Saturday, October 6, 2012

IBR

LawProf and commenters have noted many downsides of the Income Based Repayment (IBR) program for educational loans. IBR is the only way for many graduates to meet their loan repayments, but the program greatly increases total interest, hampers attempts to secure a mortgage, and burdens graduates for as long as 25 years. (A shorter, 20-year version of IBR may be available soon, but some older loans won't qualify for that reduced term.) Graduates who do not work in public service will also owe income tax on any debt forgiven at the end of the IBR period.

From a public policy perspective, IBR raises other troubling issues. Taxpayers foot the bill for forgiven debt, and those sums may exceed original forecasts. The program further distorts the market for higher education, giving schools the freedom to raise tuition still higher while students take on still more debt.

But there are two other problems with IBR that have received less discussion. The first is a moral issue: IBR has helped change education from an investment that we all make in the future to one that new adults (our future) have to make in themselves. IBR, like several other government programs, represents an enormous shift in economic resources from new workers to middle aged and older ones.

I'm not talking just about the loss in tax money to support higher education. Those losses have hurt, and they have required students to invest more in their own education, but the decline in tax support hasn't fueled the full rise in tuition or student debt. Public law schools are fond of saying things like "state support now accounts for only 25% of our budget, while it used to provide 70%." Those statements are like ones that politicians make: They distort reality by omitting key facts.

Here's a hypothetical to explain the more complicated relationship among tuition, state support, and school budgets: Suppose that a small public law school was operating on $10 million per year in 2000, with $7 million coming from state support. The taxpayers, therefore, paid 70% of the school's budget. Inflation then pushed the school's overall budget to $13.4 million in 2012. Keeping pace with inflation would have required state support to increase to about $9.4 million, but the state increased its support only to $7.5 million. In inflation-adjusted dollars, that's a loss of about 20% in state funding  --a serious concern to the school, but not nearly the drop that "70% to 25%" suggests.

What accounts for the much greater drop in state support as a percentage of the budget? Like most schools, both public and private, this representative school increased its overall budget. Suppose this school hired more faculty and staff, raised faculty salaries, lowered teaching loads, awarded more merit-based scholarships, and did all of the other costly things that schools have done during the last twenty years. As a result, the overall 2012 budget reached $30 million. State funds weren't available for the school's enhancements, so the school engaged in aggressive fund raising (something few public law schools did thirty years ago) and tuition increases. As a result, the school's 2012 budget might be $30 million, and state support might account for only 25% of that budget, but most of the "loss" in state support really stems from the massive new expenditures that the state declined to support.

This brings us back to IBR. Both public and private institutions spend much more today to fulfill the basic functions (teaching, research, and service) that they performed twenty years ago. Some of that money has come from alumni giving back to the institutions they attended. These alumni recognize that the school, previous graduates, and society at large invested in them; they have been willing to "pay that debt forward" by making charitable gifts to their alma maters.

But much of that new money has come from tuition. That's where government-backed loans and IBR come in. Government loans have greatly facilitated the rise in tuition, together with the accompanying expansion of loans for living expenses. Without those loans, many fewer students could have paid our tuition or taken the opportunity to stay out of the full-time workforce for 4-7 years.

Think for a moment where that loan money goes. A lot goes into the pockets of professors and deans; their money flows out again to pay for daycare (if the profs are young) and vacation homes (if the profs are older). That money also buys theater tickets, books, ipads, restaurant meals, and all of the other things that professors like to buy. Another portion of student loan money pays the salaries for new staff at universities. Still other parts of the student loan dollar go to campus bars, pizza delivery services, apartment landlords, textbook sellers, and everyone else who sells to students.

Higher education, in other words, stimulates a lot of economic activity--and that's a good thing. But here's the moral point: We're paying for much of that activity out of the future income of students, not out of current resources. Today's pizza shops, textbook publishers, and professors are all very happy, but they're not being paid by today's economic resources; they're living off students' future income. We're using the future to finance the present, and we're concentrating those future costs on the youngest members of the workforce--those who benefited least from the economic growth of the last sixty years.

This transfer, by the way, occurs within the tax system as well. The pizza sellers, textbook publishers, and professors pay more income and payroll taxes on their higher earnings, but that money doesn't go toward reducing the loan burden on students. Most of the payroll taxes go toward Social Security and Medicare, which benefit older citizens. And the general tax revenues support everything else government does, programs that may benefit students (everyone likes a good highway), but give those younger citizens no special benefit.

IBR extends the life of this intergenerational transfer. An increasing number of students can't pay back, under their original loan terms, the high tuition and other payments we extracted from them. Rather than recognize that the cost was too high--that we paid for current economic activity with the future income of students--we are extending the terms of repayment. That does nothing to ease the moral unfairness of building prosperity for established workers on the future income of new workers. IBR has obscured that unpleasant reality, not only by postponing the day of economic reckoning but by promoting rhetoric that graduates should be responsible, that they have invested in their futures, and that they will benefit eventually from that investment.

Graduates, of course, should be responsible; most of them are. It's also true that they have invested in their futures, which is admirable. And it's likely that some graduates will benefit eventually from their investment--although we know with near certainty that others won't. But those facts don't matter; they were also true for previous generations. The key moral facts are that: (a) universities asked prior generations of students to invest far less of their future income in their education; (b) the economic future for today's graduates is far more uncertain than the future was for last generation's graduates, not only because of changes in the legal market, but because of broader economic weaknesses (for just one example, think Medicare); and (c) we have been funding current prosperity--all of that economic activity you see on and around campuses--with the future income of new workers. That's not fair.

As I'll show in my next post, this is also economically foolish. Student loans and IBR are digging a trench under the U.S. economy. This isn't a bubble like the housing one; it won't burst suddenly. Instead, student loans and IBR are digging a long, horizontal ditch under the future economy; they will depress spending by a key portion of our future wage earners. Stay tuned for IBR: point two.


138 comments:

  1. Well said DJM. Well said.

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  2. I agree that IBR will facilitate enormous tuition increases. But I disagree on your other points.

    First, IBR does not "dig a trench under the US economy" on the contrary it prevents such a trench from being dug. Without IBR, many graduates would face substantial debt, which they could not discharge. This would depress their ability to spend far into the future and could pull the economy into a trench. With IBR, graduates only have to pay a maximum of 10% of their salary (in excess of the poverty line). This leaves substantial discretionary income. Moreover, IBR has loopholes which can dramatically reduce the percentage of income paid such as allowing married filers to base their payment solely on their income and not their spouse's.

    You also argue that its not fair to fund current propserity, brought on by education spending, with the future income of workers. Again, IBR prevents this from happening. Withouth IBR, many future workers would have pay a substantial fraction of their income for past properity. With IBR, the government picks up almost all of the tab. You could easily argue this is fair since it is the government that allowed public schools to raise their tuition and made education debt non-dischargeable. You could also argue its fair because the whole society benefited from the education spending driven prosperity.


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    1. "Moreover, IBR has loopholes which can dramatically reduce the percentage of income paid such as allowing married filers to base their payment solely on their income and not their spouse's."

      Thats not a loophole - thats just common sense. And you're also getting rid of a fairly large yearly deduction because you can no longer file jointly. For me, the yearly loss on the deduction we wouldn't be able to take makes IBR useless.


      And your last paragraph - the logic of a baby boomer. Why don't YOU borrow a fuckton of money to pay for medicare, etc., because it goes back into the economy.

      "You could also argue its fair because the whole society benefited from the education spending driven prosperity."

      HAHAHAHAH. You mean YOU will benefit but those borrowing the money in today's world need to bear the social and economic cost. Why should YOU benefit from MY borrowing?

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  3. An addition to my 2:42 post. If you want to criticise IBR, I think there are a few things you can say, but they are limited. First IBR will swell the federal deficit. But the deficit is so large already due to health care, defense, the tax code, etc. that the effect will be relatively small. Second, IBR is unfair since it is essentially a gift of hundreds of millions of dollars to already well off law school faculty. But there are many others in our society that overpaid; look for example at many people on wall street. Third, if you believe we will have to pay down the deficit some day, IBR unfairly takes money from the future middle class and gives it to rich professors. But we have been running large deficits for 30 years and we show no sign of stopping anytime soon despite constant warnings that the sky will fall if we don't get our fiscal house in order.

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    1. It's nice to know there's one other adult here who can read and think, unlike the main bloggers.

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    2. "It's nice to know there's one other adult here who can read and think, unlike the main bloggers."

      The hell are you babbling about? It is because of tiny little short-sighted minds like you and the OP that we find ourselves in the mess that we're in. Why not have loans and IBR for every economic exchange in society since its such a swell idea? IBR provides no benefit to anyone except the moochers in charge of schools because the underlying debt is a ridiculous misallocation of capital and the underlying education is CRAP.

      But I just love the pretzels you jackals will twist yourselves into to make this sound like its anything but the steaming, mile-high mountain of sh*t that it is.

      Protip: before commenting please take a basic econ course. Less rhetoric and more numbers will help.

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  4. Probably not PosnerOctober 6, 2012 at 3:02 PM

    A lot of really good points here. Thanks.

    For a while, I was under the impression that a lot of the expansion in administrative roles at the university I attended were to run various "perk" programs that students and faculty did not really need. That is probably some of it. But what I did not realize was that a lot of the expansion was also required due to federal regulations on things like human subjects research and due to expanding IT needs. I wonder where the bulk of the expansion in administrative and staff positions is across schools in general?

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    1. Probably not PosnerOctober 6, 2012 at 3:44 PM

      I have some questions/observations about the claim that expansions of budget account for a lot of the perceived drop in state funding.

      1. Some expansion should be expected overtime as population and GDP increases, technological needs change, and some expenses on dorms/athletics are needed to attract bright students. How much of the budget expansion is attributable to this kind of "keeping pace" expansion? And, has state funding kept pace with this kind of "necessary" expansion. Has funding per student increased or decreased in real terms? Is the amount of the state budget allocated to higher ed shrinking or decreasing? Has state spending increased or decreased with respect to the population's income? What I'm trying to get at as whether unnecessary expansion at public schools is really a significant problem compared with the loss of state support.

      Here, I think it might be helpful to disaggregate law schools from other areas of the university, which have very different overhead costs and models of compensating faculty.

      2. I recently noticed that the law school I attended treats financial aid to students as an accounting "expense." I do not understand this categorization. If a law school cannot sell its product to all students at sticker, why is the discount considered an "expense" rather than just a smaller amount in the revenue column? If you put a good on sale, is the difference between the sticker and sale price an expense? I'd appreciate an accountant who could help me understand.

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    2. Probably not PosnerOctober 6, 2012 at 4:19 PM

      One more question: to what extent has law school tuition expanded not because schools need more money to educate lawyers but because law schools are being asked to cross-subsidize other departments in public universities that are really struggling due to lack of state support? On average, how much revenue do law schools have to give the main university?

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    3. PNP: This varies enormously by school. 10% to 20% has been a typical amount, but 30% and 40% rakeoffs aren't unheard of. OTOH I know of at least one state school that's subsidized by central.

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    4. It's absurd to record discounts as an "expense". Probably not Posner is right: those discounts shouldn't be reported at all; only actual revenue should be reported. Nothing is being spent.

      As I said yesterday, discounts offered to some students should not be called "scholarships". "We're offering you a $40k scholarship" is deceptive; a more accurate rendition is "You can pay only $10k, rather than the $50k that we charge the people whom we don't really want so much".

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    5. Law schools are cheap to operate. Despite their lavish expenditures (notably on salaries), they tend to throw off big surpluses that the parent institution is glad to soak up.

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  5. those at the top of society have always found a way to exploit youth--for decades the war industry pumped society full of pro-war propaganda and thus caused youth to volunteer for useless wars. They still pump society full of propaganda and get youth to volunteer themselves for the betterment of the rich, only now instead of demonizing some overseas enemy, those at the top romanticize white collar careers.

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    1. Well then I sure am glad to be one of those at the top of society!

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  6. IBR=Continued Baby-Boomer grift. Their parents paid taxes that funded universities (and a small number of them taught and administered the relatively modest institutions). Now that its their turn to pay, they dump responsibility onto future generations, and those who teach and administer have very immodest tastes.

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    1. Exactamundo, fine sir. This is just one more case of baby boomers taking from their parents and taking from their children. You are right that our colleges were built with tax dollars and hard work and donations from BB parents - they are the ones who paid for BB tuition out of pocket too through saving and being smart with their money. And BBs, instead of paying for their kids' tuition (or grandkids' tuition), spend all of their shit on fucking Lexus SUVs, golf, and boner drugs.

      I literally get giddy with excitement knowing that when these BBs come asking for me to look after them in their later old age, when they have spent their load, when they left us all with a pile of shit to deal with, that I will be able to tell them to fuck off.

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    2. No, we will give the boomers everything that we have so that they can live their final days in luxury.

      We will do our duty as good citizens and provide our elders with what they ask of us so that when we die we will be at peace, knowing that we provided the most wonderful and powerful generation that ever lived with a retirement better than the kings of old ever received.

      We should also build them monuments made out of marble so that we have something pretty to look at as we wander around in sackcloth and eat raw turnips.

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    3. A professor who is roughly my age (forties) has confided that she hates baby boomers, every goddamn one of them. I've come to share her sentiment.

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    4. Probably not PosnerOctober 6, 2012 at 5:56 PM

      I like to remind my dad that while we've both been screwed by the generations before us, I've been screwed by one more generation than him.

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    5. You must be a millennial. The baby boomers weren't screwed at all; they had it made.

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    6. There's no reason to hate baby boomers. They are products of their generations.

      If Xers had lived through the 60s, they would be Baby Boomers too.

      One problem with the financial crisis is that the Xers won't hold other Xers to account.

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    7. I don't hate them as individuals. As you said, they were just lucky enough to be born at a particularly favorable time.

      And I don't regard my own generation (Generation X) as a flock of innocent little lambs. But I do think that we've been screwed.

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    8. They don't really have any assets.

      I think they were relying upon housing and stock appreciation.

      That failed.

      Now they are drawing down their savings at 0% interest.

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    9. Many of them have fat pensions. Not to mention Social Security, which is overpaying them at our expense.

      Those that fucked up on real estate or wild consumption are now hanging onto jobs that otherwise would open up to us.

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    10. I wish all of you Boomer-haters would acquaint yourselves with a few of us real people.

      I am 68 years old. I went to law school in 1972-75, when my tuition, as a CA resident, was something like $575/year. It's astounding and almost embarrassing to recall that, but an indication of how things have changed.

      Now that I'm "retired," I have no pension, and my social security check is $928/month. That's right: $938. I do NOT have a giant IRA -- see below.

      I did NOT blow my cash on a McMansion, fancy car, trips, clothes, etc. Rather, I put my two kids [2008 and 2010 grads] through college so they emerged with no debt, and also supported one of them as he struggled through 15 months of unemployment and 13 months of part-time work.

      I am sympathetic to victims of the law school scam, but am tired of this mindless trashing of those of us who did our best for the future of our country, our fellow citizens and our children.

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    11. The reason we hate boomers is the selfishness that is their hallmark.

      We arent giving up hating your generation until
      You turn your political power to something other than raping your children.

      Don't justify why you as an individual are different. You aren't .

      As we like to say: Cool story bro.

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    12. You had your chance. Look what you created. Don't turn to us for sympathy. Maybe you could just die. If we had a massive boomer die-off it would be good for the world .

      Too harsh for you? Am I being mean?

      That is just the beginning of the way we feel about you.

      I would rather read ever painter guy post than listen to you.

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    13. It is hard to respond to the two above post without using a ton of sarcasm. The posts are both just so stupid.

      Chances are that baby boomer didn't "rape his children" and he's probably not able to sign anywhere to give up all of his "political power."

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    14. "IBR=Continued Baby-Boomer grift. Their parents paid taxes that funded universities (and a small number of them taught and administered the relatively modest institutions). Now that its their turn to pay, they dump responsibility onto future generations, and those who teach and administer have very immodest tastes."

      Are you even aware that law students are not now Boomers, and haven't been for two decades?

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    15. Sorry for your retirement hardship, although I think there's more to your lack of stability than just putting two kids through college. It might not be the McMansion, but there's something in there, especially if you earned a good income during your working years, that has caused you to end up with nothing in your early old age. The money didn't just "disappear". One of the key defining attributes of boomers is their utter lack of planning for the future, so you spent the money on something instead of socking it away for retirement.

      As a generation, boomers are extraordinarily selfish. They have spent all of their money (and they had lots of money) on luxuries and lifestyles, and expected their children to bend over backwards to support them and for future generations to mortgage their own futures for them.

      And the current generations are saying "no" en masse. I know hindsight is 20 20, but it didn't even need hindsight to see that boomers had an attitude that would lead to extreme hardship for them in their later years, at the expense of everyone else.

      Some boomers are nice and caring and did the right thing. Some boomers (the ones we don't hear about) are as poor as poor can be. But many middle class boomers define the generation with extreme selfishness and greed, and sadly it is these boomers who are still working in their nice jobs, changing policies to suit their own needs, running the country, and screwing things up for everyone else (poor boomers included).

      So yes not all boomers are part of the problem, but many are, many were, and many more will be before this whole mess is sorted out. I feel sympathy for your personal situation because it sounds like mainstream boomers are screwing you over too, but as a general generation, boomers are a disgrace.

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  7. Anonymous at 2:42

    I have to disagree with your premise that "IBR does not 'dig a trench under the US economy' on the contrary it prevents such a trench from being dug."

    First, I may sound like a scratched record (and that dates me) on the issue, but law school enrolments, given that they tend to draw from the top of the college graduate ability pool (highish GPA, 150+ LSAT) score act as a drag on the US economy because they lure young adults who have a fairly bright future, in which they would be substantial contributors to the US economy and net tax contributors into a situation where many will be desperately trying to eek out a living much smaller than they would have made without the JD. The deadweight losses of 50,000 law graduates versus 15-20,000 is immense when you consider who forms the 30,000 odd surplus.

    My own personal view is that we should not end IBR - because we need to deal with the victims, those who made a mistake in going to law school. Now maybe that is because after 20+ years of practicing law I am a less censorious little shit than I was when I went to law school - and I do not think someone should be saddled with the consequences of a mistake for the rest of their lives, but at the end of the day, we need to deal with the people deep in a pool of shit.

    However, I think there needs to be a corollary to IBR - that a law school (or any other school) had its ability to offer student loans restricted as its graduates end up in IBR. That for every student in IBR they get a reduction in the number of loans that they can offer 1:1 - so if you had say 200 student loans in the class of 2012, and 60 of those claim IBR - you get to offer loans for only 140 next year. IBR should be seen as evidence of educational malpractice - and the penalty should be - you don't get to graduate prospectively graduates into IBR.

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    1. Probably not PosnerOctober 6, 2012 at 3:48 PM

      That's an interesting proposal.

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    2. Too sensible and easy to implement, meaning it is guaranteed to be ignored by those in power.

      I've given up tossing out reasonable solutions to these problems because everyone with the power to change things also has a hand in the moneypot.

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  8. Thanks, DJM. I fully agree and I've been saying this for years: debt is a time machine. It transfers wealth from future workers to present workers. The same thing happens on a much grander scale with the U.S. Federal debt. Politicians love debt because it ultimately screws people that can't vote: today's children. That's true for both parties.

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  9. DJM that was a very interesting post, and a strong indictment on continued wealth transfers from the worse off to the best off.

    And here's the thing that really gets me: if it all worked, it would be beautiful. Schools, businesses, and everybody involved would get a piece of the economic stimulus (AKA student loans), and the students whose loans are stimulating the economy get rewarded with good paying jobs which enables them to pay off their loans in ten years and enjoy increased earning power.

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  10. Interesting that scholarships are considered an "expense." Must be some tricky balance sheet stuff going on there. On the other hand, I'm wondering if a law graduate can "depreciate" the value of their degree on his/her tax return.

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    1. That's a particularly handy piece of creative accounting:

      "Of course we have to raise tuition! See how much it costs to operate Bumblefuck U? Why, we spent $X million on financial aid last year!"

      "Bumblefuck U prides itself on its generosity. Last year we awarded $X million in scholarships."

      "PRESS RELEASE: As proof of her commitment to making law school more affordable, the dean of Bumblefuck U has magnanimously increased scholarships by $Y million."

      "Public funding for law school has plummeted from Z% to W% in just V years. At the same time, Bumblefuck U has increased its financial aid dramatically. Yet unscrupulous scoundrels on the Internet frame us as a bunch of crooks. Don't believe them."

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    2. Probably not PosnerOctober 6, 2012 at 6:42 PM

      "On the other hand, I'm wondering if a law graduate can "depreciate" the value of their degree on his/her tax return."

      LOL.

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    3. you can depreciate it according to the the greater of TTTACRS 65 year life or straight line over 100 years.

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  11. Maybe "scholarships" are an expense at the better schools-an expense of maintaining their rank? i.e., school could fill class at sticker, but chooses expense of "scholarships to benefit its alumns and current students by maintaining rank?

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    1. Does the "expense" of scholarships count as "expenditures per student" for the purposes of You Ass News?

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    2. as far as i know, yes.
      but maybe not crazy-if i'm a jeweler and run an add, that's an expense. if i give a free necklace to a starlet on condition she wear it ontv, that's an expense too. scholarship to high-lsat dude is like free necklace to starlet.

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    3. Probably not PosnerOctober 6, 2012 at 6:29 PM

      Interesting thought, STB.

      Do you think it is true that better schools could fill their class at sticker? I suspect that most people are willing to pay sticker primarily to attend a school that is highly ranked. I suspect many schools must bribe some people with high LSATs/GPAs to come and thus maintain the school's rank. In other words, in order for some to pay sticker, others must get a discount.

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    4. Probably not PosnerOctober 6, 2012 at 6:32 PM

      6:04--An interesting thing about the phrase "expenditure per student" is that it suggests it is the average amount being spent on each student. But if scholarships are counted, then some students in fact receive a lot more of this "expenditure per student" than others. The phrase might be therefore a bit misleading if we think expenses are about what is being offered in the classroom.

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    5. @629,
      I defintely think the t-14 or so could. rankings matter, yes, but recall LSAT's are only one part of the rankings. " reputation" matters too and that would be slow to change-just look at the dominance of " old " schools in the rankings. plus, that new $$ could be spent on other factors that matter in the rankings!

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    6. Probably not PosnerOctober 6, 2012 at 6:46 PM

      That's a good point about the t14 being fixed. Maybe scholarships are an arms race amongst the t14 to maintain their positions vis a vis each other?

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    7. If you give away a necklace for publicity, you incur a real expense. If you charge me less than you charge someone else, you do not incur any expense. Perhaps you post lower revenue than you might have, but even that is doubtful: law schools set a target for revenue from tuition and expect to meet it by awarding a certain amount as "scholarships", just as an airline plans to fill the flight by selling so many seats at this price and so many others at that.

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    8. That would be my guess,also a sign some schools are not as rapacious as they might actually be.

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    9. I was wondering why we talk about the top fourteen. It turns out that those fourteen—all fourteen of them—have occupied the top ever since the inception of the You Ass News rank(l)ings in the 1980s.

      The rankings are static. No school can go up or down very much. Maybe now and then some fourth-tier school will fuck up and lose its accreditation, thereby falling off the rankings altogether. But there's practically no movement across tiers. The bottom of the T14 is the top of the third tier (as I define it), yet never once has a school risen even to that questionable distinction.

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    10. Probably not PosnerOctober 7, 2012 at 1:06 PM

      Yes, US News does count financial aid in expenses per student:

      http://www.usnews.com/education/best-graduate-schools/top-law-schools/articles/2012/03/12/methodology-law-school-rankings?page=2

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  12. i guess this is what happens when the government gets involved in places it doesnt belong. everyone gets screwed except for the chosen ones - schools in this case.

    get the government out of the loan business and watch tuition and teh number of graduates in useless majors/programs drop.

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  13. @6:48,
    no-you are ignoring opportunity cost of selling that same seat at ticket to lower-LSAT guy. It's the same as the opportunity cost in the foregone sale when I gave the necklace away to the starlet.

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    1. Except that they can't sell it to that guy without ruining their rankings. If they could, they'd gladly hold out for full price.

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    2. It's impossible to prove either way but i disagree that harvard would "ruin" their ranking by charging full ticket to everyone. maybe-maybe- they would fall to -shudder-#5 after 20 years . . .

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    3. Harvard does charge full ticket to everyone. There's a little bit of need-based aid but no so-called merit-based aid. You have to go down into Tier 2 (the NYUs and Michigans and Penns) before you find so-called merit-based scholarships.


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    4. Well, there you go then, it *is* an expense for NYU or Penn to give these "scholarships"!

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    5. You don't seem to understand. Let's end it here.

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    6. Well, the problem with your airline analogy is that you are assuming there's a fixed amount of $$ that will fund these law school slots. There is, but at the high end we're not even close to it-e.g. Harvard could double tuition and still cover ticket price. So that's the source of our disagreement, I think. Anyway, if I'm off base to your concerns, yeah, let's let it go bc that was my last attempt to suggest we're on the same page-otherwise we are badly missing each others' points and this is not the forum to hash it out.

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    7. Lol at NYU being Tier 2. A person after my own heart. But most people would not agree.

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  14. and your options remain, kill yourself or expatriate. i'm too poor to expatriate successfully. IBR is a scam. BAPCPA was a scam. Federalization of student loans a scam. "Liberal" law professors having the unmitigated gall to lecture almost exclusively on social justice, a fucking scam. so, tell the gov't and its cronies, i quit.

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    1. Forgive me,but I see why IBR is bad for the taxpayers and a scam for the law schools. But I'mnot seeing why it's so bad for the graduates. It's only 10% of above-poverty income, right?

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    2. That's 10 percent on top of state, federal, and payroll taxes. The federal income tax also preserves a subsistence level of income untaxed, then applies the brackets to the remainder. So think about it this way: would you notice a 10 percent increase in your taxes? How much would that hurt?

      An important question to ask here is: what would have happened without IBR? The collective pain and inability to pay might have prompted a change in bankruptcy rules. IBR makes any change in bankruptcy rules very unlikely.

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    3. I agree that the IBR "safety-valve" allows the scam to continue, to the benefit of the law schools and at cost to the taxpayers. But IBR is, in that sense, pro-student, at least in the ex-post sense. Yeah, ex-ante get rid of it and all federally guaranteed loans-it's the only
      y way to shut down the scam, IMHO.

      Delete
    4. Ejookayshun in the U$ is a fucking scam.

      Delete
    5. Most people wouldn't consider, I take it, conversion to a religion that requires 10% tithing to be financially ruinous so in that sense IBR *for all of its bad effects* doesn't seem especially bad towards students!

      Delete
    6. how much will the debt balloon? and then, yes, you trade your giant balance which has cut you off from consumer credit markets for 25, for a giant tax bill - due immediately. now your lender is the IRS. so you work out a payment plan. reduce those payments streams to PV and then project them back with known discount rate over the IBR schedule and see what you "saved" or what was "forgiven".you can wipe your ass with IBR - that's what it's worth. and if any of that scam to keep living for today (that's all IBR does) sounds familiar - it's because it's the bailout nation model. we're all keynesians now. creditors don't take losses in the new improved america - only the little guy does.

      Delete
    7. Then too bad for the little guy.

      The little guy shouldn't have borrowed a ton of cash, blown it on himself and then decided not to repay it.

      Delete
    8. So I guess you're opposed to consumer bankruptcy as well then? No one should be able to have borrowed money discharged under any circumstances? Or does this just apply to people who "blew" cash on education, rather than buying shit/gambling/medical bills?

      Delete
    9. When I was in university, interest on student loans was not deductible, but interest on a residential mortgage was. Shit bought from Wal-Fart was deductible if paid for with a loan against the equity in one's house. But the high interest that I was paying wasn't deductible, though plainly a degree contributed to my ability to earn income.

      Delete
  15. One reason for the odd accounting of scholarships is that some universities take their cut as a percentage of tuition. If a university takes 20 percent of tuition, and a law school charges a list price of 50,000 (just to use round numbers), then the university will demand 10,000 per admitted student, whether the student pays list price, half price, or nothing at all. In this type of system, list price tuition has important internal impact.

    ReplyDelete
  16. how widespread is IBR?

    ReplyDelete
  17. DJM and LawProf,

    I am a regular reader (thanks for all the great work you do and the time you dedicate - it is MUCH needed) and what I would really like to know is, just who are your readers? Are they law students, recent grads, unemployed recent grads, employed lawyers, professionals in the legal educational field, lawyer wannabees, or people not even in the legal field?

    What would be interesting is to have a poll and keep it up for a week or two, and ask everyone to respond to questions that answer the question above, along with some other questions. I once saw a poll on the ABA Journal that asked everyone if they had it to do all over again, would they go to law school. It also asked when they graduated, how long it took to get that first job, what was the salary, etc.

    What astonished me was about 250 people commented and answered the questions and, from all 250, only 3 or 4 said something positive about law school and that they would recommend it. Everyone else emphatically denied that it was helpful in any way and most emphasized that they would in no way go again, especially today when tuition was so high. Also interesting was the fact that while many who said all this were recent grads (from 2009, etc.) there were MANY established attorneys who responded as well and all agreed that law school was too expensive for it to be of any value.

    It would be neat if you could set up the poll so people could only respond once. By asking such questions, you might get insight into not only what recent grads think about the whole system, but also what older attorneys think as well.

    ReplyDelete
    Replies
    1. Why has the government shortened IBR from 25 to 20 years if they wanted to extend the day of economic reckoning?

      Delete
    2. I imagine that most of the regular readers are employed attorneys. The victims of the scam are much more reluctant to see themselves as victims than third parties are. They don't want to believe that the scam is real and they don't want to believe that things won't improve for them soon. They really don't want to read this blog.

      Delete
    3. Employed lawyer here. Class of 2011. Practicing international law (seriously mean it).

      But if it hadn't been for a lucky break, I would be unemployed or working in retail now.

      Delete
    4. I suggest a voluntary poll in which only a very small and unrepresentative section of this website's readership gets counted. It would only be appropriate.

      Delete
  18. Go to @35 seconds here and read the captions:

    http://www.youtube.com/watch?v=6VOCoubmS2Q

    Yup, that's pretty much the way the debt grows under IBR too.

    And of course there is the tax bill at the end of IBR, and not on a cute little Venutian monster debt, but on the big one able to climb up the sides of a coliseums.


    ReplyDelete
  19. I always felt sad for the poor elephant that bravely tried to defend the earth and was killed in a battle with the Venus monster.

    ReplyDelete
  20. I think it would be useful if somebody could play out 3 or so ways in which a typical IBR scenario would play out. Relying on IBR seems to be a partnof the scam and I will be honest in saying I don't really get how it works. I've seen allegations from "crushing" to trivial in terms of how it affects the borrowers (and some even claining it doesn't hurt the Fed. bc of high interest rates). Any guidance?

    ReplyDelete
    Replies
    1. Let's start with scenario 1-i marry the vet who is on IBR w/ 200k- what exactly is the harm (i suspect not that bad)?

      Delete
    2. Small Town Boy, Here's how you measure the "value" of IBR to a student. Take your original loan balance and the normal payment schedule - that will give you a total interest payment on top of principal on the assumption you pay it off as per schedule. Almost no one can make the required minimum payments for scheduled pay off, so they extend to a 30 year term or go on IBR. But the interest rate is a sly compound rate - IBR doesn't stop the loan from growing - all the interest you're not paying is capitalized daily. Fastforward 25 years - you're not in your 50's and you get the loan balance "forgiven". But cancellation of debt is treated as ordinary income in the year forgiven. The poorer you are, the bigger that unpaid balance got over those 25 years, the higher the tax bill. If the marginal rates stay the same you can basically guarantee you'll be paying at least 30% tax on the forgiven balance. So, if you've been carry a 100k balance (that's a very modest assumption given the principal debt loads + 25 years of compounded interest) you'll get a tax bill for 30,000. due immediately. The IRS will put you on a payment plan. Take the total value of that payoff and project it back over the 25 years - basically add it into what you were paying under IBR - then compare that with what your payment would have been under the normal pay off schedule. Work off a few hard assumption numbers and you'll see that IBR doesn't forgive any debt - just changes when you have to pay. P.S. social security (aka retirement for most of the country) can be garnished for student loans and tax purposes. welcome to slavery.

      Delete
    3. But surely with compounding interest the total loan will balloon far larger than only $100 k???

      Delete
  21. Prof. Campos, I'd be interested in a comparison between the benefits of income based repayment versus students taking an outright default.

    My law schools and others I know of are pushing IBR hard, and I think the reason is the threat waiting in the wings from some in Congress and the present Admin that they will deny loan eligibility to schools whose default rates are too high.

    Alternatively, I'd like your opinion on collective student action. So far as I know, federal loan indebtedness will be canceled if the degree-granting institution goes belly-up prior to your graduation. As you know, law students can't transfer after the 1st year by coordinated rules of the law schools. And my school definitely operates on thin margins. So, here's the proposition - all the students get together and don't sign their promissory notes on time - cash flow issue - school collapses overnight and we all get our balances written off. Should I start the revolution?

    ReplyDelete
    Replies
    1. My reaction (and I know I am not Prof Campos) is that IBR should as far as funding any institution is concerned be treated as a loan default - which in strict lending terms it actually is.

      That is to say that if in any other loan situation I was not able to fully service the loan, but rather needed a third party insurer to cover some of the loan, it would be a default - certainly every lending document I have ever seen treats a failure to make full repayment as a default. Think of the government/taxpayer as a cosigner on the IBR loan - like your parents being chased by your lender.

      Delete
    2. Yes, Mack, I agree it's a default in fact, but it won't be treated that way for public discourse/ political purposes. I mean, it's not treated that way now - a default doesn't show up on my credit report just because I'm on IBR. Shit, a negative real yield on bonds is a default if the lender rides the bond to maturity, but you don't hear Tim Geithener talking about how the US is in default. They just want the label. I'm not sure it's in a borrowers interest to accommodate the schools with that. The garnishment amounts in default are basically the same as % due under IBR. If you're carrying a 150K student loan balance, you're not getting a mortgage - so who cares if your default? Yeah, it won't ever be "forgiven" if you default, but it's not really being forgiven if you go on IBR. Why not shove a little reality in the face of the system by taking a default?

      Delete
  22. Yeah, but you are not giving me some real numbers. Is this like having an annoying cousin who needed $1000/month or what? Please give a comparative figure somwe can make,sense of it.

    ReplyDelete
    Replies
    1. $30k, eh, i spent that on my second wedding

      Delete
    2. Too much work - do it yourself!

      There are calculators and resources online that explain it all for you. It would be more instructive for you to read about it and then apply it to your exact situation. Examples won't help you figure out if its a good or bad thing for you.

      But seeing as you asked nicely, the bottom line is that IBR sounds good in theory, but rarely results in any significant benefit to the borrower. We need outright forgiveness after 10 years of payments, or forgiveness once the total amount paid back (including interest) equals the original principal balance. As it stands, student loans are a never-ending payment trap for all but the most fortunate borrowers.

      Delete
    3. Outright forgiveness would have to be coupled with other changes:

      1) Only capable people may be admitted to law school. Despite the problems with the LSAT, I would not object to imposing a limit, such as 160+ on the LSAT—and allowing people to take the test no more than, say, three times. Note that this change by itself would force the closure of two thirds of the law schools.

      2) The amount available for lending must be limited to something that graduates could realistically pay back. The public should not be saddled with debt in whatever arbitrary amount some half-ass law school imposes.

      3) Recipients must keep current on the payments whenever they have income.

      4) Recipients must demonstrate that they have indeed actively and realistically sought work.

      5) Law schools' eligibility for these funds must be tied to their graduates' success at finding relevant, reasonably well-paid work.

      Delete
  23. "Michigan is outpacing other states in filing student loan lawsuits thanks, in part, to a quartet of private practice law firms that work under lucrative federal contracts that give them 25% or more of the amounts they recover. They have been aggressively chasing down scofflaws in eastern Michigan, filing more than 14,000 lawsuits in U.S. District Court in Detroit in the last two decades."

    http://www.freep.com/article/20121007/NEWS06/310070254/Beware-metro-Detroit-The-feds-are-out-and-looking-for-payback-on-late-student-loans?odyssey=tab|topnews|text|FRONTPAGE

    ReplyDelete
  24. so default loans are an attorney employment program.

    ReplyDelete
  25. I think the discussion about IBR really misses the fundamental issue: Is a law school education a public good or a private good?

    If law schools are offering something which benefits society as a whole, clearly the public should be funding it. The burden should not be upon the student for something which is a benefit to the community -- the burden SHOULD be on the taxpayer.

    On the other hand, if a law school education is solely a private good, much like a fancy sports car or a big house or a fancy Rolex watch, the student should bear the cost. That means the government should be out of the law school business altogether. We should not have public law schools, student loans, IBR or other subsidies.

    In reality, law schools seems to be a little bit of both a public good and a private good. Certainly, the 10% of the students who go to work for big law for an average of 18 months are being paid enough to expect them to pay for their own law school education. At least for the 18 months they are employed by big law.

    But the 90% who work as, judges, prosecutors, public defenders, private attorneys working for small clients, baristas, and busboys are really not benefitting from their education as much as the public at large. To spend hundreds of thousands of dollars and years of deprivation for a law school education which leads to a $20,000 a year job hardly rates as a private benefit.

    A better and more honest solution is for the state to fund public law schools which charge nominal, if any, tuition, but which are highly competative. Those going to other (ie private schools) would have to arrange their own financing without the benefit of government student loans.

    Or perhaps we should be offering loan forgiveness for those lawyers engaging in public service or serving areas where there is a scarcity of lawyers (providing we could find such areas). This would be similar to the loan forgiveness given to doctors and nurses who work in rural areas or the inner city.

    In other words, we should really be adopting a European model where education is free for the most qualified. But the expectation is that those getting such an education would work for the public good rather than for their own enrichment.

    High Plains Lawyer









    5

    ReplyDelete
    Replies
    1. High Plains

      I would say that broadly you are correct if law schools were not graduating so many lawyers. The difficulty with your analysis is that it is correct for say 20,000 or so graduates a year that law school or a legal education is a "good," private or public - but what can you describe the legal education lavished on the 20-25,000 for whom there are no jobs?

      The United States is burning treasure, both the lives and futures of 25-30,000 talented young adults a year and the money used to educate them.

      In that regard, I would add that the European model too has weaknesses - it also produces too many lawyers and too many law degrees. Public funding models for third level education in Europe are very troubled and under considerable strain because academia has burgeoned on teaching subjects that do not render graduates readily employable. Just as there are too many psych majors in the US, there are too many sociology, media studies, art history, business and law students in Europe and not enough STEM. The arts faculties of Europe consistently defend this on the basis that the education is a "public good," to the growing irritation of taxpayers and governments. However, as a group tenured academics are very politically influential, and hard to challenge.

      Indeed on of the ludicrous aspects of this situation is that there are only 14,000 or so law professors in the United States. Cutting 50% would amount to 7,000 job losses, which is not even the error rate on the current US unemployment data. However, I assure you that if 700 law professors were to lose their jobs (say 5-10 law schools worth) the howls of outrage would be remarkable.

      Delete
    2. But here is the beauty of my proposal: it limits the number of lawyers. Assume, for example, the University of Colorado saw its mission as serving the public good, rather than enriching its faculty.

      It might limit its incoming class to 100 lawyers -- enough positions to cover anticipated job openings, but not enough to saturate the market. With over 30,000 lawyers in Colorado, it is easy to see at least 100 of them retiring or otherwise leaving the practice of law.

      Those 100 law school slots are highly competative. Once they are filled, they are filled.

      The law school in this scenario does not make its money off of tuition. Instead, all of its money comes from the state. The state builds the building, and the law school faculty are public employees, just like police officers and the governor of the state.

      The 100 students who are admitted get free tuition, perhaps even a stipend to help with living expenses.

      Everyone else is SOL. They can go to a private law school, like the University of Denver, but they have to pay full freight. There are no public student loans -- i.e. no government guaranteed loans. Either the University of Denver has to lower tuition, or provide its own financing. After all if Friendly Sam the Used Car Man can finance the purchase of a Lemonmobile, the University of Denver can finance a law school education.

      Then to add insult to injury, the student loans are dis-chargeable in bankruptcy. Since public dollars are no longer on the line, there is no reason to keep them non-dis-chargeable.

      Those who cannot afford the high tuition can (1) try to get into the free public law school, (2) try to snooker someone into lending them the money for law school, or (3) find something worthwhile to do. But if they want that expensive law school education, as opposed to the free public one, it's on their own nickle.

      Ultimately this will cost far less than lending vast sums of money to people who are not able to repay it. After all, the government is able to provide a high school education for about $5,000 per year per student. And many high school teachers have better academic credentials than your typical law school professor.

      But we need to get over this notion that anyone who wants to go to law school should be allowed to go at the taxpayer expense. At the same time, offering a free public education keeps the profession from being the enclave of the wealthy.

      High Plains Lawyer

      Delete
    3. But wouldn't those schools become enclaves of the wealthy? Law school in general already is.

      Delete
    4. Agree. I think a large part of why we're in this mess is the total abandonment of admissions standards for law school and the subsequent proliferation of low-ranked "toilet" schools. Tighten up admissions standards and suddenly the glut of lawyers is going to go away. (Of course it will take a number of years for the glut to go away, but at least it's a start.) But I'm guessing a lot of the commenters here will scream that that is "elitist" and that the LSAT isn't a measure of anything. Too bad. We're in a crisis and we can't keep treating going to law school as a basic human right that everyone gets to exercise.

      Delete
    5. Standards have indeed fallen to the vanishing point. Someone recently reported a toilet of a law school in North Carolina that promised him admission if he got even 130—the second percentile—on the LSAT. No way in hell should the bottom 2% of LSAT-takers be admissible to law school.

      Élitism is a real problem, but it could be addressed through other means, such as by restricting the admission of trust-fund babies and other privileged people.

      Delete
    6. Actually, once you start talking about public law schools serving the public good, rather than the profit motive, admission to that law school becomes more than a matter of LSAT scores and GPA.

      For example, those who have served their country in the military should have a preference. Actually, this could work out quite well for the law schools, since many veterans may be eligible for programs like the new GI bill.

      If you don't want to put on the uniform to serve your country, there could be other options:

      Someone who works as a teacher in Appalachia, serves in the Peace Corp in Mali, or works as a community organizer in an inner city could be given a preference as well.

      This would serve to end the K through JD syndrome as prospective law students would find that they would have to get some life experience, preferably helping others, before they went to law school.

      It also solves the bankruptcy problem by expecting students to do public service before, rather than after, law school.
      It would also help install a sense of public service and community involvement. This is something sorely lacking in our profession.

      A few years ago I remember reading the Greedy Associates website and was shocked at the level of selfishness openly displayed there. I would not want to see any of my tax dollars being used to pay for the education of any of those lawyers.

      High Plains Lawyer

      Delete
    7. High Plains:

      I find that I am in violent agreement with you.

      I remember the GreedyAssociates website - hell I put some snarks up to the little creeps that populated it. I remember being utterly astonished at the amoral smug shittiness of its denizens and wondering what had happened that little creeps like this were not just getting admitted to the bar, but being hired by what I though were reputable firms. I remember that as a GC my opinion of those firms was colored by their associates postings.

      I also absolutely agree with your view that some life experience is desirable in a candidate-lawyer. Indeed it is one of my objections to law as an undergraduate degree - because I find BLs make poor lawyers (and in the UK and Ireland that experience is borne out - indeed a lot of top UK firms prefer to hire what the BLs mockingly call retreads (people who did a non-law undergraduate degree.))

      I absolutely loath Steven Brill because of his idea of law as a business - it is not. We have a real responsibility - we are in the hackneyed phrase "officers of the court" we are the civilizors of capitalism.

      Sorry if I am ranting.

      Delete
    8. I don't agree that enlisting in the US's army constitutes service to the country; it's just service to the imperialist state.

      Delete
  26. Off topic but:

    oh dear.

    Now the US law professors on prawfsblog are equating themselves with those persecuted by the Nazis or Solzenitzen - because lawyers and judges are observing that a huge proportion of what they write is meaningless, content free twaddle. Get a grip .... the average law professor is pulling down $150,000+ and the issue is whether he or she gets an extra $20-30k to write an article only their mother pretends to have read. That is not being persecuted. I had a law professor the Nazi slung into jail ... so I fid the very idea that Darryl Brown would compare himself or his colleagues to those put in Gulags or Nazi camps really very very offensive - and the effort to use that analogy a demonstration of utter moral bankruptcy.

    Good grief:

    To shift the context about as far as possible from that of present day U.S. law professors, the extreme cases are those in which authorities literally kill the scholars and other educated elites--Poland at the start of WWII, Cambodia under Pol Pot. In other cases, faculty are merely fired, or intimidated into joining or disavowing some ideological affiliation, etc. Eastern Europe experienced much of this in the postwar era; we had a lesser but noteworthy variant in the era of Red Scares. Democracies need among other things vibrant civil societies and independent intellectuals, as dictators recognized. Granted, these are references to officials with particularly extreme sensitivity to "scholarly impact." Still, this, too, suggests that the value of scholarship is more collective and amorphous than individual and measureable.

    http://prawfsblawg.blogs.com/prawfsblawg/2012/10/defending-scholarship-contd.html

    ReplyDelete
  27. I know this is off topic but Michigan's class stats are out. Here is the link:

    http://www.law.umich.edu/prospectivestudents/pages/classstatistics.aspx9

    They are down 15 people in class size ( but still admitted 24.5% of applicants - up from 21%) GPA median is down and 25%LSAT is down to 166 from 167. They held their median to 169 and 75% the same at 170.

    I have a dislike of Michigan because I think Dean Z is a self-important horror who is deluded about what is best for the applicants to her school. I like to see her sweat.

    ReplyDelete
  28. I remember reading on this site that Harvard law school tuition in 1971 would equate to about $12,000 in today's money. However, Harvard charges about $50,000 in tuition today...more than quadruple. The rest of the law schools have also inflated their tuition as well to the same or more or less extent. Now we all know why IBR has been created.

    ReplyDelete
    Replies
    1. My first husband was a law student @ Harvard 1966-69. Tuition was $8500 for at least the second year, which was exactly what I made when I took a job as a legal secretary to a couple of the professors there. I.e. my ENTIRE salary went back to Harvard.

      Delete
    2. You have to be joking, right? Please go away, you have no capacity to comprehend what is happening here.

      Delete
    3. Why should your reaction to the truth be "you must be joking"?

      Can't you appreciate the truth in how low Harvard's tuition was in 1967, vs. how great it is now? And also how little they paid their "staff"?

      What a bizarre response.

      Delete
  29. http://jdpainterguy.blogspot.com/2012/10/what-hell-else-can-i-say.html

    ReplyDelete
    Replies
    1. "http://jdpainterguy.blogspot.com/2012/10/what-hell-else-can-i-say.html"

      Do not go to the link, if you were actually thinking of it. I went there out of curiosity and he is posting the IP Addresses of people who view it for some strange reason. Apparently according to another post that he had, the authors of this blog have told him not to come here anymore.

      Delete
    2. Thank heaven that they've driven him off!

      Delete
    3. A sensible decision. Now we can get back to work.

      Delete
  30. So I figure I'd go and rent a movie so I go to the store and I forget the name of the movie, so I start explaining it the guy. I said "You know it's that black and white movie. It's that movie where the country loses the war because they accidentally made the submarines out of Styrofoam and they won't go under the water."

    The guy's just blankly looking at me, so that's when I remember that this isn't a movie I saw but a dream I had.

    Then the guy said to me "That's not a movie, that's a dream you had" and I asked him how he knew and he told me I was in last week trying to rent the same thing.


    And I said "Well, then, okay, but let me know when you get it in".

    ReplyDelete
  31. "Someone who works as a teacher in Appalachia, serves in the Peace Corp in Mali, or works as a community organizer in an inner city could be given a preference as well."

    sounds like elitism on your part. what makes a peace corp volunteer more worthy than an engineer or cpa who provides value to their employees/clients and at the same time pays taxes to support the peace corp volunteer.

    ReplyDelete
    Replies
    1. In addition, those avenues aren't open to all of us. They certainly weren't open to me when I graduated with non-deferrable student loans. Both the Peace Corps (note spelling) and those teaching jobs require a bachelor's degree.

      Delete
    2. Teach for America gets a definite admission boost.

      Delete
    3. It's not elitism as much as it is reality. The truth of the matter is there is only a limited amount of legal work our society needs. In fact, a common complaint about American society is we already are too litigious. Adding more lawyers is just like pouring gasoline on a fire.

      I actually think too many lawyers is a bad thing because idle lawyers tend to stir up trouble and inexperienced lawyers who don't have "adult supervision" really don't have a clue about what they are doing. Not getting a job after law school is more than having problems repaying student loans; young lawyers need older experienced lawyers to "show them the ropes." They get this by working in a law firm where the older lawyers tell them how stupid they are.

      At some point there is going to be a culling. Either that will take place after graduation from law school when all of those surplus lawyers discover that there is no work for them, or it takes place before they even attend law school. But this culling is going to take place.

      The problem here is that we are letting people waste three years in law school and incur hundreds of thousands of dollars in debt before they discover there is no work for them.

      This is what lies at the heart of the "law school scam."

      High Plains Lawyer

      Delete
  32. "This would serve to end the K through JD syndrome as prospective law students would find that they would have to get some life experience, preferably helping others, before they went to law school."

    this helping others bs sounds like the chief judge of new york and his pro bono bs.

    ReplyDelete
    Replies
    1. Actually, it's what we do with doctors, nurses, physicians' assistants and other health care professionals. Healthcare professionals who works in certain rural or other disadvantaged areas get 75% of their student loans forgiven after three years. I believe that in some cases, if they stay for four years, they can have all of their student loans forgiven.

      I live in rural Colorado, and this is how healthcare is provided for many people in my community. We have a number of doctors who are here only for three years so they can get their student loan forgiveness.

      All of these doctors are paid a salary -- nothing like what they might make in Denver, but the loan forgiveness makes it attractive.

      What I am suggesting is somewhat different. I believe that higher education should be free, but that the number of people admitted to colleges should be limited.

      Then the question becomes, who should get those limited spots: those who are good at taking standardized tests like the LSAT? Grade grubbers who take easy classes? People who have served their country in the military?

      The people who do well on standardized tests and who excel at taking easy courses understandably believe that that should be the sole criteria for admission. But it really should not be if we are talking about a free education.

      High Plains Lawyer

      Delete
  33. Just wanted to say that I really liked High Plains Lawyer's point about whether law school should be a private or public good. It's a discussion that merits quite a bit more discussion. After spending $100,000 on law school, working for free at unpaid public interest legal internships for a year and a half (another $45,000 I lost because I wasn't getting paid), and trying for quite some time to get a public interest legal job, I am finally turning to another profession - one where I can actually get paid.

    Interestingly, I had someone from Legal Aid ask if I wanted to do volunteer work there. This is the same organization who turned me down for 3 paid positions to date - 2 of which were legal secretary/legal assistant positions which required a foreign language that I spoke. I guess I am supposed to pay $100,000 and work for free for years so that low-income populations who make more money than I do can get free legal services while I have to pay for everything I purchase.

    I told the person from Legal Aid that 'hell no' I wasn't going to give what I paid $100,000 to learn for free. I also told them that if my legal skills weren't even worth getting paid as a legal secretary there, then they had a lot of nerve asking me to go into courtrooms on behalf of clients, since obviously they thought so little of me that they didn't think I was worth a $7.50 an hour legal assistant position.

    If our society wants low-income populations to have access to our legal system, it's high time they learned that THEY have to finance it, instead of charging $100,000 to the poor blokes who go to law school today and then expect them to work for free for years on end to accomplish this mission. There is only so many years that we idiotic law grads can work for free before pretty soon, it becomes financially unfeasible to do so. For all those even considering law school today, I say, "run, run, run for the hills." All law school today will do is leave you with massive debt and no job possibilities. You deserve much better.

    ReplyDelete
    Replies
    1. Sounds familiar. We won't hire you, but please come and work for nothing.

      Delete
    2. Decades ago we had a program in rural Colorado called the Lend-a-Lawyer program which was run by Rural Legal Services. The idea was big firms would "lend a lawyer" to serve indigent clients in rural Colorado, while remaining on salary to the FIRM.

      Of course, it did not work out that way. Instead, surplus lawyers who were unable to find work (mind you, this was the early 1990s) would find their way out to rural Colorado where they would work for free for a year, and then go their merry way.

      The program was a money maker for Rural Legal Services. The Lend a Lawyers would take Court appointed cases which at the time paid about $40.00 per hour. Rural Legal Services took this money to cover the its costs, while the lend-a-lawyers starved.

      Most of the kids in this program left after their "commitment" was over, but over the years about six stuck around for a while. Today, three of those lawyers are still in town.

      Quite frankly, those kids would have been better off if they moved to town, or even lived in Denver, taken those same court appointed cases, and kept the money for themselves. In the end, the program was all about exploiting people who had been unable to find paying work.

      High Plains Lawyer

      Delete
  34. A question for LawProf or DJM or anyone. The Feds somewhere report the payment status of their student loan portfolio. How are the borrowers on IBR listed? Are they listed as current on their loan payments, in default. paying but in arrears or some sort of hybrid category? I presume that someone knows what the rate of outright default is. Does anyone know the rate of loans that are not being paid on their original terms? And the number on deferral or some sort of reduced payment arrangement? Is this broken out for loans to law school graduates? William Ockham

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  35. DJM, I love your posts. Why? I can't quite put my finger on it, but your thinking represents the nexus of the future of political thought. That's about as much description as I can put on it, but you think of economics in terms of social value, and in injecting social value into financial and accounting questions, you invariably make them political. And you are seeing the effect of this kind of thought on politics already, mostly on the right...

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  36. One question about IBR is if it can be currently relied on or will be revoked? And can it be revoked for someone on it or just for new people? Since there is a 25 year time frame to it (which is over 6 Presidential terms), I think that these are good areas to look at. The question is when people take about bankruptcy for Student Loans, do they mean Chapter 7 or Chapter 13? Each one handles bankruptcy in different ways.

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  37. To LawProf: What was the tuition at Harvard law school in 1971?

    ReplyDelete
    Replies
    1. http://lmgtfy.com/?q=what+was+the+tuition+at+harvard+law+in+1971%3F

      Delete
  38. "There is only so many years that we idiotic law grads can work for free before pretty soon, it becomes financially unfeasible to do so."

    And once you finally come to that realization, there are thousands of other debt-indentured lemmings right behind you who will be willing to work for free.

    ReplyDelete
    Replies
    1. "There is only so many years that we idiotic law grads can work for free before pretty soon, it becomes financially unfeasible to do so."

      Is that even feasible for 1 year, let alone several?

      Delete
  39. In the aviation industry there was an epic sleaze commuter airline that charged its copilots to fly for them. Like tens of thousands of dollars. The idea being the copilots would get experience and then move on to an actual paying gig.

    Thankfully that organization has gone bankrupt, but maybe the concept is coming next to law firms?

    That will be a sure sign of 'jumping the shark' in legaldom.

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  40. High Plains drifter,

    unlike some of you who may have gone to law school with some dream of helping the unfortunate, i went to law school with the sole intent of making money. it was a business decision that worked out pretty well for me dispite being laid off in a down sizing and spending the next couple of years under after. i have since done very well again.

    should i have not been allowed to enter law school becuase i never had any aspirations to join the peace corps or help ingigent folks? i had a very succesful engineering carreer before law school.

    I helped the companies i engineered for make money by designing products sold in commerce. In my law carreer, i have helped my corporate clients make money. the companies i have worked for/helped have emplopyeed thousands of people and paid lots of dollars in taxes as i have too.

    should i be penalized because i was to busy working and helping my employees while paying significant taxes compared to someone who goes to the peace corps. that's bs.

    but yes, there are too many people going to law school right now. most of the people going have no business going. get the government out of the student loan business and you will see a tremendous benefit. problem is too many people want the govt to be their savior, and that is just never the case.



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  41. I didn't feel like logging in:

    Here's Denninger's recent post on consumer debt:

    http://market-ticker.org/akcs-www?post=212436

    ReplyDelete
  42. To William Ockham (@ 10/7, 2:33 PM): Here's the crazy thing. They (the feds) have, or at least claim to have, no idea.

    They may have some #s on Stafford IBR, etc., but those are not counted as delinquent. Also, when it comes to PLUS, the main driver in legal ed costs, they have no clue.

    Below is from a recent report on Parent PLUS loans by the Chronicle and ProPublica. Unfortunately, it appears the same applies to Grad PLUS. +

    http://chronicle.com/article/The-Parent-Plus-Trap/134844

    The U.S. Department of Education doesn’t know how many parents have defaulted on the loans. It doesn’t analyze or publish default rates for the PLUS program with the same detail that it does for other federal education loans.

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  43. My student loans were originally 45,000. By the time I started on the Ibr interest brought them to about 100,000, in just 3 years, interest has brought them to about 125,000! What will happen if im on this for 21 more years? My 45,000 loan will have gone to a million! How will I pay taxes on that when Im 65?!?!

    ReplyDelete
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