Paul L. Caron

Sunday, March 25, 2012

Tamanaha: The Quickly Exploding Law Student Debt Disaster

Student LoansFollowing up on Friday's post, Law School Rankings by Debt Load Per Graduating Student:  Balkinization, The Quickly Exploding Law Graduate Debt Disaster, by Brian Tamanaha (Washington U.):

The average indebtedness figures for 2011 law graduates are stunning. Last year, 4 law schools had graduates with average debt exceeding $135,000. This year 17 law schools are above $135,000. Last year the highest average debt among graduates was $145,621 (Cal. Western); this year the highest average debt is $165,178 (John Marshall). ...

What's remarkable is that the majority of graduates from [the 20 schools with the highest average law school debt] -- with the exception of Northwestern -- do not obtain jobs with salaries sufficient to make the monthly loan payments due on the average debt. At some of these schools 90% or more of graduates with debt do not earn enough to make the loan payments on this level of debt. ...

Eight of the law schools on the above list are in the bottom tier of US News, and 16 of the 20 schools are outside the top 100. At a number of these schools only half or fewer of the graduates will have obtained full time jobs as lawyers (these statistics should be available soon), and most of those who land lawyer jobs will earn $65,000 or less. At these debt levels, only graduates who obtain NLJ 250 jobs can manage the monthly loan payments -- and on the above list only Northwestern places a significant percentage of graduates in these jobs.

Thousands of 2011 law graduates across the country will not earn enough to manage the debt they incurred to obtain their law degree. When will law schools decide that they cannot continue to inflict ever increasing levels of unmanageable debt on their students? ... This financial insanity will not stop until significant changes are made to the federal student loan program.

The Legal Whiteboard, Unsustainable Law Student Debt, by WIlliam D. Henderson (Indiana):

Viewing recently released 2011 data, Brian cites 17 law schools where the average debt exceeds $135,000 per student.  The vast majority of students at these schools will be forced into Income Based Repayment (IBR), which is, functionally, a federally administered insurance program for indebted law school graduates who fail to make a high five-figure or low six-figure income. It caps debt payment at 15% of income above some basic poverty level threshold. (In future years, it will drop to 10%.)  The downside of IBR is that unpaid interest is quickly capitalized, so a graduates total debt load explodes upward, making it very difficult to afford things like cars and home using debt finance. Then, as Brian suggests, buyer's remorse is going to set in for a whole generation of law school graduates. 

As a political issue, this is not going away.  I 100% agree with Brian's final line:  "This financial insanity will not stop until significant changes are made to the federal student loan program."  When this happens, every law school in the U.S. will be be affected.  As I said last week, it is time we get our houses in order.

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Well, universities always advocate MORE regulation.
So, let us give them what they asked for ...
1) Price controls: Limit the rise in tuition, boarding, fees, et al. to the rate of inflation.
2) Quality Controls: Limit the number of administrators and adjunct faculty a university may use.
3) Shared (Fair) Responsibility: Make universities guarantors for any loans in excess of 2-3x the average salary of the graduates in their 1st year. Ideally the IRS would be able to report income levels based on SSN. We'd need some other legal changes to make this work.

Posted by: gogo | Mar 25, 2012 4:32:28 PM

Henderson complains that law school graduates with large student loan debts who turn to the IBR program for relief will find it "very difficult to afford things like cars and home using debt finance." And he agrees with Tamanaha that "this financial insanity will not stop until significant changes are made to the federal student loan program."

What does he advocate? Federal handouts to law school graduates that will allow them to finance purchases of new cars and homes? Is Henderson kidding? What is wrong with law school graduates renting their lodging and having to drive a used car, or (even more fashionably "green") ride a bike or use mass transit, until they get their personal finances under control? That today's law school graduates may have to struggle financially for a few years is no reason to shoot off the emergency flares. I was 32 years of age before I could afford to buy a new car (and it was a very cheapo model), and 33 before I could buy a fixer-upper home.

Posted by: Jake | Mar 25, 2012 2:23:30 PM