Tuesday, August 16, 2011

Getting law school costs under control

Any discussion of the explosion of the cost of legal education has to grapple with the fact that law schools face various regulatory barriers to change, as well as serious collective action problems. The latter are mostly products of the invidious effect of the law school rankings.  Perhaps the most absurd feature of the U.S. News & World Report rankings is that expenditure per student is used as a proxy for educational quality. This of course is a powerful incentive for law schools to go on unrestrained spending sprees, which they have proceeded to do.

Law school deans routinely shake tuition hikes out of their universities' central administrations by arguing that, given the way the rankings are structured, not raising tuition will make it difficult to spend as much money as the school's competitors, which will then hurt the school's ranking. When you think about it this makes about as much sense as not raising a car's price because failing to do so will hurt sales.  (In economics a commodity that behaves in this way is known as a Veblen good, and apparently some luxury goods that confer status precisely because they are high-priced do produce this kind of at least partially inverted demand curve).

A realistic discussion of what any particular law school should do to get costs under control must recognize the collective action problem the current perverse incentive structure creates.  It also must recognize that the present  ABA accreditation standards limit what ABA-accredited schools can do (For example the standards strongly encourage a student to full-time faculty member ratio of no more than 20 to 1, and forbid a ratio of higher than 30 to 1. For the purposes of this calculation non-tenured full time faculty count as .7 of a faculty member, and adjuncts count as .2.  This of course severely limits the number of adjuncts law schools can use).

Discussions of reform can therefore be divided usefully into short-term and long-term proposals. Short-term proposals are based on what's permitted and encouraged under the existing ABA rules and USNWR rankings.  Long-term proposals can look to changing those rules and de-emphasizing or, ideally, eliminating the rankings.

What can law schools do under the present circumstances to stop costs from continuing to spiral out of control?  This may seem too basic to even mention, but having sat through well north of 100 law school faculty meetings over the years, I can assure you it needs to be said, over and over again:  It makes no sense to talk about the benefits of doing something without talking about the costs of doing it as well.  Incredibly enough, in my experience, fundamental issues as "should we increase the size of the tenure-track faculty?" are discussed in such meetings with literally no consideration for the costs of doing so.  Faculty will have tremendous battles over which person to hire for this or that tenure-track "slot," but even raising the question of whether that slot should be filled at all is considered close to incomprehensible (believe me, I've tried). The attitude is, what do you mean should we fill this slot? We have a slot! We've been authorized to spend this money! Don't you understand that if we don't spend this money the university will just take away our slot? And we desperately desperately need a tenured person to teach a class in [fill in your favorite arcane sub-field]!   Do you realize that class has been taught by an adjunct for three years now?  (Another thing that will get you identified as an obviously crazy person is if at this point you ask if the adjunct is doing a good job).

All of this is a function of the fact that law school faculty often know little or nothing about their school's budgetary process.  At my school, we recently had a meeting to discuss budgetary matters in general and rising tuition in particular (the first such meeting that had ever taken place during my tenure there), and it could not have been clearer that several senior members of the faculty were completely unaware of what our tuition was. (You could tell because of the shock they exhibited when this highly classified piece of information was revealed to them).  Another thing that was clear was that no one on the faculty (other than the dean, and a couple of non-faculty administrators) had the slightest clue what the school's ratio of revenue to expenditures was, let alone where the money was coming from and where it was going.

This not what you would call an atmosphere that lends itself to rational cost-benefit calculations.  For many law school faculties, step one in regard to getting costs under control could not be more basic.  Faculties need to educate themselves regarding how much all these fancy new toys they want to buy cost, and then have a serious discussion about whether they're worth buying under the present circumstances.

I wish I had a dollar for every time I've heard the word "quality" invoked to short-circuit any potential discussion of these matters.  It's as if arguing that spending X will improve the quality of legal education at Our Great School is sufficient justification for anything: for building a $100 million new building, for increasing the size of the tenure track faculty by a third, for opening up three new clinics, for lighter teaching loads, more research leaves, more people in the placement office to help students not get jobs -- indeed for everything in the world you could possibly imagine.

If I were the king of the forest, I would require any faculty decision involving the potential for significant expenditure to consider explicitly the per student cost of that expenditure.  Is it worth charging every student $700 more per year in perpetuity to do X? Why? What are they going to get out of it that makes it a good idea to force them to reach into their pockets to pay for (or more realistically to debt finance) this? Because it will improve the quality of their legal education? Wrong answer! Please be specific and cite examples.

We wouldn't let our students get away with answer like that. Would we?


  1. Is that it?Make professors ask how much a particular expenditure costs students before they vote to make the expenditure?

  2. Let's just get the Government out of the student loan industry. When students are no longer able to borrow to pay for the outrageous cost of legal education, then law schools and higher education in general will be forced to provide a valuable service.

    As long as there is an unlimited supply of credit available funded by taxpayers, tuition and fees will continue to increase because higher education has no incentive to cut costs.

  3. Why would you not link to the scamblogs in the sidebar?

  4. Why should he have to do that?

  5. I've mentioned this before on other blogs, but the gist of my solution is to have Congress impose a cap on tuition increases such that if the increase exceeds a certain percentage, e.g., 3%, then the students of the school will not be eligible for government loans. Congress, using its power to condition grants of money, is essentially able to reduce tuitions over time INDIRECTLY by imposing the restriction on the students - since they are the ones that are ultimately taking out the loans. If the school does not comply, well they can look forward to bankruptcy. That is all that needs to be done. It won't help the people who have long since graduated, but it will tend to normalize the absolute insanity in tuition increases going forward. Will this, or similar idea be implemented? Nope. Congress has too much to gain by converting the sheeple into debt slaves for life.

  6. So yeah, there's any number of congressional solutions to the problem, but if a premise to your fix is "congress will enact bi-partisan, sensible legislation," I think can stick a pin in that and move on.

    On the other hand, having active ABA members petitioning to change the accreditation standards, that might do something. Why should being tenure-track matter so long as you're teaching a full load? Bumping those positions from 0.7 to 1.0 would encourage schools to focus more on clinics and other practice oriented classes (though I know you have some bad things to say about clinics).

    Adjuncts only count as .2? I know they tend to teach fewer classes than full time profs, but .2 looks like they're teaching only 1.8 hours a year (if compared to tenure track profs), or 3.5 a year (if compared to non-tenure track). We can't we just pro-rate it based on the actual classes they're teaching? If you teach one 3 credit class each semester, you should count a .67 or .47. This would encourage schools to hire more adjuncts, who tend to be bring in more practical knowledge, and -big surprise- cost a whole lot less per credit taught.

    At the end of the day though, the ABA wields a lot of power, and the back door is wide open. It's the best practical route.

  7. Brian Leiter has used his blog to accuse you of not meeting your duty to publish. Well, after reading this post, let me respond to Mr. Leiter by saying that what you have done in this blog so far is more important than his cumulative works regarding philosophy and law. Congratulations for leaving academic la la land and actually applying your intelligence and abilities to something that matters in the real world.

  8. Why would you not link to the scamblogs in the sidebar?

    Can you please stop spamming this comment? I read this blog and there's no need to link your scamblog here.

  9. For example the standards strongly encourage a student to full-time faculty member ratio of no more than 20 to 1, and forbid a ratio of higher than 30 to 1. For the purposes of this calculation non-tenured full time faculty count as .7 of a faculty member, and adjuncts count as .2.

    Wow that's weird. What the hell is wrong with the ABA and their bizarre math?

  10. I don't have a scamblog. Fuck off.

  11. Just as a few other commenters have stated - all you need to do is reform federal student loans (use a formula that ties the yearly max to a low % of the avg american salary or only allow loans to schools with low tuition or a hundred other ways) and all of a sudden the need to remind other faculty of the costs of running an extra program will disappear along with the unnecessary jobs. Like magic.

    Right now we have the worst of socialism and the worst of capitalism brought together to wreak havoc on the ones just started out in life.

  12. Students don't have any trouble getting private loans on top of their federal loans. It's not that hard to get a loan for house with nothing but a $500 down payment and a second interview as your best lead on income. Credit card companies are all over college campuses trying to loan money to people they know are unemployed and won't have income for years.

    Getting federal money out of student loans isn't going to stop banks from loaning money to law students.

  13. What about in addition to conditioning federal loan money, removing private education loans from bankruptcy protection. This will additionally cause loan company's to share in the burden of doing due diligence and investing in students who have a reasonable chance of repaying the loans or offer loans with astronomical interest rates where the student will have to second guess their decision.

  14. Make private loans dischargeable in bankruptcy. Put all students on IBR automatically, at least when it comes to the idea that unpaid balances are forgiven to the student after 25 years, and put the schools on the hook to reimburse the taxpayer dollar-for-dollar for the unpaid balance.

  15. Bl1y that is one of the most ignorant and idiotic statements ive ever read on the net. At best ill assume you think private student loan means the same thing as private loan. It doesn't. The former is given by banks because it is federally guaranteed and not dischargeable in bkr. The latter is not given to 21 year old college grads. Period. It is laughable to think some 21 year old would be allowed to put law school on something equivalent to a credit card loan. If 21 year olds had access to that kind of credit they wouldnt use it for ls.

    Sent from my droid.

  16. This whole debate is moot because it woulr take decades of discipline to restore tuitions to 1980 levels (inflation adjusted). And law schools habe no reason to be disciplined as long as there is easy student loan credit ( which is easy only because it is zero risk as far as the bank is concerned) and kids dumb enough to believe the 99% employed with 150k median salary lie.

    Sent from my droid.

  17. 838 your solution was debated in the 80s it was abandoned because if student loans were dischargeable banks wouldnt make them to poor families ( ie obama when he went to ls) and you can see the slope that takes us down.

    Sent from my droid

  18. I'm a recent (unemployed) JD grad. The BEST classes I took were trial ad, advanced trial ad, and general practice. They were the most useful, small section and because an ADJUNCT taught them they were rewarding. Rewarding because all 3 of these guys have actually been and are REAL lawyers. The rest of law school was a total BS waste of $. The rest of my professors didn't give a crap about anyone not in the top 5%, because they were, after all, the top 5% of their law school classes. It amazes me the trash that teaches at my alma mater--narcissistic intellectuals who have never set foot in a real courtroom and know NOTHING about real world lawyering. I'll go to a school FILLED with ONLY adjuncts any day over one filled with tenured professors teaching garbage like "animal rights," "women and the law," "origins of hispanic law," "liberalism and the law," "sports law" etc, etc...

  19. 8:59,

    Fine; but student loans should not be issued to every eligible human being. They should be restricted based on potential. To attend law school, for instance, student loans should only be offered to those with GPAs greater than 3.5 and LSATs greater than 160.

    I think it's great to give opportunities to the needy that have demonstrated hard work and future potential. The current system, however, only encourages higher education to to charge as much as possible and to enroll as many students as possible.

  20. 8:59:

    Good try, asshole. Bush changed the law for private lending in 2005, not the 1980's.

  21. No student loan dischargeability was a 1980s issue.

  22. Bankruptcy Abuse and Consumer Protection Act (2005):


    One thing I really gotta say is that, despite the fact that I don't trust LawProf, no one can fault him for not brining the academics to the table; the percentage of comments left on these scamblogs by sanctimonious c***s is way, way up.

  23. I'm unable to find the law school loan default rate, but the rate across all programs is 6.9%, and that's higher than usual due to the recession. In 2009, the rate was only 4.6%.

    I don't know what an acceptable default rate is for banks, but considering loans tend to have a 50-100% profit margin, even a 6.9% default rate isn't that bad. Even without federal guarantees, lenders will probably still give law school loans, simply because it's profitable for them.

    The expense of law school isn't a problem because so many students are unable to pay their loans. The vast majority do pay them (and some of them unable to pay have guarantors, so the bank still gets its money). Even in 2010, the median salary for a law school grad was over $45,000, even after discounting all of the big law jobs.

    The problem with the expense of law school is that while you can pay your loans on a $45k salary, your life is going to royally suck for the next 10-20 years, as the bank eats $10k a year of your post tax income. You're unable to take out a mortgage, go on vacation, buy a new car, and can't start a family if you want to be responsible about it. But, you do still pay your loans, and that's all the bank cares about when lending.

  24. ^That 6.9% or so default rate is for only the first year or so after repayment was due, not the entire life of the loan.


  25. ^That's totally true.

    "Government Vastly Undercounts Defaults"



    I agree with many earlier posts: NO MORE Government-sponsored student loans for everyone.

  26. That link shows a 20% default rate over a period of 15 years. Since loans don't tend to go much beyond 20 years, and if you haven't defaulted by 15, you're not likely to default at all, I think we can assume 20% is pretty close to the final default rate.

    From a lender's point of view, let's say I'm making 10 loans for $100,000. I expect over the life of the loan, to collect, on average $60,000 in interest for loans paid back in full. So, for my $1,000,000 I'm putting up, the 8 paid in full get me back $800,000 in principal, and another $480,000 in interest. My $1M investment has netted a profit of $280,000. 28% over 15-20 years? Not bad. But, we also get money from the people who defaulted. If you default in Year 1, I'm getting back squat. But, if you default in Year 10, you've paid back a significant portion of your loan before defaulting. If over that time you've paid back $50,000 in combined interest and principal, now I've banked a $330k profit, and got a 33% return on my investment. That's some serious cheddar.

    Banks will continue to give loans for law students because it is highly profitable, with or without the government. The problem for law grads is that it sucks to pay $10k a year when you're earning $40k. To the bank though, their returns are no less just because it hurts you more to pay.

    Eliminating the government from the picture won't stop many people from getting loans. What it will do is increase your interest rates and make law school even more expensive.

  27. "Banks will continue to give loans for law students because it is highly profitable"

    NO; it is because these student loans are non-dischargeable and backed the Gov.

    The Gov should be out of the student loan industry, and the these loans should be like all others: private and eligible for modification during bankruptcy.

    "Eliminating the government from the picture won't stop many people from getting loans."

    Perhaps, but it will stop the funding for people that want to attend Cooley et al. What loan officer would approve a 150K loan to attend a TTT?

  28. A considered discussion regarding how to wean the legal profession off of their journalistic dependence would be welcome. The legal industry is hurting right now from the LSAT taker to most senior partners and baffling thing to me is that these wounds are self-inflicted, and yet we can't seem to be able to help ourselves. This is often described as a collective action problem with law firms making bad decisions to game the Vault and AmLaw rankings, and law schools making bad decisions to game the USNWR rankings.

    To try to identify the core problem, I think that it is valuable to look to who makes the most use of the rankings, namely law firms. Many in firm management, believe that these rankings will build credibility with clients and prospective hires and support otherwise unsubstantiated claims of greatness. The de-equitization of partners and hiring decisions dependent on school rankings reflect efforts to manipulate or utilize rankings crafted by journalists. I find it amazing that an industry selling professional services is so willing to give so much power to outsiders who often lack even a basic understanding of the nature of the services rendered.

    Law schools likewise play into this problem, but I suspect their core motivation is to help their graduates find employment. Administrations are under great pressure both internally and externally to game the rankings to boost employment numbers and increase alumni support. I will admit that even a decade after earning my JD, I care about my school's ranking because it directly affects my ability to find work due to broad over-reliance on these rankings. When my school hired a new dean one of my principal hopes was that the new dean would game the system more effectively than the former dean. I am part of the problem despite the fact that I know it is a problem.

    So, what are the options for finding a way out of this feedback loop? We all know that academics have been griping about the rankings since they began, but as this blog points out, no one listens to legal scholars, so bitching alone won't work. Cooley took it upon itself to introduce a new ranking system with comical results. That said, creating additional rankings may be able to reduce the potency of the USNWR rankings through dilution.

    If I am correct and this is driven by firms believing that these rankings matter to clients, a dose of reality may be helpful; clients don't give a crap about rankings. Ranking

  29. Is it right to assume that default rates would remain the same if the debts became dischargeable? I think we might see an increase. I suppose that would depend on the debt-to-income threshold set by the bankruptcy statute. I think if the same people who qualify today for IBR would qualify for bankruptcy, many would probably take it, whereas today they are able to pay and not default.

  30. I think bankruptcy protection is not a practical solution because it requires the help of Congress.

    I think the best silver-bullet type solution therefore would be very strict regulation of employment and salary statistics with independent auditing. If we could somehow force the schools to come clean about each and every 40K job, each and every temp doc reviewer and starbucks barista, then everything else would fall into place behind it.

  31. "That link shows a 20% default rate over a period of 15 years."

    Because they cannot be discharged and default risks criminal punishment.

    "who makes the most use of the rankings, namely law firms."

    Harvard, Yale, etc make the most out of it. There are clearly some who stand to lose a lot if the rankings go by the wayside.

    And let's forget all of the profs who bemoan rankings, but love to cite how often their paper was downloaded by ssrn. The whole culture of law schools is about ranking (what else explains multiple submissions?)

  32. 4:45 you're an idiot. The wikipedia article you linked says:

    "BAPCPA amended § 523(a)(8) to broaden the types of educational ("student") loans that cannot be discharged in bankruptcy absent proof of “undue hardship.” The nature of the lender is no longer relevant. Thus, even loans from “for-profit” or “non-governmental” entities are not dischargeable."

    That is a minor change. Not that wikipedia is a source any way, but student loans haven't been dischargeable since the 1980s.

  33. BL1Y wrote: I'm unable to find the law school loan default rate, but the rate across all programs is 6.9%, and that's higher than usual due to the recession. In 2009, the rate was only 4.6%.


    You're really irresponsible with your comments because you don't know what you are talking about. Default is a legal term of art and its definition is not limited to some narrow DOE definition. In finance, when a borrower has to restructure their repayment terms on account of lack of income (i.e. what students do when they defer or go on IBR) that is absolutely a default. But it's not under the DOE rules.

  34. BL1Y wrote: "Banks will continue to give loans for law students because it is highly profitable, with or without the government."


    BL1Y you are one of the most ignorant mental masturbatory fools I have ever encountered. You would make a great law professor but your mental masturbation has nothing to do with what goes on in the real world.

    Today people with solid established businesses, with a history of revenue and profit can't get unsecured loans (unsecured meaning no government guaranty, dischargeable in bankruptcy and not secured by an asset). You actually think some 21 year old kid could get a $200,000 loan to attend a low ranked law school?

    Are you out of your mind?

    Seriously BL1Y, your comments are obnoxiously ignorant and they cause people to waste time having to correct them.

  35. BL1Y,

    Please continue to leave comments. I don't think I agree with you about the likely outcome of a change in the bankruptcy rules, but I do appreciate what you've said here and think you make an important point. Part of the cruelty of the current situation is that law students are able to make just enough money to pay back the loans at the expense of everything else a middle class lifestyle is thought to entail, the very things they thought law school would be a means to provide. If there was mass default left and right, that might prompt somebody to do something to solve the problem. But because there isn't, because it is the students, and not the banks, taking the brunt of this, nobody has to be bothered to do anything.

  36. Sorry for getting angry, but I live in the real world of finance and I see businesses go under because they can't get loans, and when someone claim that a 21 year old could borrow $200,000 for law school without a government guaranty or bankruptcy protection I have to LMAO.

    This is fundamentally the problem with lawyers - they're too impressed with their own thoughts and THEY DO NOT EXPERIMENT by testing their hypothesis in the real world. They remind me of ancient greek philosophers who would proclaim rules of biology and physics - rules that later turned out to be laughably wrong - all because they were too impressed with themselves to actually test what they proposed.

    This issue is especially troublesome in the phenomenon of having a 23 year old 2L "peer review" the work of a professor. Seriously what the h*ll f*ck?!?! Other disciplines would laugh their a** off at that. If I want to submit my paper to a finance journal, I HAVE TO PAY MONEY to have one of their seasoned and educated staff peer review my paper and approve/disprove it. But re: law reviews all you have to do is convince some 23 year old that you're right.

    /rant off

  37. Sorry again. I just reread my comments and I was needlessly rude.

  38. P.S. It might be most correct to say that student loan dischargeability has evolved over time. In the 80s, you could get them discharged after five years. Then this was raised to seven years. Then in 1998 Bill Clinton passed a law saying you couldn't discharge them no matter how long you waited. Then in 2005 this was extended to completely private loans made for the purpose of tuition . . .

    Any way, if you want to pick one person to blame I would say Bill Clinton or perhaps the judge in Brunner, but I would say that GWB's change in 2005 was relatively minor in the scheme of things.

  39. If the government stops guaranteeing loans, banks will start asking your parents to stand in.

    And, if I can get a bank to give me $100,000 in loans at 2.75% interest with a government guarantee, then without the guarantee it's pretty likely I can get the loans, but just at a higher rate, maybe around 5-6%.

    It's not that hard to get a credit card with a limit of $10-20k. Not much more difficult to get a second or third card in that amount.

    Maybe a few people will get denied because they're too bad of credit risks (parents have terrible credit, no collateral, and you're applying to Cooley), but for the vast majority of people, getting the government out of the student loan business just means law school becomes thousands or tens of thousands of dollars more expensive as interest rates rise.

  40. And, if I can get a bank to give me $100,000 in loans at 2.75% interest with a government guarantee, then without the guarantee it's pretty likely I can get the loans, but just at a higher rate, maybe around 5-6%. . . . It's not that hard to get a credit card with a limit of $10-20k.


    I hope you mean with your working parents cosigning the loan, because if you think your average unemployed 21 year old can get a $20,000 credit card and/or $200,000 in completely unsecured (no govt. guarantee, dischargeable in bkr, no cosigner, no assets backing it) loans at 6% you are an unabashed idiot. You couldn't get that loan at 30% and the only credit cards you could get are starter ones with $500 to $1,000 credit limit. I've never seen so much mental masturbation by an ignoramous in my life.

  41. BL1Y. You are incorrect. Call a bank, and ask for an unsecured loan for 100K. They will laugh at you. I tried to roll over a friends defaulted student loan with just the type of loan you propose. the max unsecured loan, with sterling credit (800 credit score), was about 10,000 at 15-19% interest, and a max repayment of 5 years.

    As a note, the creditor accepted 51% of the debt as a settlement. A student lender accepting 51% on a loan that will follow you to the grave says a great deal about the state of the student loan market. I would buy credit default swaps. . . if I wasn't paying every penny to my student lenders.

  42. Wow really? You settled a student loan for 51%? Did you settle it with the originator or sallie mae? Can you please tell us more about how that process evolved and how someone can try to replicate it?! That would be a very helpful post for a lot of your readers.

  43. It was a private loan. Private lender turned it over to their insurer, who turned it over to a collections agency. collections agency offered 65%, I countered with 50%, offering the facts in a favorable light to my friend (no assets, no steady employment, no family money, ect.). Settled on 51%, cash. Friend is now making payments to a relative who loaned against their 401K. It isn't a rose garden, but I suppose it could be worse.

    Also, I stressed the fact that the Bankers and Professors who made money on the student loans are all in the Hamptons, while us slaves (both the person at the collections agency, my friend, and I) argue over the table scraps.

  44. @ 11:14: "Then in 2005 this was extended to completely private loans made for the purpose of tuition . . ."

    Yes. And that was the particular issue that the argument was about, so thank you for clearing that up for 10:38, who, it seems, is the target of his/her own idiocy in this case.

  45. The budget point is a great one. I'm in my 4th year of teaching (still paying off my $150k+ of loans too) and I made the mistake of asking about the budget. The deans (plural, we've got more administrators than we know what to do with) seemed pretty peeved that I had the balls to ask about the budget. I thought I was part of faculty governance, but it's apparently not my place to get involved in things that matter to my students.

  46. Be careful 9:09, you need a job too and you don't want to get fired.


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