Paul L. Caron

Sunday, October 25, 2015

NY Times: A Majority Of Law Schools Are Scamming Students And Taxpayers

NY Times Logo (2015)New York Times Sunday Review editorial, The Law School Debt Crisis:

American law schools are increasingly charging outrageously high tuition and sticking taxpayers with the tab for loan defaults when students fail to become lawyers.

In 2013, the median LSAT score of students admitted to Florida Coastal School of Law was in the bottom quarter of all test-takers nationwide. According to the test’s administrators, students with scores this low are unlikely to ever pass the bar exam.

Despite this bleak outlook, Florida Coastal charges nearly $45,000 a year in tuition, which, with living expenses, can lead to crushing amounts of debt for its students. Ninety-three percent of the school’s 2014 graduating class of 484 had debts and the average was almost $163,000 — a higher average than all but three law schools in the country. In short, most of Florida Coastal’s students are leaving law school with a degree they can’t use, bought with a debt they can’t repay.

If this sounds like a scam, that’s because it is. Florida Coastal, in Jacksonville, is one of six for-profit law schools in the country that have been vacuuming up hordes of young people, charging them outrageously high tuition and, after many of the students fail to become lawyers, sticking taxpayers with the tab for their loan defaults.

Yet for-profit schools are not the only offenders. A majority of American law schools, which have nonprofit status, are increasingly engaging in such behavior, and in the process threatening the future of legal education.

Why? The most significant explanation is also the simplest — free money.

In 2006, Congress extended the federal Direct PLUS Loan program to allow a graduate or professional student to borrow the full amount of tuition, no matter how high, and living expenses. The idea was to give more people access to higher education and thus, in theory, higher lifetime earnings. But broader access doesn’t mean much if degrees lead not to well-paying jobs but to heavy debt burdens. That is all too often the result with PLUS loans.

The consequences of this free flow of federal loans have been entirely predictable: Law schools jacked up tuition and accepted more students, even after the legal job market stalled and shrank in the wake of the recession. For years, law schools were able to obscure the poor market by refusing to publish meaningful employment information about their graduates. But in response to pressure from skeptical lawmakers and unhappy graduates, the schools began sharing the data — and it wasn’t a pretty picture. Forty-three percent of all 2013 law school graduates did not have long-term full-time legal jobs nine months after graduation, and the numbers are only getting worse. In 2012, the average law graduate’s debt was $140,000, 59 percent higher than eight years earlier.

This reality has contributed to the drastic drop in law school applications since 2011, which has in turn exacerbated the problem — to maintain enrollment numbers, law schools have had to lower their admissions standards and take even more unqualified students. These students then fail to pass the bar in alarmingly high numbers — in 2014, the average score on the common portion of the test was the lowest in more than 25 years.

How can this death spiral be stopped? For starters, the government must require accountability from the law schools that live off student loans. This year, the Obama administration extended the so-called gainful employment rule, which ties a school’s eligibility to receive federal student loans to its success in preparing graduates for jobs that will enable them to repay their debt. The rule currently applies only to for-profit law schools, all of which, given their track records, would fail to qualify for federal loans.

This rule should also apply to nonprofit schools. If it did, as many as 50 nonprofit schools could fail as well, based on one measure that considers students’ debt-to-income ratio. Another good idea would be to cap the amount of federal loans available to individual schools or to students. This could drive down tuition costs, and reduce the debt loads students carry when they leave school. ...

If fewer federal dollars were streaming into law schools’ coffers and more were directed to fund legal services organizations, the legal profession — and the American legal system as a whole — would be better for it.

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The schools aren't holding their students' debts. Access, which is a non-profit organization, holds them - at least until it bundles those loans and sells them to like pension funds or college endowments. It's pretty much the exact same mechanism as mortgages a decade ago: banks didn't care if they could be repaid because they would sell those mortgages off, thus ridding themselves of the risk. The risk ultimately lies with the new owners of those student loan asset-backed securities (SLABS), and quite frankly, SLABS have, for the most part, outperformed the other major asset-backed securities classes since the recession precisely because the underlying loans are nondischargeable. Trust me, in the absence of GradPLUS, private loans will fill the void.

Posted by: Unemployed Northeastern | Oct 26, 2015 1:53:17 PM


I've seen you make this "Access Group" argument a number of times. I agree that if there were additional profit to be made in the lending aspect, that it would be quite nefarious. However, I can't imagine that most schools want to hold their graduates' debt even if it is high interest and nondischargeable. What are the odds a NESL grad with $200k in debt is ever going to repay even $50k? I would estimate 2%. In fact, I think making schools co-sign student loans or something to that effect would have an extremely positive impact on improving the admissions regime.

Posted by: JM | Oct 26, 2015 11:20:30 AM


"What would happen if school loans were simply left to the private lending market? "


1. 197 of the ABA-accredited law schools jointly own a private student lender (Access Group)

2. As an earlier NYT article stipulated, while undergrad tuition only climbed 71% from 1989 through 2009, law school tuition climbed 317%. GradPLUS loans only came about in 2006, and private loan nondischargeability only came about in 2005.

3. Sallie Mae and other private lenders are practically salivating to kick the SLABS (Student Loan Asset-Backed Securities) market back into high gear.

Posted by: Unemployed Northeastern | Oct 26, 2015 10:42:43 AM


Nice strawman, but even at the undergraduate level, gender studies degrees AND ethnic studies AND cultural studies AND geographic studies put together don't even comprise a rounding error of college graduates. 8,900 such majors graduated in 2012-13, out of 1.84 million four-year college graduates. That's less than one half of one percent. The percentage going on to get a MA/PhD in one of those disciplines is going to be far less - and most academic master's programs are heavily subsidized and discounted anyhow. There are five JDs for every one BA in area/gender/culture/ethnic studies major.

Posted by: Unemployed Northeastern | Oct 26, 2015 9:53:57 AM

Good article. This article however seems to miss that schools had been reporting employment data -- but that data was fraudulent. The change is that the ability to post fraudulent data has been eviscerated.

In any event, why is the government involved in the lending business here? What would happen if school loans were simply left to the private lending market?

Posted by: anon. 25 | Oct 26, 2015 9:20:06 AM

The scam also includes all those post graduate degrees that are unlikely to result in gainful employment. Like gender studies, maybe?

Posted by: Rich | Oct 26, 2015 7:46:02 AM

Wow, even the NYT gets it. However, it is much broader than law school. The same is true for all of higher ed.

Posted by: Dale Spradling | Oct 26, 2015 7:18:34 AM

TILA laws should require law schools to gather employment and earnings data from recent graduates, and report same to prospective borrowers, explicitly stipulating that any graduate for whom data is unavailable is presumed unemployed and in default on student loans.

Posted by: hammer607 | Oct 26, 2015 5:54:55 AM

When the paper of record opines that your industry is a scam, perhaps it is time to acknowledge that there is a problem.

Posted by: Jojo | Oct 25, 2015 7:32:58 PM

Amen. Hopefully, it would also capitate tuition increases!

Posted by: Tom N. | Oct 25, 2015 7:14:55 PM