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Sunday, July 17, 2011

NY Times: Law School Economics -- Ka-Ching!

NYLS Logo New York Times:  Law School Economics: Ka-Ching!, by David Segal:
[L]aw schools have the power to raise prices and expand in ways that would make any company drool. And when a business has that power, it is apparently difficult to resist.

How difficult? For a sense, take a look at the strange case of New York Law School and its dean, Richard A. Matasar. For more than a decade, Mr. Matasar has been one of the legal academy’s most dogged and scolding critics, and he has repeatedly urged professors and fellow deans to rethink the basics of the law school business model and put the interests of students first.

“What I’ve said to people in giving talks like this in the past is, we should be ashamed of ourselves,” Mr. Matasar said at a 2009 meeting of the Association of American Law Schools. He ended with a challenge: If a law school can’t help its students achieve their goals, “we should shut the damn place down.”

Given his scathing critiques, you might expect that during Mr. Matasar’s 11 years as dean, he has reshaped New York Law School to conform with his reformist agenda. But he hasn’t. Instead, the school seems to be benefitting from many of legal education’s assorted perversities.

N.Y.L.S. is ranked in the bottom third of all law schools in the country, but with tuition and fees now set at $47,800 a year, it charges more than Harvard. It increased the size of the class that arrived in the fall of 2009 by an astounding 30%, even as hiring in the legal profession imploded. It reported in the most recent US News & World Report rankings that the median starting salary of its graduates was the same as for those of the best schools in the nation — even though most of its graduates, in fact, find work at less than half that amount. ...

Asked if there was a contradiction between his stand against expanding class sizes and the growth of the student population at N.Y.L.S., Mr. Matasar wrote: “The answer is that we exist in a market. When there is demand for education, we, like other law schools, respond.”

This is a story about the law school market, a singular creature of American capitalism, one that is so durable it seems utterly impervious to change. Why? The career of Richard Matasar offers some answers. His long-time and seemingly sincere ambition is to “radically disrupt our traditional approach to legal education,” as it says on his N.Y.L.S. Web page. But even he, it seems, is engaged in the same competition for dollars and students that consumes just about everyone with a financial and reputational stake in this business.

“The broken economic model Matasar describes appears to be his own template,” wrote Brian Z. Tamanaha, a professor at Washington University Law School in St. Louis, in a blog posting about Mr. Matasar last year. “Are his increasingly vocal criticisms of legal academia an unspoken mea culpa?” ...

N.Y.L.S. has participated in another national law school trend: the growth in the number of enrollees. Last year, law schools across the country matriculated 49,700 students, according to the Law School Admission Council, the largest number in history, and 7,000 more students than in 2001. N.Y.L.S. grew at an even faster clip. In 2000, the year Mr. Matasar took over, the school had a total of 1,326 full- and-part-time students. By 2009, the figure had risen to 1,596.

The jump seems to contradict one of Mr. Matasar’s core tenets. “Can class size be increased without damaging quality?” he asked in a 1996 Florida Law Review article. “Can class size be increased without assurances that jobs will be available for the increased number of graduates? Can class size be increased without also providing more staff, faculty, books and service? Increase class size? No!” ...

From 1989 to 2009, when college tuition rose by 71%, law school tuition shot up 317%. ...

For years, it made economic sense for smart, ambitious 22-year-olds to pay the escalating price for a legal diploma. Law schools have had a monopolist’s hold on the keys to corporate lawyerdom, which pays graduates six-figure salaries.

But borrowing $150,000 or more is now a vastly riskier proposition given the scarcity of Big Law jobs. Of course, that scarcity hasn’t been priced into the cost of law school. How come? In part, it’s because schools have managed to convey the impression that those jobs aren’t very scarce.

For instance, although N.Y.L.S. is ranked No. 135 out of the roughly 200 schools in the US News survey, it asserts in figures provided to the publisher that nine months after graduation, the median private-sector salary of alums who graduated in 2009 — which is the class featured in the most recent US News annual law school issue — was $160,000. That is exactly the same figure cited by Yale and Harvard, the top law schools in the country.

Mr. Matasar stood by that number, but acknowledged that it did not give a complete picture of the prospects for N.Y.L.S. grads. He noted that the school takes the over-and-above step of posting more granular salary data on its Web site. ...

In May of 2009, a month before the official end of the recession, Moody’s issued a new report and suddenly, a downgrade seemed like a real possibility. One problem was that applications to the school for the upcoming class of 2009, Moody’s reported, were down 28 percent compared with the volume the year before. The rating agency changed its outlook on the bonds from “stable” to “negative,” which is bond-speak for “If current trends continue, a downgrade is coming.”

But just three months later, the enrollment scare was over. In the fall of 2009, the incoming class was N.Y.L.S.’s largest ever — 736 students. (Only one law school in the country, Thomas M. Cooley in Michigan, matriculated a greater number.)

Some faculty members were happy to enhance their salaries by teaching another course. Others were appalled at what the super-sized class would mean for students. “At a school like New York Law, which is toward the bottom of the pecking order, it’s long been difficult for our students to find high-paying jobs,” said Randolph N. Jonakait, a professor at N.Y.L.S. and a frequent critic of Mr. Matasar’s. “Adding more than 100 students to an incoming class harms their employments prospects. It’s always been tough for our graduates. Now it’s tougher.”

Was Mr. Matasar more worried about bond ratings than the fortunes of his new students? Several faculty members said, and he confirmed, that the bonds were part of discussions about the financial health of the school in 2009. ...

“He put a huge, beautiful student dining area in the top floor of that new building,” says Tanina Rostain, a former N.Y.L.S. professor, now at Georgetown University Law Center. “But it doesn’t have a faculty lounge. We were a little nonplussed, but it was clear that the students were Rick’s priority.”

How does one square that priority with the inexorable rise of N.Y.L.S.’s tuition, its population growth, its eyebrow-arching job data?

The question has puzzled more than a few academics and has produced a variety of theories. Perhaps the most compelling is that as both a crusader and a dean, Mr. Matasar has conflicting, even incompatible missions. The crusader thinks that law school costs too much. The dean has to raise the price of tuition or get murdered in the US News rankings. The crusader worries about the future of all those unemployed graduates. The dean has interest payments to make on a gorgeous new building.

“I’m 100% convinced that Matasar believes in his reformist agenda,” says Paul F. Campos, a professor at the University of Colorado at Boulder School of Law and a Future Ed attendee. “But all reformers discover that they can’t change a system by themselves. And by trying to survive in the current structure, he has ended up participating in the perpetuation of its most indefensible elements.”

The tale of Mr. Matasar’s career is not primarily about a gap between words and actions. Rather, it is a measure of how all-consuming competition in the legal academy has become, and how unlikely it is that the system will be reformed from within.

To be clear, there is little about the way N.Y.L.S. operates that is drastically different from other American law schools. What’s happened there is, for the most part, standard operating procedure. What sets N.Y.L.S. apart is that it is managed by a man who has criticized many of the standards and much of the procedure.

In fact, Mr. Matasar has been quoted about wanting to upend legal education for so long it is impossible to believe he is doesn’t mean it. But he can’t act unilaterally. And what industry has ever decided that for the good of its customers, it ought to charge less money, or shrink?

“My salary,” Mr. Campos said, “is paid by the current structure, which is in many ways deceptive and unjust to a point that verges on fraud. But as a law professor, I understand that what is good for me is that the structure stay the way it is.”

Update:

http://taxprof.typepad.com/taxprof_blog/2011/07/ny-times--1.html

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Comments

Wow, what a biting and well written piece.

Posted by: anon | Jul 17, 2011 2:47:23 AM

Law school continues to be a popular option because in our society, it is viewed as a license to steal.

People look at all the lawyer lobbyists and class action legal commercials and lowayer politicians and they see people stealing ooodles and ooodles of money -- all perfectly legal.

And so they want to cash in. Who doesn't?

Posted by: John | Jul 17, 2011 12:07:57 PM

Sooner or later, the popular discussion of the excessive cost-to-benefit ratio of American legal education will turn to the role of legal scholarship in law schools and among law school professors. The rise to dominance of the scholarship function over the teaching function in the determination of the relative prestige of law professors and law schools has been fabulously expensive, and the bill has been paid by students who have not been asked if, and who have otherwise shown no indication that, they value the product and are content to incur huge debt for years ahead to pay for it.

Exclude the top 25 or so law schools (who are selling to their students an important brand credential that may well be every bit as valuable as the actual instruction). For the remaining 175 law schools in this country, the necessary professional training could be delivered at a very high quality by a well-chosen full-time faculty no more than half their current size by increasing class sizes in core courses and eliminating (or offering by adjuncts) most low registration boutique electives and seminars; all without wildly increasing the number of hours law faculty members teach each semester. No more constant travel, often international, to endless conferences and symposia and professional meetings.

Once the enormous cost of the commitment to the notion that every person hired as a full-time faculty member at a law school of any sort should view themselves and be treated as an important producer of legal scholarship has been recognized, the actual content and value of recent legal scholarship will come under public focus and scrutiny, and then the emperor will indeed be seen as being completely unclothed. Important judges, including the Chief Justice of the US Supreme Court, have indicated with traditionally unknown candor how little they think of modern legal scholarship. One can only imagine the backlash when the general public starts to care and gets wind of what has been going on.

Posted by: Jerome | Jul 17, 2011 4:31:37 PM

I think a large part of the problem is that for many non-wealthy students, their tuition is paid for by someone else, mostly through student loans (like Sallie Mae). And those student loans are guaranteed by the federal government which means you can't discharge these loans, almost ever, even if you can't find a job with your newly minted degree.

I would guess that if the Fed didn't guarantee these student loans, Sallie Mae and other banks who would underwrite loans for education would have to better assess whether the student is likely to obtain a decent paying job upon matriculation and undertake this credit risk themselves. In this scenario, if Sallie Mae/banks didn't think there was a good job market for lawyers, they wouldn't underwrite loans for such students, and as a result, many law schools would be forced to "right-size" according to job market condition. And if Sallie Mae/banks did underwrite such loans in a barren job market, the student would default and Sallie Mae/banks would be out of business if they suck at assessing credit risks, which is how it would happen in a freer market.

Posted by: Charlie L | Jul 17, 2011 5:44:50 PM

Each time there is an economic "crisis," the pressure mounts for law schools to start being "efficient" and stop "wasting time" on scholarship The law schools who follow this advice fall to the bottom, while those who don't typically get better Maybe the students know more than the experts think they do?

Posted by: mike livingston | Jul 17, 2011 9:51:22 PM

It doesn't sound like NYLS is much of a charity to me. Maybe the IRS should take a look at their tax status.

Posted by: Brad | Jul 17, 2011 11:35:36 PM

That's simply factually incorrect. It is one of the many fallacies that are used again and again to justify law faculty rent-seeking.

The relative prestige of law schools has been strikingly stable over a long period of time, with only a tiny number of individual exceptions, and those have mostly been driven by institution-changing size donations (see NYU). Study after study has confirmed this.

Law schools are largely stuck in the same general prestige range whether they produce large or small amounts of (or prestige or non-prestige) published scholarship. If they start high enough up the prestige chain, individual faculty can profit handsomely from prestige scholarship, but law schools as institutions rarely do. Just ask the legion of law schools (like Roger Williams) that have invested heavily in supporting and encouraging scholarship, who have enjoyed some success in the effort, and who have then reaped virtually no return in terms of any significant increase in institutional prestige.

I suppose that you could then say that a law school gets better with more published faculty scholarship whether or not the market for prestige recognizes it. So then the market for law school prestige does not recognize the asserted value of most published legal scholarship, practitioners and judges do not recognize it, students do not recognize it, and there exists almost no serious sources of grant or foundation money to support it. And yet it remains an absolute article of faith among too many law faculty that their published musings are of such great and enduring value that students (not the faculty members themselves and not the law schools mind you) should be forced to go much deeper into nearly lifetime debt in order to support it.

Posted by: Jerome | Jul 18, 2011 12:16:37 AM

Law school is still an opportunity to grab the brass ring, although the odds - and costs - may be getting longer. Sort of like a lottery, but more expensive.

Posted by: Shag from Brookline | Jul 18, 2011 6:13:05 AM