Paul L. Caron

Tuesday, June 30, 2015

New 'Gainful Employment' Rule Spells Trouble For For-Profit Law Schools (And Would For 50 Non-Profit Law Schools)

American Lawyer LogoAmerican Lawyer:  New Rule Spells Trouble for For-Profit Law Schools, by Matt Leichter:

Advocates for student debtors chalked up a victory in May, when a New York federal judge dismissed a challenge to the U.S. Department of Education's "gainful employment rule." The rule, slated to go into effect next month, will limit for-profit colleges' access to federal student loans on the basis of their graduates' incomes and debts. The Obama administration enacted the rule to curb what it perceives as abuses by the for-profits—namely, enrolling students with a low likelihood of success and encouraging them to borrow large sums. Graduates often cannot find suitable work for their credentials and remain shackled to their loans. Or they default without any consequences to their schools. ...

Most ABA-accredited law schools will hardly suffer any effects. Only six law schools are run for profit, and one of them, Charleston School of Law, is already teetering. The remaining 200 are either private nonprofits or public institutions, so the rule won't apply to them at all, even though many of them arguably serve their students no better than the for-profits the gainful employment rule means to target.

Those six for-profits law schools, though, will be in trouble because they rely substantially on federal student loans. ... For the six for-profit law schools, the question is how much an average graduate would need to earn for the schools to keep or lose their federal student loan eligibility. For most of the schools, the number is quite high. Here is a table showing the average debt disbursed to 2014 law school graduates at the six schools, using a 20-year repayment plan—which is what the rule requires of professional and doctoral programs—and assuming a 7 percent interest rate. The source is U.S. News and World Report's annual graduate debt rankings.

Using this table, it's fairly simple to apply the rule. The two annual income columns show the minimum average earnings graduates would need to either pass or stay "in the zone." The same goes for the two columns on the far right, which show the minimum discretionary incomes.

Unsurprisingly, for-profit law schools' employment outcomes are not very good, leading to the likelihood that they would fail the D/E tests in most years.

Between the court's refusal to invalidate the gainful employment rule and the government’s insistence on regulating for-profit law schools, it appears that at least six law schools will need to steeply discount their tuition or quickly improve their students’ prospects. If only the government would hold all law schools similarly accountable.

Matt Leichter, What If The Gainful Employment Rule Were Applied to All Law Schools?:

[A]ny law school whose graduates would need make $50,000 in discretionary annual income would probably fail the gainful employment rule in short order unless they were elite law schools with low unemployment rates. That’s about $100,000 in mean weighted debt, coincidentally—before interest. That’s at least 50 schools. Kicking these law schools out of the federal loan program would be in keeping with the Department of Education’s stated goals for crafting the rule—accountability for student outcomes—but Congress won’t let it. ...

For the complete list of all law schools ranked by average weighted student debt, see here.

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A way out

Posted by: Woody | Jul 1, 2015 10:18:27 AM

He's busy posting on food blogs how those who mock the quality and health of Arby's food are nothing but elitists and the Arby's of the world are offering "opportunity" for dining to diners from lower socioeconomic backgrounds.

Posted by: Cent Rieker | Jun 30, 2015 7:31:54 PM

Where is that guy that chimes in whenever anyone points out that Infilaw is a borderline criminal enterprise?

Paging John Charles Kunich.

Posted by: terry malloy | Jun 30, 2015 7:44:33 AM