Missouri deed) contained restrictive covenants based on race or religion. The Cpurts ruling was in practical terms ingenious - rather than ruling the covenants illegal - which would have had free speech implications and would at a stroke have thrown chains of deeds down to the seminal restriction into question the court simply ruled that in effect "you can put anything you want into a deed (free speech), but if it is racist, etc. the courts cannot enforce it." By denying state action to enforce the deed the clauses became effectively null.

    Similarly, if you are not a loan shark with a set of leg breakers debt requires state action to enforce - no state action, no debt collection. The effect of bankruptcy is to suspend or constrain that state action - and if the debt is discharged, to deny such action thereafter. You fail to grasp the basic point - private loans need state action to be collectable - and the non-dischargeability of such loans puts them in a special class where state action is guaranteed come what may.

    SImilarly, you were and are driven by ideology in your reading of the point that I made that private loans really are not private. Through your ideology distortion and fantasy field you have taken what I said and announced that it was a call for caps on public loans while leaving students at the mercy of private lenders. BUT I NEVER SAID THAT! You are therefore being dishonest - not me (and incidentally rather stupid.)

    What I was pointing out was that "private loans" is a misnomer (a bit like "extraordinary rendition") because in economic and business reality they are not in fact "private" for the reasons I gave - the non-dischargeability in bankruptcy and the fact that they are always part of a mix where the student has already taken public loans - and the economics of the private loans to the private lender are a function of these facts.

    Nothing is going to solve your problems if you don't stop calling everything ideological, distorting and misrepresenting everything everyone says, and considering yourself some sort of left wing radical hero rather than a tedious ill-informed spouter of clichés. As for me, I just don't want to hear from you - I see no point. So let me make this clear:

    Bruh, don't respond to my posts, don't comment on my posts, and stop characterising my politics or my views - in short I don't want to hear from you - and I suspect that is the attitude of a lot of people by now

    MacK

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  74. DJM

    The "rakeoff" colleges have made from law-schools is a big factor in their being too many - and too many law students. Moreover, law schools are not really very honest about the numbers and in a few cases law school deans have been fired for opposing this rakeoff. In particular the ABA supposedly caps the amount at 20% of tuition - but, through overcharging for common services and overhead in many law schools I am told the number is raised to 40% or even more - by this I mean administration charges, facilities fees, common services share, etc. The late Richard Allen Gordon (who was a good friend) explained to me that this was why, when Dean of Georgetown, he moved the law school off the main campus - the physical separation allowed containment of these overhead and shared services charges (he wanted it to thus limit tuition cost too - but failed to do so when Areen came in, one of the reasons he did not like her regime.) Georgetown is interesting an odd case because it did manage to constrain the rakeoff, but tuition still soared.

    In any event, eliminating the rakeoff in many law schools could cut tuition by the 30% you recommend - but unless it causes a maybe 30% contraction, more likely 50% in the number of law graduates, it will not solve the problem.

    MacK

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  75. Rakeoffs should not be eliminated.Law schools are parts of universities. The university ought to be able to move money where it needs it. Law students benefitted from this when they were undegrads.

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  76. Perhaps, but it's causing a distortion.

    Universities are having a harder and harder time covering useless undergraduate programs, and for many, they're covering these losses from more profitable programs.

    Law students shouldn't face a lifetime of indentured servitude in order for the once-removed university to fund another "insert flavor-of-the week" studies department hire.

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  77. Of course, "useless" is in the eye if the beholder, and is very often viewed through the prism of politics. Like anything, it depends on the nature of the work being done-- what is put into the effort.

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  78. Professor Campos:

    A reporter from ABC news wrote to me.

    Painterguy

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  79. DJM & LawProf: Is there reliable information as to how much law schools contribute to their universities and how this compares to other programs? I know it has been conventional wisdom for as long as I have been involved in the legal profession that law schools are cash cows for universities and all that time law deans have groused about how they are subsidizing other programs. However, I was for many years involved professionally and personally with organizations that either make or receive grants and can tell you that the opinion that the central administration is overcharging our department/school for overhead is universally held by academics. There is also the fact that law schools are, well, small. DJM's law school has fewer than 1000 students and is located within a university with almost 65,000. Some data might help sort out how much this "we atre cross subsidizing the rest of the university" talk is real and how much is law school grandiosity.

    RPL

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  80. There was an article not long ago saying that Colorado law school loses money for the university. So not all law schools are cash cows.

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  81. Mac K


    I am responding to the specific absurdity of arguing that a private contractual relationship between parties is public due to the existence of bankruptcy as a Libertarian argument.

    Frankly, at this point, given your penchant to both make arguments against what I am saying, but then expecting me not to respond back, I must conclude there is something wrong with you outside of your belief being far outside of the mainstream.

    Bruh Rabbit

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  82. "Law students shouldn't face a lifetime of indentured servitude in order for the once-removed university to fund another "insert flavor-of-the week" studies department hire."

    Sociology involves the study of institutions. Law schools are institutes of higher education. This examination is "worthless" and of no consequence. Just continue taking out loans, working non-legal jobs, and paying back your student loan debt.

    An emerging “flavor of the week study” at the moment is Critical University Studies.

    “Critical” indicates the new work’s oppositional stance that focuses on the ways in which current practices serve power or wealth and contribute to injustice or inequality rather than social hope.

    “Studies” picks up its cross-disciplinary character, focused on a particular issue and drawing on research from any relevant area to approach the problem.

    “University” outlines its field of reference, which includes the discourse of “the idea of the university” as well as the actual practices and diverse institutions of contemporary higher education.

    http://www.edu-factory.org/wp/deconstructing-academe-the-birth-of-critical-university-studies/

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  83. Regarding half of the posts on here, Law Prof draws from “flavor of the week studies”.

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  84. @7:58-- What are you saying?

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  85. That we need to change the way we view education generally...

    Unitl then no change will come about.

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  86. Bruh:

    Frankly, at this point, given your penchant to both make arguments against what I am saying, but then expecting me not to respond back, I must conclude there is something wrong with you outside of your belief being far outside of the mainstream.

    You seem to be missing something - like many people I don't make arguments against what you are saying - except for when you make one of your infantile "ideological" comments to one of my posts. Otherwise, like most people I simply skip everything you have to say as painfully tedious, predictable, ill-informed, clichéd and well, pointless.

    So do me the courtesy of not commenting on my posts - because, well, your comments are painfully tedious, predictable, ill-informed, clichéd and pointless. Oh and you are a conservative ideologue -

    Toodles,

    MacK

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  87. As a CCN student, I think the problem with this argument is I don't necessarily think the trickle down effect will work the way you want it to. Sure, Harvard and Yale, especially Harvard, would have to match Stanford because you would have to be insane to attend Harvard for $15k more per year than Stanford and pretty crazy to make the same decision about Yale, but I doubt that CCN would face the pressure to reduce costs in the same way. The problem is that there are very few people that seriously consider attending a school in the CCN tier if they get into Harvard, Yale, and/or Stanford. CCN usually offers massive full-tuition scholarships like the Hamilton at Columbia or the Rubenstein at Chicago to those applicants that they assume will also get into YHS and they still get turned down. There are very few students in the CCN tier who turned down YHS outside of those who received massive scholarships. For them, the choice is not $45k per year at CCN v. $30k per year at YHS, but rather $45k per year at CCN or $45k (or less w/ scholarship money) per year at a lesser ranked school. When faced with that choice, applicants might be annoyed that they are going to a lower-ranked school and paying more money, but not enough of them will turn down CCN for the schools to face the proper economic pressure to change their tuitions.

    To be honest, I think a school in the CCN/lower T14 tier adopting your plan would have a much better chance of impacting law school tuition the way you describe. Outside of YHS, more schools share cross admits and the differences in career prospects are significantly less drastic. If one CCN school dropped to $30k tuition, the other two would definitely follow, but the schools in the next tier down would have a difficult time explaining why their tuition is so much higher (look at Berkeley, and its continuing decline in US News, partially the fault of its obscenely high tuition comparatively). The chain effect you describe would take hold and it would work. Furthermore, YHS would still follow suit because they a) can afford it and b) can't afford the publicity hit not too. The problem is that if Stanford was the first mover, the revolution would stop at Yale and Harvard because they really are in their own category. Look at what happened w/ undergrad financial aid. Yale, Harvard, Stanford, and Princeton (finally) have been in an arms race to keep raising the maximum income that will qualify a student for financial aid, yet despite the fact that the differences between those undergrad schools and other undergrads are far less drastic than the differences between YHS and other law schools, no other school has followed suit. The same thing would happen if Stanford moved first here, there would be a race between the three schools to reduce tuition to the lowest feasible point, while every other law school simply sat by and watched.

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  88. Not everyone wants to be in California. At the prices we are talking about, 15k per year would not be enough to make some people choose Stanford over Harvard or Yale. If a person had any desire to clerk or go into teaching, Harvard and Yale are better.

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