Tuesday, May 22, 2012

Price sensitivity

"Our consumers are not very price sensitive." I've heard that sentiment repeatedly during the last year, as colleagues across the nation respond to criticisms of law school tuition. Some offer the comment apologetically, their tone suggesting that applicants' eagerness for legal education compels our prices. If students are going to put that much money on the table, doesn't someone have to take it?

Others are more pragmatic. They note that some schools will continue to raise tuition, so their institution must do the same to keep up in the U.S. News rankings. Money helps with so many of those ranking factors.

And some are a bit more aggressive. Legal education is valuable, they argue, and many lawyers earn high salaries. We in the academy shouldn't undervalue ourselves. What's more, as long as students flock to our schools, tuition prices must be reasonably aligned with value.

Whatever the tone, these sentiments are enough to turn me into an angry young man (although I have trouble with those last two characteristics). Let's consider what's wrong with the "price insensitivity" position.

First, although I support some aspects of the university-as-business model, our students are not one-time purchasers of iPads, running shoes, or microwaves. They are people who will spend three years working with us to earn a professional degree. At least in theory, we will share professional knowledge and values with them. And at the end of three years, we will welcome them as colleagues in the professional community of lawyers. Surely this is a different relationship than the one between a cashier and customer at BestBuy.

Second, markets properly set value only when those markets are free. DCM figured that out after reading a single economics text! The market for legal education is not free; it suffers from two massive distortions. Government-backed student loans allow law schools to increase prices with very little pushback. And law schools are gatekeepers to a gated profession. In most states, people who want to be lawyers must pay for three years of our tuition; that gives us tremendous market power.

I wonder, in fact, how much of the tuition collected by law schools represents monopoly rents from the guild restrictions of the legal profession itself. To practice law, individuals must surmount significant barriers to entry: They must complete a four-year college degree, score decently on the LSAT, attend (and pay for) law school, and pass the bar examination (which often entails paying still more tuition for a bar review course). Increasingly, these individuals must also take a series of low-paying or volunteer positions to obtain practical experience and establish their credibility as lawyers.

This is an expensive, time-consuming, intellectually challenging, and emotionally stressful path. And, as we know, it's also a risky one. Even many of the survivors will fail to find legal jobs. Yet there are still many people, for whatever reason, who want to be lawyers. For those people, law school represents the single largest--and by far most expensive--barrier to entry. Potential lawyers don't get to choose their pipers: They must dance to our tune at whatever price we charge.

How did we end up in such an economically powerful position? Legislatures have granted lawyers the exclusive right to practice law, and state supreme courts have given accredited law schools the exclusive right to train lawyers. Those rights are supposed to come with a responsibility: to act in the best interests of clients. We are all, whether we practice law or teach it in the classroom, supposed to be maintaining a legal system that benefits clients. That's the only justification we have for abandoning the rigors of free market competition.

That's why I get so irritated by references to students' "price insensitivity." Law schools are triply shielded from the free market: first by rules that restrict law practice to licensed lawyers; second by bar admission regulations that require applicants to graduate from accredited law schools; and third by self-designed accreditation standards. When we take advantage of these restrictions to escalate tuition far beyond inflation, we're not just stifling our graduates with debt; we're abandoning our professional responsibilities.

If you have a fetish for footnotes, DCM and I published a more academic version of these ideas last year.

DCM comments: Some of you are probably saying, "What? Restricted profession? Too many barriers to entry? The problem is too many lawyers and too few jobs!" You're right, and I've made sure DJM gets that (lots of my good friends are just-graduating law students). But coming shortly - more on how the guild system hurts new lawyers, and is at the center of the "law school scam."


66 comments:

  1. Two things: first, anyone seriously interested in legal education and barriers to entry should read Gleason Archer's The Educational Octopus; a full copy is available here: http://books.google.com/books?id=wBIwAAAAYAAJ&printsec=frontcover#v=onepage&q&f=false. It's inspiring to be reminded that big, institutional barriers can be overcome.

    Second, JD Painter, this one's for you: http://taxprof.typepad.com/taxprof_blog/2012/05/bankruptcy-court-.html

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  2. DJM

    My observation is that current law students and 0L's are in fact not price sensitive. That is to say that even a 15% and 10% tuition hike when I was in law school 20 years ago was created with equanimity and a good natured queue at the financial aid office. The reality is that a more typical 5-6% tuition hike is maybe $2,000-$3,000 in the context of a total law school debt that will likely be over $100,000 - and a cost of attendance total of say $250,000 each tuition increase is pretty marginal.

    However, it brings to mind the analogy of boiling the frog. When I went to law school I think my 1L tuition was about $12,000 - my last year around $17,000 after a 15% and 10% hike (Judy Areen managed to spend $14,400 on flowers to decorate the school for a national conference of law school deans - a whole year's tuition!!) Today GULC is closing on $50,000. The contrast I regularly reflect on was a hike of about $200 or so when I was in college in Europe - there were sit ins and near riots, but then there were no student loans and $200 was nearly what a poorer student lived on for a month.

    This is what I regard as pernicious about the student loan system - it makes existing students relatively indifferent to tuition hikes - it renders college and graduate school tuition inelastic as far as currently enrolled students are concerned. Only this students though are likely to protest in ways that would grab the college and graduate schools' attention - or loudly drop out over a tuition hike.

    With student loans the US has embraced a messy hybrid between public financing and private schools - guaranteeing the money colleges and law schools get, but eschewing the controls usually associated with public financing. The US has managed to grab the worst aspects of a state funded system and of a private system - not the best of each.

    MacK

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  3. So, basically, they've extended the logic of date rape to law school admissions. Nicely done, DJM-colleagues.

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  4. 8:01's comment is inappropriate and should be removed.

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  5. How maddening that supposedly smart people take refuge behind such easily refuted arguments.

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  6. Ending the "guild" system is very far afield from any reform that is likely to come about anytime soon. Maybe a few more piece-meal carve-outs like letting someone with a lesser certification draft simple wills or mediate simple divorces the way you don't have to have a law license to practice in some special administrative courts.

    Also, in California where at least one of the key restrictions on admission to the practice—the self-enforced accreditation you mention—do not exist, the "law school scam" is even worse. Unaccredited law schools are still producing lawyers, but their bar passage rates are so low (I think the very highest one is 28% for first time takers) it is a farce.

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  7. @8:05 a.m.:

    Tell me where my analogy fails, and I'll join you in asking for its removal.

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  8. Rick:

    "Maybe a few more piece-meal carve-outs like letting someone with a lesser certification draft simple wills or mediate simple divorces the way you don't have to have a law license to practice in some special administrative courts."

    We call these people paralegals, regardless of whether or not they have a license to practice law. In order to mediate divorces, one needs a license in NOTHING to do so. See it all the time in my state.

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  9. DJM,

    I"m really curious to know what the professors are saying about law school in general. I get the sense that a lot of them are in denial about the situation, and believe that the economy will rebound soon, and everything will be sunshine and rainbows again. But I've also heard that profs have private discussions where they acknowledge how bad the situation is.

    Can you shed some light on this?

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  10. http://boston.cbslocal.com/2012/05/21/report-law-school-should-be-more-like-medical-school/

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  11. "[O]ur students are not one-time purchasers of iPads, running shoes, or microwaves. They are people who will spend three years working with us to earn a professional degree. At least in theory, we will share professional knowledge and values with them. And at the end of three years, we will welcome them as colleagues in the professional community of lawyers. Surely this is a different relationship than the one between a cashier and customer at BestBuy."

    For $ome rea$on, the shills, cockroaches and ABA pigs forget to mention that this is a controlled market - and that the students are essentially "captured consumers" who must purchase their "product." Hell, the schools do not even teach students how to file motions, draft wills, or conduct depositions. If this were a "free market," then the schools who provided this level of practical education and skill - with the exception of the elite schools - could theoretically force the other commodes to change their model.

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  12. "Our consumers are not very price sensitive." I've heard that sentiment repeatedly during the last year, as colleagues across the nation respond to criticisms of law school tuition. Some offer the comment apologetically, their tone suggesting that applicants' eagerness for legal education compels our prices. If students are going to put that much money on the table, doesn't someone have to take it?


    ---------------

    What the fuck? Who said this?

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  13. That price + student loan debt will create a pain that lasts decades. Who can be insensitive to that?

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  14. Law schools were originally set up by the “guild” of lawyers for the stated purpose of making sure that lawyers were competent professionals and the unstated purpose of limiting entry into the profession to avoid “excess competition”. All the professions did similar things. What happened over time is that the law schools with the support of the major firms took over the process from the “everyday lawyers”. Instead of limiting the numbers of lawyers, the law schools are maximizing their own profits.

    The major driver, as is almost always the case, is the money. It is the unlimited flow of government guaranteed loans that fuels the system. Take away the student loan money and the law school system would disappear overnight.

    As pointed out, the law school market is price inelastic. If the student is borrowing all of the money and the government will increase its loans to cover tuition increases, there is no immediate effect on the student. He or she just borrows more. Sure, the total debt will increase but that is tomorrow’s problem in 3 or 4 years.

    My dad often said that it is easy to borrow money but hard to pay it back. We have a large group of naïve young people whom have probably never borrowed a large sum of money before. Also, when you start talking about hundred’s of thousand’s of dollars it has a certain unreal quality that I don’t think that many students understand.

    What irritates me is the buyer beware attitude that some folks have. Just because some people are naïve or even stupid does not give others the right to rob folks of their time and money.

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  15. Excellent post. Amen.

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  16. Want to impose market discipline? Take away fed-guaranteed student loans, and the racket falls apart. Law schools won't be able to charge outrageous tuition, and will have to bear some of the losses if their students default. Lenders will have to be much more careful, and so students will find it difficult to borrow more than they can realistically pay back.

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  17. There is an old joke about a science lab switching over from using mice to using lawyers as test subjects. The advantages were:

    1) More lawyers then mice.
    2) Lab assistants not upset when lawyer dies.
    3) Lawyers will do anything for money.

    Practically speaking, since the law school scam is perhaps the most egregious example of where the university scam meets the Bennett hypothesis II, it would make a lot of sense for the government to beta test its approach on law schools with an eye towards later reforming the entire educational system. The government simply needs to:

    1) Limit federally guaranteed law school loans to students attending law schools who agree to only raise their tuition rates at the same rate as inflation as determined by the CPI.

    2) Only provide such loans to the number of law students that the Bureau of Labor Statistics predicts will be able to find work in three years. Since there will be an additional number of students who come from rich families who will be able to pay full boat under this scheme there will still be a surplus of lawyers, but a much smaller one. Those who receive federal funding could be decided on the basis of an index combining LSAT scores, undergraduate GPA, and difficulty of Major.

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  18. Finally under this approach, the government could take a small portion of the money it saves from IBR/defaults, and give it to funding legal aid, which will actually help the poor, while providing a few hundred more jobs for socially useful lawyering.

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  19. The K-College kids don't know the meaning of 100K of debt, they never worked a day in their lives.

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  20. "The market for legal education is not free; it suffers from two massive distortions. Government-backed student loans allow law schools to increase prices with very little pushback. And law schools are gatekeepers to a gated profession. In most states, people who want to be lawyers must pay for three years of our tuition; that gives us tremendous market power."

    You might want to pass this along to Mr. Campos, who seems to blame the cost of legal education on an excess of devotion to Milton Friedman.

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  21. This comment has been removed by the author.

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  22. At least the message of the relationship between student loans and rising costs(and in whose pockets those monies end up) are starting to filter through the law school pop. Its refreshing to be able to advocate for reform/ cutting the program without be labeled a social darwinist at best, spawn of satan and George W. more likely. You can ignore economics, but economics will not ignore you.
    DJM- what's your take on the most likely end game if current trends continue for much longer? Do you ever worry about your own job/ income?Im going to Chipotle on 5th Ave. in Grandview, want anything?

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  23. First, take away the federal guarantee of Grad-Plus student loans. Second, allow all private student debt to be dischargeable in bankruptcy after 10 years from origination. Third, for all federal Stafford loans, maintain limits on the amount lent and make the educational institution a surety or guarantor for 15% of the loan amount to the federal government.

    This would immediately solve multiple problems. The only ones to be hurt by it: the schools. And so what?

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  24. Thanks to political stasis any common sense legislative solution is not viable. Both parties are locked in a battle royale over big empty words like freedom, socialism, fairness, etc. Each side afraid to cooperate on anything economic for fear of handing a victory to the opponent. Said opponent would then be free to legislate social policy and we would have either lock up all gays and illegals/ or mandatory population controls and sex ed for 3rd graders. Instead it will continue to expand until it collapses under it own weight, leaving behind a bit of a mess. But your solution would be a starting point for a "mourning" after discussion, so I commend you.

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  25. @7:53AM

    Thanks.

    I am thinking of Tom Stark, the son of the Character Willie Stark, from Robert Penn Warren's Novel: All The King's Men.

    Tom was a State College Football hero and in one of the most moving portions of the novel, had his neck broken in a game. A paralyzing injury from the neck down.

    Strange as it sounds, and as I was reading the novel, I wondered if the broken neck injury would have gotten Tom out of Student Loan Debt, had the novel been written later, and if Tom were not the son of a Governor

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  26. @JDPG:

    The broken neck might still get you out of student loan debt, depending on the level of your injury, and a doctor's certification to the Department of Education... this stuff is what I do for a living...

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  27. Please do not break your neck, JD Painter!

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  28. I have repeatedly said that if I was trying to deal with the University cost system in the US I would not have started from here. That is to say that it is easy to condemn the current student loan system and decry its pernicious impact - or to call for more direct public funding of higher education, but changing it is not so straightforward.

    First, the US higher education system is completely dependent on the student loan system - removing the problems run the risk of collapsing the entire edifice. Thus, for example the non-dischargeability of student loans and the absence of underwriting standards for loan guarantees are a huge part of the problem - but if you end these policies 'wham-bam' overnight a lot of the loans will disappear - but what will happen to current students and those just about to go to college - will higher education costs contract overnight - can deflation happen instantly? Similarly how will you get US taxpayers to embrace more state tax revenues to pay for state colleges? This may be something that you can slowly push as a policy, but in the current political environment in the US?

    I can describe all the things I think have created the current crisis, but I cannot see an easy way to fix the problem. There are things I think you could do - phasing in some sort of underwriting standards for student loans taking account in part BLS projections on likely demand for graduates in certain subjects - but this would mean that student loans would follow majors and that whole college departments might close. Imagine the screams of outrage from academia...Imagine the kids saying that they are now missing their chance at debt for intellectual fulfilment. And would the BLS get its predictions right?

    Public funding is not a panacea - you can see this when you look at college systems in many European countries where there are many students studying subjects that are not in demand - and where there is a huge class system between colleges - such as the Russell Group in the UK - and the rest, or the Grandes Ecoles in France and the rest of the Universities.

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  29. Don't worry, I try to be as safe as I can, and everytime I climb an extension ladder over 20 ft. I say a Hail Mary.

    And I keep a Plastic Jesus on my dashboard:

    http://www.youtube.com/watch?v=dG9tuuznL1Y

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  30. Can deflation happen overnight? Helpfully the law school situation could prove a trial run on said Q. If we see massive tuition discounting going into next year in order to maintain enrollement levels, we'll see how fast real(as opposed to sticker) prices can fall. Anyone contemplating law school today (especially traditional students) would have all the incentive in the world to postpone it at least year (forever?). Why pay more if its gonna be cheaper in a year? Schools will cut class size first(Hastings) bf price, but that won't work. These are growth companies that need revenue, therefore volume, therefore lower prices will be required. Ask a gas station or car dealership, once a price war starts it don't stop. Wouldn't wanna be the associate vice dean for community outreach and provost affairs blah blah blah when that happens.

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  31. Thanks for the link, JD Painter -- that one always hits me hard. I'll know that things have gotten real bad for you when I see you out cutting the heads off parking meters....

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  32. @ MacK

    I agree that wholesale changes to reforming the law school bubble and higher ed bubble more generally won't happen.

    But you could make small incremental changes that starts the process. If I had to pick one, I'd say make schools that take loans be required to be a partial guarantor of the loans, say 15% instead of it being guaranteed 100% by the govt. Then for every dollar that the govt doesn't collect in full in repayment results in a 15 cent bill to the school.

    This alone would do wonders I think.

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  33. "Public funding is not a panacea - you can see this when you look at college systems in many European countries where there are many students studying subjects that are not in demand - and where there is a huge class system between colleges - such as the Russell Group in the UK - and the rest, or the Grandes Ecoles in France and the rest of the Universities."

    I'd never heard of the Russell group until my university (QM, U. of L.) joined it, so at least as far as I know it's not that much of a force. The real class distinction in UK universities is between Oxbridge and the rest, a distinction which is cemented by the separate entry system for Oxbridge.

    In reality, this flows from the division of primary/secondary education between privately-funded schools which only the extremely rich can afford, and which make Oxbridge entry much more likely, and publicly-funded ones which are used by the remaining 95% of the British population.

    France's Grande Ecoles are the only universities in France that can select based entirely on merit - all other universities have to take everyone from their region. This doesn't appear to be a failure of public funding but of regulation.

    I do not know the situation in France, but in the UK at least the reason why so many people study degrees that are not in demand is because the A-level system routes people into areas where it is easier to get A's (or, now, thanks to the grade inflation which has rendered my then-decent A-level grades insufficient to get an entry-level job at many firms, A*'s) - i.e., the arts. Another reason is because of the (entirely accurate) perception that employers, at least outside of technical fields, care little for what subject you study in university since now university degree can really prepare you for them. I don't see that this would be any different if the University system were privately funded.

    I don't know what the situation is like in Ireland - does Trinity occupies a similar position to Oxbridge?

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  34. Ach - "no university degree", obviously

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  35. @FOARP

    UK colleges are a bit odd - there is Oxbridge which is considered broadly a cut above, but there are some close followers - Imperial for example. I think in the City Oxbridge matters more than elsewhere - the Russell Group is something most people don't know of, but it is a good shorthand for the first tier of Universities. Think of the relationship between Oxbridge and the rest of the Russell Group as being a bit liek Harvard and Yale with UVa, Duke, MIT, Caltech, etc.

    In Ireland I think to it depends a little on the subject - TCD and UCD come out nearly in the same place, UCG then UCC, but there is not that big a difference between those 4 - they fall around the same level on CAO applications, though TCD would be considered better for law )(but not by a lot.) Students in Ireland are poorer and they therefore will often want to go to University close to home which means that Galway and Cork are still very attractive. Maynooth - although in the same NI as UCG, UCD and UCC has always had a lower reputation - probably because it is the only one not referred to with an acronym. As for UL, DIT and DCU - I cannot really tell you though I know their science programs are highly regarded as is architecture at Bolton Street. For medicine RCS used to be considered comparable to TCD, but now I think TCD and UCD would have a higher reputation. North of the border QUB (which used to be pre-1921 part of what is now NUI) has a higher reputation than NUU.

    Key:

    NUI - National University of Ireland - which originally had 5 colleges - Dublin, Galway, Cork, Maynooth and Belfast, each called University College Dublin (UCD), University College Galway (UCG), University College Cork (UCC) and Queens University Belfast (QUB) - Maynooth being Maynooth (sigh)

    TCD is Trinity College Dublin which is the only constituent college of the University of Dublin - the oldest university on the island somewhere over 400 years old. I seem to recall the Berkeley, who founded Harvard and after whom Berkeley is named was a TCD graduate but I could be wrong.

    DIT is the Dublin Institute of Technology (a conversion of the old NIHE schools I think), DCU is Dublin City University, RCS is Royal College of Surgeons, UL is University of Limerick (in Plassey and not Limerick) and NUU is New University of Ulster.

    As for the Grandes Écoles - I think it is important to consider the case of Sarkozy. Now he may be abrasive - but for the French intelligencia the biggest strike against him was straight snobbery - he went to a numbered school - Paris 10 - Université Paris X Nanterre - and then to Science Pó where he flunked out. Because he was not a graduate of a Grandes École and in particular not a graduate of ENA the intellos regarded him as an interloper - someone who absolutely did not deserve to hold any sort of significant political office - a nobody! Of course, most of the students at the Grandes Écoles actually come from privileged backgrounds and private Lycée however leftwing they seem - and in reality their attitudes reflect class snobbery dressed up as intellectual snobbery. Hollande has of course restored the proper ballance with a cabinet that as far as I can tell are Enarch to a man an woman - and he of course is an Enarch too.

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  36. Credentialism by the way is a plague in the legal profession. I am willing to admit that, in general, someone who goes to a bottom tier school is probably not as good as someone who goes to an upper tier school. However, in my experience, the only time I become aware that someone is a Harvard, Yale or Stanford law grad - or Oxbridge - it is in connection with a "holy shit, what an idiot" reaction. I think that reaction is pretty common among most of the senior lawyers I know who are not HYS or Oxbridge. It should be said that if you removed the trousers from a few Harvard grads and put them on poles "mooning" a stadium - their Harvard peers would assure you that the light shining from their collective fundaments would easily be enough to floodlight the game, whereas Yalies would insist that it could be done with less Yalies than Harvard graduates.

    In general I think it is a fair observation that if you are made clearly aware that a lawyer is HYS or Oxbridge, that person is almost always a self regarding clown who you should not trust to wash windows. That is not to say that HYS do not graduate good lawyers (though Yalies always seem a little impractical, hapless and focussed on irrelevancies) but that all of the top tier will graduate people who will make lawyers that on balance are just as likely to be good at the job - and a good few of the second tier. But HYS are more likely to have their degrees framed on the wall in their office.....

    Maybe I am having a bit of a rant because yet again I find myself cleaning up mess by one of these types - who was it seems hired for the job on pure credentialism.

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  37. We have a handfull of Harvard and yalies here in Chattanooga (yes, Chattanooga, believe it or not) and to a man (they're all men) what idiots! One in particular, literally and consistently makes no sense when he argues a motion. Another, makes a great flourish of handling death penalty trials when he is not practicing corporate law. It never works out well for his clients . . .ever.

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  38. To the anonymous commenter:

    If you don't mind, I borrowed your Ferengi idea.

    Ferengi mania is sweeping the country, and Ferengi Fan Clubs are springing up in every town!

    I gotta get me a poster of Quark to hang on my wall!

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  39. Thus, for example the non-dischargeability of student loans and the absence of underwriting standards for loan guarantees are a huge part of the problem

    Interesting that you bring up underwriting standards for student loans. I wonder what banks would look to to decide whether to make the loan. Setting aside the obvious issue of parent assets and co-signing, I wonder if they wouldn't use some combination of standardized test scores, GPA, and school applied to -- basically all the usual social sorting mechanisms used by USNWR and others. I can only imagine that such practices would end up having huge unintentional racial effects, creating and strengthening barriers to higher education for blacks.

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  40. tdennis

    You may actually have Haaaavaaaahd and Yalies in Chatanooga that are good lawyers. It could be conformation bias in that in my experience, those that go out of their way to make sure that the people they deal with know they went to Harvard and Yale tend to be crummy lawyers - those who don't usually are pretty good.

    It reminds me of what a few military friends have said about "table knockers," i.e., West Point and Annapolis types who wear a very big and visible class ring - that they are usually not very good officers - and the people who say this are often West Pojnt and Annapolis themselves.

    MacK

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  41. BreezyWheeze - you may have a point.

    MacK

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  42. This analysis is both factually incorrect and internally inconsistent.

    (1) The author claims that one needs to graduate from an accredited law school to sit for the bar exam

    This is incorrect. In both NY and California (two of the biggest and most lucrative legal markets), would-be lawyers can qualify to take the bar-exam by working under the supervision of a lawyer for a number of years. In D.C., lawyers can waive in after practicing in another state for a number of years.

    Students don't go to law school because it is required to take the bar exam. They go because no one will hire them if they pass the bar without a law degree. Law schools, like the bar exam, certify a minimum level of quality and competence. Just as many people will only buy brand name clothing or electronics. Certification of quality is necessary to maintain a market in the face of asymmetric information about quality--read "the market for lemons."

    Employers and clients--the Market--demand law school.

    (2) The author claims that one needs to pass the bar to "practice law"

    Except for appearing in court and litigating a case on someone else's behalf, this is largely incorrect. Most of what transactional lawyers do (negotiating contract terms, structuring deals, reviewing precedents) can be done by anyone and is often done by bankers, accountants, and business people. Even litigation can be handled "pro-se" if a client is willing to DIY. Clients turn to lawyers because clients trust lawyers to do the job right.

    Once again, the market demands certified lawyers.

    (3) The author claims that law schools have market power

    There are 200+ law schools in the country, most with class sizes in the 200 to 500 range. Most states have several law schools, and students can go to law school in one state and take the bar exam in another.

    Law school is a nationally competitive market with an exceedingly low HHI index (industry concentration). No one law school has "market power" and no anti-trust lawyer or economist would ever think to suggest that they do.

    And if law schools do have so much market power and students are so price insensitive, then why do law schools offer generous scholarships to the most talented students? And why do students sometimes choose a lower-ranked law school that offers more scholarship money over a higher ranked law school that would be more expensive? Clearly, students are price sensitive and law schools compete on price.

    (continued)

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  43. (continued)

    (4) The author claims that students don't care about the price because they can get student loans

    Seriously? Do home buyers not care about the price of house because they can get mortgages? Do consumers not care about the price of clothing or groceries because they can use credit cards? Do car buyers not care about price because they can get auto loans?

    Loans have to be repaid with interest. They are not "free money." To suggest that people would magically stop caring about price because they can pay over time is to assume a shocking level of irrationality and downright foolishness. And law students, who are all college graduates, know better. Or at least should, if their college degree is worth more than the paper it's printed on.

    (5) The author claims that the high cost of legal education is a "barrier to entry"

    No it's not, because students can get loans. That's how credit markets work. They solve the liquidity problem and *reduce* barriers to entry by allowing people to pay over time even if they don't have the money today. The argument is both ignorant of basic facts and internally inconsistent. Loans solve a problem, they don't create it.

    (6) The author claims that the LSAT and bar exams are barriers to entry

    Yes, and they do a fine job of predicting competence, keeping students who couldn't pass the bar exam or get passing grades out of law school--and saving them money--and keeping lawyers who can't remember basic sets of rules and read and write out of practice--saving clients money and maintaining the integrity of the profession.

    Any restriction based on quality will be a barrier. And often, an appropriate and necessary one to maintain trust by clients. That reinforces professional ethics; it does not undermine them.

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  44. @MacK - Interesting background on Sarkozy. You may be right about the Russell group - I guess like most people I don't really pay so much attention to a class distinction when I'm on the better side of it.

    Agreed on credentialism - although I find Cambridge grads to be rather less heavy on this than Oxford, and Harvard less heavy than Yale. Of course in the UK we add another layer to this with the public schools - the young member of a particularly prominent London firm who told me that his firm hired only "blues [i.e., people who did sports at Oxbridge] and blondes" and that no "oiks" would be found in his firm being more-or-less representative of the whole.

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  45. @9:23 - Linklaters??

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  46. Foarp;

    Many years ago I interviewed with a Magic Circle firm - it would be oh 1990s - height of the tech bubble. I remember it was an oppressively hot day and I was in a suit. As I arrived I was astonished to see the receptionists dressed in uniforms and men dressed as well "flunkies" (and I mean flunkies - striped trousers, shirts, ties, waistcoats.) Out came the people interviewing me - chinos and polo shirts - yes they were being with it and embracing casual. After the interview I asked one of the support staff was this their uniform - apparently yes - but as a special concession to the weather they had been allowed to remove their jackets. I did not follow up on that interview and as a GC never hire them - I found the whole thing obnoxious.


    MacK

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  47. @ 9:19

    1) For all practical purposes, you have to go to law school since "reading for the law" is something that is not readily available. There are few if any lawyers that will serve as "tutors" for would be lawyers that want to "read for the law"

    2) If you are handling matters that do not require a law license, then you are not working as a lawyer whether you have a JD or nor pure and simple. If a lawyer is doing work that a non-lawyer can do, he is NOT PRACTICING LAW but doing clerical paperwork.

    3) While there are 200+ law schools, UNTIL NOW, there were still far more suckers wanting to go to law schools than there were seats. This is what gave law schools UNTIL NOW cartel-like market power. This is of course changing with all the scamblogs and such.

    4) Wow you are an idiot! How do you think the housing bubble got so out of hand? How were people making $40k buying $800k homes? Also 22 year olds who are misled to think that can get $160k jobs don't think a $160k loan is that big of a deal.

    5) Loans can create problems is they are made too freely or too liberally however. See housing bubble and the higher education bubble!





    In short, you are an idiot.

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  48. @ 12:02

    1) My point exactly. Students need to pay to be taught. Lawyers don't want to take the time to train some college kid with no law degree. Teaching is a burden.

    Which is why people who want to be taught have to pay for the privilege of being taught. That's how markets work.

    2) Yes, it's not "practicing law" in the professional responsibility regulatory sense, but very little of what lawyers do and charge for is actually protected from competition by regulation. Only litigation some parts of litigation are protected by regulation.

    Everything else lawyers do, they do because the market prefers lawyers to non-lawyers.

    3) There are still more applicants to law school than seats. That doesn't give cartel-like market power, that just gives law schools the opportunity to maintain selectivity and high standards by choosing to turn people down rather than maximizing revenue by letting everyone in.

    If everyone who applied got in, then how high could the standards be? A lot of the value law school provides is indicating the quality of a lawyer to employers and clients, and that means turning some people down and accepting others, as well as giving high and low grades.

    To demonstrate cartel-like market power, you'd have to show that 200+ law schools were colluding to set their prices, scholarship policies, and number of admissions, the same way OPEC and DeBeers collude to fix supply and prices in the oil and diamond markets. That's what Cartel means.

    What you're talking about is just a healthy supply of people who want to go to law school. You may not agree with them that it's a good decision, but for many of them it will be.

    4) The subprime housing bubble wasn't caused by loans to college educated borrowers making a sensible investment that would boost their future incomes. It involved private loans to buy a consumption good (housing) and speculate on asset appreciation. Most of the subprime borrowers were not college educated, many had no assets, no incomes, and no parental guarantors.

    $160K in loans actually isn't a big deal if a law degree boosts your income over the next 30 years by $15K per year. Considering that 75 percent of lawyers make more than $75K per year, 90 percent make more than $50K per year, and 50 percent make more than $115K per year, this is a reasonable assumption for anyone who can pass the bar exam and eventually get a job as a lawyer, even if they have to spend a few years clerking along the way.

    5) If it's a bubble, then where are all of the student loan defaults and loan losses? The government actually makes a profit on the federal student loan program. And law schools have lower default rates than most programs (i.e., are more profitable).

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  49. @9:19

    You remind me of the economic expert in a case I had once where (as a mid level associate) I was required to "woodshed" him to explain that his enthusiasm for our clients case was counter-productive and could he "tone it down a little."

    Your points are in essence those of someone who has taken a very rudimentary antitrust course - but now thinks they know everything. To what you say I would point out that while Bork's Antitrust Paradox contains some well worked through issues - it also contains pure manure - especially when Bork makes unsupported and unsupportable statements about vertical restraints. Such a pile of nonsense is your posting that I suspect that you are a bush-league antitrust professor at a third tier school. So let's run through them:

    "(1) The author claims that one needs to graduate from an accredited law school to sit for the bar exam"

    You use law office study as your example. Only seven states allow this - Virginia; Washington; Wyoming; California; Maine; and New York. I note that in your screed you did not address the comparative rareness of law office study as a way to become a lawyer in the modern system - or how often it takes place today as opposed to say more than a century ago.

    Worse still in a display of dishonesty or ignorance, you cite waiving in in DC as a no-law school way of becoming a lawyer. But in ignorance you did not know that you still had to go to law school and could only waive the bar exam for 2 years after admission (and since I had to sue the DC bar - you had better put the Zip code of the ABA on Lakeshore drive in in the memberships section or they will bounce your application.) When they bounce your app at say 18 months and take 6 months to send you the letter you are in principle out of time for the usual waive in.

    "2) If you are handling matters that do not require a law license, then you are not working as a lawyer whether you have a JD or nor pure and simple. If a lawyer is doing work that a non-lawyer can do, he is NOT PRACTICING LAW but doing clerical paperwork"

    The problem is that paralegals need to work under the supervision of a lawyer. It is very easy to drift over the line to practicing without a license and that is a BIG FINE! Also, you know - most people go to lawyers because what they have at stake is - for them - A LOT! They deserve competent advice.


    "3) The author claims that law schools have market power"

    The second author then witters on about HHIs. HHIs are all a matter of market definition which in essence is how do you slice the cake. So the question comes down to whether you think that Harvard competes with say Cooley. To this I can only say Bawahahhahahahah

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  50. "(4) The author claims that students don't care about the price because they can get student loans"

    Do existing law students drop out of law school when tuition goes up? Do they drop out in any significant numbers - no! End of discussion.

    "(5) The author claims that the high cost of legal education is a "barrier to entry" - "No it's not, because students can get loans."

    That depends on who you think lawyers should be available to. If a law graduate has $100,000 plus they need to know that they can get a job that will allow them to service that debt. The ability to service the debt is part of the total cost - it is why I don't buy a Masarati despite some of my partners raising it - because I don't want the burden of the car loan. So the ability to borrow the money has not made a Masarati affordable to me.

    "(6) The author claims that the LSAT and bar exams are barriers to entry

    Yes, and they do a fine job of predicting competence, keeping students who couldn't pass the bar exam or get passing grades out of law school--and saving them money--and keeping lawyers who can't remember basic sets of rules and read and write out of practice--saving clients money and maintaining the integrity of the profession."

    Twaddle - if the LSAT kept incompetents out of the profession - or the bar exam - I would have much lower blood pressure today.

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  51. @ 12:02

    1) My point exactly. Students need to pay to be taught. Lawyers don't want to take the time to train some college kid with no law degree. Teaching is a burden.

    Which is why people who want to be taught have to pay for the privilege of being taught. That's how markets work.

    2) Yes, it's not "practicing law" in the professional responsibility regulatory sense, but very little of what lawyers do and charge for is actually protected from competition by regulation. Only litigation some parts of litigation are protected by regulation.

    Everything else lawyers do, they do because the market prefers lawyers to non-lawyers.

    3) There are still more applicants to law school than seats. That doesn't give cartel-like market power, that just gives law schools the opportunity to maintain selectivity and high standards by choosing to turn people down rather than maximizing revenue by letting everyone in.

    If everyone who applied got in, then how high could the standards be? A lot of the value law school provides is indicating the quality of a lawyer to employers and clients, and that means turning some people down and accepting others, as well as giving high and low grades.

    To demonstrate cartel-like market power, you'd have to show that 200+ law schools were colluding to set their prices, scholarship policies, and number of admissions, the same way OPEC and DeBeers collude to fix supply and prices in the oil and diamond markets. That's what Cartel means.

    What you're talking about is just a healthy supply of people who want to go to law school. You may not agree with them that it's a good decision, but for many of them it will be.

    4) The subprime housing bubble wasn't caused by loans to college educated borrowers making a sensible investment that would boost their future incomes. It involved private loans to buy a consumption good (housing) and speculate on asset appreciation. Most of the subprime borrowers were not college educated, many had no assets, no incomes, and no parental guarantors.

    $160K in loans actually isn't a big deal if a law degree boosts your income over the next 30 years by $15K per year. Considering that 75 percent of lawyers make more than $75K per year, 90 percent make more than $50K per year, and 50 percent make more than $115K per year, this is a reasonable assumption for anyone who can pass the bar exam and eventually get a job as a lawyer, even if they have to spend a few years clerking along the way.

    5) If it's a bubble, then where are all of the student loan defaults and loan losses? The government actually makes a profit on the federal student loan program. And law schools have lower default rates than most programs (i.e., are more profitable).

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  52. @ MacK

    You are incorrect about admission to D.C. Law school is not required for admission to D.C. All that is required is admission to another state and legal practice in that other state for at least 5 years.

    See section (3)(i).

    http://www.dccourts.gov/internet/documents/MotionInstructionsAndForms.pdf

    or

    http://www.dccourts.gov/internet/documents/rule46c3_admission_on_motion-without_exam.pdf

    Many states have similar rules allowing lawyers to waive in after practice in good standing in another state. Students who wish to become lawyers need only work under the supervision of an attorney for several years in one of the states that allows it instead of law school, pass that state's bar exam, and practice for several years.

    You are correct that this is rare. But it is not rare because regulations prohibit it. It is rare because there is no market for lawyers without law degrees, and because lawyers do not want to waste their time training someone who hasn't been to law school.

    Clients and licensed attorneys believe in the value of a law degree. They will not hire someone without the degree.

    That's a market in action.

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  53. @1:58

    Oh balls - law schools are colluding - they have done it for years through the medium of the ABA accreditation standards. If you were not a pretend antitrust lawyer you would have explained that because the ABA is the US Government set accrediting authority for US law schools it is protected by the Noerr Pennington doctrine.

    I am sorry, I concur in the assessment of your idiocy.

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  54. @2:22 - you are either wrong or dishonest. Even for a waive in the requirement exists that the applicant have:

    "been awarded a J.D. or LL.B. degree by a law school which, at the time of the awarding of the degree, was approved by the American Bar Association"

    Did you actually read the standard you cited. Don't apply to me for a job.

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  55. @ MacK

    "The second author then witters on about HHIs. HHIs are all a matter of market definition which in essence is how do you slice the cake. So the question comes down to whether you think that Harvard competes with say Cooley. To this I can only say Bawahahhahahahah"

    Take a look at the schools lawyers at top tier firms attended. Davis Polk has lawyers who went to Third Tier South Carolina as well as many lawyers from second tier and low first tier schools. The partners include many lawyers who attended second tier schools.

    Same goes for Sullivan and Cromwell, (CUNY; Hofstra, Marquette, NY Law School, Pace, Rutgers, St. John's, Seton Hall, Brooklyn, William Mitchell), Cravath, Simpson Thatcher, Wachtell, etc.

    All of the top firms hire lawyers from non-elite law schools, and have made such lawyers partners.

    At a minimum, lawyers from the top 100 law schools are competing with lawyers from Harvard for promotions and client work.

    The lawyers from Harvard may have an edge going in, but they don't always win in the end.

    Which means the smart student who gets into Harvard can go to a low first tier or high second tier school for full scholarship, become number one in the class, get a great firm job and make serious bank with no debt.

    The wonders of competition. If you're smart enough, the tuition cost to attend law school is zero.

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  56. @ MacK

    "@2:22 - you are either wrong or dishonest. Even for a waive in the requirement exists that the applicant have:

    "been awarded a J.D. or LL.B. degree by a law school which, at the time of the awarding of the degree, was approved by the American Bar Association"

    "Did you actually read the standard you cited. Don't apply to me for a job."

    You are obnoxious, and also wrong.

    There's an "or" before the language you quote. The JD or LLB degree is not required for those who are admitted in another state and have practiced for 5 years. The J.D. is only required for those who are admitted but have not practiced for 5 years in another state.

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  57. @ MacK

    "Oh balls - law schools are colluding - they have done it for years through the medium of the ABA accreditation standards."

    The ABA accreditation standards don't set tuition prices, number of law students to be admitted, or discounts through scholarship.

    Schools can and do meat the accreditation standards at different cost levels and different tuition levels.

    That's not "price fixing." It's setting minimum quality levels, the same as exist in pretty much every market, from food in the supermarket to automobiles, to commodities markets.

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  58. @3:15

    "It's setting minimum quality levels, the same as exist in pretty much every market, from food in the supermarket to automobiles, to commodities markets."

    Horseshit - many of the criteria set by the ABA serve the sole purpose of forcing up cost - for example the requirement that most faculty be full time - or the effective limits on the number of credit hours a professor can teach. Your comments are complete twaddle.

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  59. I see. In your view, the requirement that professors be full time professionals has nothing to do with quality.

    Because in your view, part time adjuncts who derive most of their income from practice will put just as much effort into teaching, research, advising students, and governing law schools, and would never teach the law in a distorted way that would serve their clients' interests.

    Reasonable people might disagree with you and think that full time professionals do a better job than part time amateurs, and also have better incentives.

    Even so, there's no minimum wage set for law professor salaries (other than federal or state minimum wages), so this requirement really does not drive up prices artificially.

    If quality professors could be had for less, law schools would hire them and pay them less. It turns out that if you want someone qualified to do a job well, you need to pay them. Lawyers have been known to turn down teaching positions because the compensation is inadequate.

    What effective limits on credits are you referring to in the ABA accreditation standards?

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  60. Here are the accreditation standards regarding faculty:
    http://www.americanbar.org/content/dam/aba/publications/misc/legal_education/Standards/2011_2012_aba_standards_chapter4.authcheckdam.pdf

    They quite clearly relate to quality--availability of faculty to students, fulfillment of obligations as scholars, teachers, and community service--and do not dictate the price at which faculty are hired (or the price charged to students).

    There is no limit on the number of credit hours a faculty member can teach, only a maximum student to faculty ratio, which helps ensure quality and student access.

    Schools can offer as many credit hours as they want, as long as there are enough faculty members to meet with and advise students.

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  61. The bottom line is that easily obtained loans and a wrong perception that getting a law degree is a path to a decent life is what's fueled the law school price bubble.

    Just like the housing bubble, if lenders made loans on more reasonable terms rather then lending it so freely, tuition prices just like housing prices wouldn't have exploded.

    While it is true borrowers, whether for a house or a law degree, have to pay it back with interest, it makes a huge difference in terms of price sensitivity between borrowing money for something vs paying for it in cash.

    For many of the subprime housing borrowers, just like the "subprime" TTTT 0Ls, it was really a no-risk proposition. If the house "purchase" failed, they just walk away with only loss of credit score. If the 0L liberal artist working as a waiter bombed, he just would stop paying and go back to working cash jobs.

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  62. What makes the loan terms unreasonable? Do you have any data showing that student lenders who loan money to law students aren't making a profit? All of the data I've seen suggests that they're making good money--including low cost government loans--and default rates are extremely low relative to other student loans.

    If anything, law students are probably paying interest rates that are too high, given the low default rates.

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  63. @ 6:05PM

    When you take into account IBR, delinquency, minimal payments, etc, the "true" default rate is much higher than the nominal default rate. This is easily looked up.

    Anyway, the reason the loan terms are unreasonable is because they would be severely limited if the govt did not guaranteed them 100% and if they could be discharged in bankruptcy like any other loan.

    Maybe they would loan to HYS or perhaps T-14 law schools. No way though would there be widespread lending of $150-$200k to 22 year old TTTT law school students if the govt didn't guarantee the loan and if it was bankruptcy dischargeable.

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  64. IBR (Income Based Repayment) only came into effect in 2011.
    http://www.swlaw.edu/pdfs/jle/jle604Schrag.pdf

    Even before IBR, student loan default rates were extremely low, even at second and third tier law schools. NYLS and Brooklyn Law School have roughly the same default rates as Harvard University (the whole university, not just Harvard Law School). And they report default rates using the same methodology. Unless you think a Harvard degree is not a good investment, a law degree is a good investment.

    The fact that student loans can't be easily discharged in bankruptcy doesn't make the terms unreasonable--it actually means that the interest rate can/should be lower because the loss rates are lower for lenders. And the loans are dischargeable in bankruptcy in case of "undue hardship."
    http://taxprof.typepad.com/taxprof_blog/2012/05/bankruptcy-court-.html

    It's just that individuals with law degrees very rarely encounter undue hardship, since they tend to do well financially.

    The fact that private lenders would charge more than the government doesn't make the government terms unreasonable. The government makes a profit on its student loan program--it just doesn't gouge students for every last penny the way a private lender would.

    http://www.creditslips.org/creditslips/AlanWhiteAuthor.html

    The government does lots of things a private business wouldn't do, like paying for defense, infrastructure, and primary and secondary education, free at the point of service.

    When the government provides student loans, it not only makes a profit on the loan itself, it also makes a profit because the student will go on to earn more money, have a lower risk of unemployment, pay more money in income taxes, and be less burdensome in terms of social services. The government can and should lend for less than a private lender would.

    As for Income Based Repayment, it makes law school an even better investment for students than it was pre 2011. The best case scenario is the student becomes a law firm partner, general counsel, or CEO and builds a networth in the multi-millions. The worst case scenario is they work a public interest job for 10 years, pay 10% of their low income toward their student loans, and then get the balance of their loan forgiven--all without the need to go through an unpleasant and embarrassing bankruptcy proceeding.

    If you're against IBR and against low-cost student loans, then you certainly are not a friend of law students or taxpayers.

    The only people who would benefit from scrapping the federal student loan program are private student lenders. Everyone else would lose.

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  65. @ 8:01pm

    The statement "It's just that individuals with law degrees very rarely encounter undue hardship, since they tend to do well financially." is complete false. It is far from being a "rare instance".

    I am not against student loans PER SE. But I am against free-for-all student loans 100% guaranteed by the govt regardless of the amount and regardless of the ability of grads to pay off the student loans. This is creating a big higher-ed education bubble.

    It is not a ALL or NONE proposition. You can have student loans structured so that low income families have a chance at higher ed while preventing tuition and student debt from getting out of control.

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  66. There is no market and no supply and demand mechanism.

    In Boston, Harvard, BU, BA, Suffolk, Northeastern and NESL offer massively different outcomes for their law grads, but all charge more than $40k a year for tuition and all charge within a couple of thousand of each other.

    It's the equivalent of Ferrari, Toyota and Chevy all charging the same for their product.

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