In 2010, 85% of law graduates from ABA-accredited schools boasted an average debt load of $98,500, according to data collected from law schools by U.S. News & World Report. At 29 schools, that amount exceeded $120,000. In contrast, only 68% of those grads reported employment in positions that require a JD nine months after commencement. Less than 51% found employment in private law firms.
The influx of so many law school graduates—44,258 in 2010 alone, according to the ABA—into a declining job market creates serious repercussions that will reverberate for decades to come. ...
Heavy loans now threaten to consume the future earnings and livelihood of the nation’s young lawyers. Yet, even as the legal market contracts, more than 87,900 potential candidates vied for 60,000 seats at 200 ABA-approved law schools in 2011, according to the Law School Admission Council.
More than 78,900 have applied for 2012 spots, according to preliminary LSAC counts in November.
Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.
Very few critics, however, have examined the part played by the federal government through its student loan policies in creating a law school bubble that may be on the verge of bursting—one strikingly similar to the mortgage crisis that cratered the economy in 2008.
Direct federal loans have become the lifeblood of graduate education, and they shelter law schools financially from the structural changes affecting the profession. The bills are now coming due for many young lawyers, and their inability to pay will likely bring the scrutiny of lawmakers already moaning about government spending.
As student groups continue to lobby the federal government for increased transparency, the lawmakers are bound to ask a very simple question: Why should the U.S. government, through the Department of Education direct-lending program, continue to make billions of dollars of loans to law students when structural changes in the legal market suggest that a large portion will lack the earning power to repay those loans?
The answer to this question has potentially grave implications for legal education. Law schools—many for the first time ever—will become vulnerable to significant cuts in the amount of money available to students as Congress tries to hold the line on additional deficit spending. ...
By failing to make rigorous, realistic actuarial assumptions in deciding who to lend money to and how much to lend, the federal government avoids politically uncomfortable trade-offs. Everyone can go to college. And if you can get accepted into law school, the government will finance that, too.
But as the economist Herbert Stein once said, “If something cannot go on forever, it won’t.” The federal government’s gamble that higher education will continue to result in higher personal incomes eerily echoes Wall Street’s risky assumption that historical patterns in real estate values would carry forward forever and enable many sliced-and-diced mortgage-backed securities to attain AAA ratings. ...
Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools—even those that continue to enjoy a surplus of applicants. Until we get to that point, how ever, the lawyer production machine will continue to churn out more lawyers.
For those trying to get through this fiscal year, a government write-down of student debt may seem far away and speculative. Within a few years, however, the government will gain more experience on the IBR program, permitting a more accurate calculation of what its loan assets are really worth.
All the while, the stakes are growing larger. The volume of direct loans to students is estimated to increase from $489 billion in 2009 to $1.8 trillion in 2020, according to the Office of Management and Budget. Between 2 and 4 percent—$36 billion to $72 billion—will be for law school graduates. ...
The U.S. legal profession is in the midst of a broad structural transformation. Meeting the challenge to compete in a global economy requires a higher-education policy that honestly addresses issues of access, cost containment and national interest.
Legal education may soon provide an object lesson of what happens when we do nothing: Bad things happen when lawyers and law professors stick their heads in the sand. The republic may be in need of some world-class lawyerly judgment. And maybe soon.