Should law school acceptance letters include warning labels?

One of the first English sentences I can remember reading, when I was acquiring that skill in the late 1960s, was this: "Cigarette smoking may be hazardous to your health."  That remarkably understated proposition was the first the federal government managed to require cigarette companies, after a long legal struggle, to put on their products.

Between 1970 and 1985 the warning became the somewhat more forceful and authoritative-sounding "The Surgeon General has determined that cigarette smoking is dangerous to your health." At that point the government took the regulatory gloves off and started requiring the following labels:

• SURGEON GENERAL'S WARNING: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy.
• SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly Reduces Serious Risks to Your Health.
• SURGEON GENERAL'S WARNING: Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, And Low Birth Weight.
• SURGEON GENERAL'S WARNING: Cigarette Smoke Contains Carbon Monoxide. 

(This coming fall cigarette companies were supposed to have to start putting color graphic representations of the bad consequences of smoking on their packaging, but the implementation of this new regime has been held up by litigation).

Since the government first required warning labels the prevalence of cigarette smoking among adults in the United States has declined from 42.4% to 19.3%, although of course it's very difficult to determine what portion of that trend can be attributed to government-mandated warnings on the product itself.

As for subsidizing the acquisition of hazardous materials, the federal government also spent more than one billion dollars subsidizing tobacco farming between 1995 and 2010, which is a drop in the budgetary bucket in comparison to what it has spent subsidizing the acquisition of law degrees (This year alone law students are borrowing around $4.5 billion in taxpayer money to help pay for the cost of attending law school).

Given this investment, shouldn't our regulatory agencies also issue appropriate warnings about borrowing money to go to law school, by for example requiring the acceptance letters law schools send to applicants to include certain boilerplate warnings?  If such warnings tracked the history of cigarette packages, they would start with something like:

Borrowing money to get a law degree may be hazardous to your financial health.

After a few years it could move on to:

GENERAL ACCOUNTABILITY OFFICE WARNING: Quitting law school after your first semester greatly reduces serious risks to your economic and emotional well-being.

Etc.

This may strike the reader as a facetious suggestion, but consider this:

The best time to buy is when everyone else is selling. If August 2012 law school matriculations are truly as bad as the common wisdom expects, then three years from now law grads with decent credentials will be in higher demand than they otherwise would be. This does not mean that English majors who can't figure out what else to do should go to law school. And it does not mean that prospective students should ignore costs. But when markets correct misallocations, they often overcorrect, particularly in markets with imperfect information. In my view, there is reasonable possibility that the current decline in law school applications represents just such an overcorrection.

That's the analysis being put forth by Ted Seto, a professor at Loyola-Los Angeles law school, and to my knowledge the first law professor to publish a comment on this blog under his own name (During the initial week when I published the blog anonymously before deciding that wasn't a good idea, Prof. Seto warned me in a signed comment that once my identity was known tenure would not protect me from the dire professional consequences that would flow from publishing the claims I was making on this blog).

Now let us consider the idea that investing in a law degree at this time -- say at Prof. Seto's own institution -- could well be a wise contrarian strategy.  There are a number of problems with this claim, the most obvious being that investment contrarianism is really just a variation on the insight that it's a good idea to buy low and sell high, and, at present, going to law school very much still requires buying high. Indeed the cost of attendance this fall at Loyola will be $71,702.  (Note that the school characterizes borrowing this sum in the form of high interest non-dischargeable loans as a "financial aid award," which seems a rather curious way to characterize an unsecured loan).

In addition, per ABA data Loyola appears to give out a strikingly small number of grants to students: the latest figures indicate 67.3% of the school's students pay the full sticker price of attendance, while the school gives out almost no full tuition scholarships.

What's the cost of debt-financing a degree from Loyola?  Thanks to the good folks at the Georgetown University Law Center this calculation can be made in a matter of seconds, and the answer is that a 2012 matriculant who does so can anticipate a total debt of $259,616, at an average interest rate of 7.6%. This will require either ten years of loan payments of $3,099 per month, or 25 years of payments of $1,949 per month (the total payout being $371,844 or $581,763 respectively).

In the comments to Prof. Seto's speculation, Deborah Merritt does an excellent job of outlining the extent to which Loyola's published employment and salary statistics, inadequate as they are, do not, to put it mildly, give any warrant for thinking that investing this amount of money to get a Loyola law degree would be a sensible decision.

Indeed this little exercise indicates the extent to which the framing of the market for law degrees as a matter of rational maximizers of utility making informed investment decisions continues to bear little relation to the social reality of clueless 21-year-olds and their often even more clueless parents deciding to spend either their own or more often what will be in the long run other peoples' money in ways that don't begin to make any economic sense.

Prof. Seto's comment indicates, among other things, the extent to which many legal academics have not even begun to recognize that the price of legal education in this country in general, and at their institutions in particular, no longer bears any rational relationship at all to its long-term economic value.

Given that the federal government is playing such a central role in continuing to ensure this is the case, it doesn't seem unreasonable to expect it, in the context of its regulatory function, to warn prospective law students and their families of this fact.

Update:  Paul Caron informs me this is not a new idea.