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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, June 17, 2016

NY Times:  As Law Grads Seethe With 'Atavistic Rage' At Their Financial Plight, Many Law Schools Confront Stark Choice: Continue To Admit Marginal Students, Or Shut Down

NY Times Dealbook (2013)New York Times Deal Book: An Expensive Law Degree, and No Place to Use It, by Noam Scheiber:

By most measures, John Acosta is a law school success story. He graduated from Valparaiso University Law School — a well-established regional school here in northwestern Indiana — in the top third of his class this past December, a semester ahead of schedule. He passed the bar exam on his first try in February. Mr. Acosta, 39, is also a scrupulous networker who persuaded a former longtime prosecutor to join him in starting a defense and family law firm. ...

Yet in financial terms, there is almost no way for Mr. Acosta to climb out of the crater he dug for himself in law school, when he borrowed over $200,000. The government will eventually forgive the loan — in 25 years — if he’s unable to repay it, as is likely on his small-town lawyer’s salary. But the Internal Revenue Service will treat the forgiven amount as income, leaving him what could easily be a $70,000 tax bill on the eve of retirement, and possibly much higher.

Mr. Acosta is just one of tens of thousands of recent law school graduates caught up in a broad transformation of the legal profession. While demand for other white-collar jobs has rebounded since the recession, law firms and corporations are finding that they can make do with far fewer full-time lawyers than before.

Nationally, the proportion of recent graduates who find work as a lawyer is down 10 percentage points since its peak of the last decade, according to the most recent data. And though the upper end of the profession finally shows some signs of recovering, the middle and lower ranks remain depressed, especially in slower-growth regions like the Rust Belt.

As of this April, fewer than 70 percent of Valparaiso law school graduates from the previous spring were employed and fewer than half were in jobs that required a law license. Only three out of 131 graduates worked in large firms, which tend to pay more generous salaries.

“People are not being helped by going to these schools,” Kyle McEntee, executive director of the advocacy group Law School Transparency, said of Valparaiso and other low-tier law schools. “The debt is really high, bar passage rates are horrendous, employment is horrendous.”

Even as employment prospects have dimmed, however, law school student debt has ballooned, rising from about $95,000 among borrowers at the average school in 2010 to about $112,000 in 2014, according to Mr. McEntee’s group.

Such is the atavistic rage among those who went to law school seeking the upper-middle-class status and security often enjoyed by earlier generations, only to find themselves on a financial treadmill and convinced their schools misled them, that there is now a whole genre of online writing devoted specifically to channeling it: “scamblogging.”

Belatedly, many schools are starting to respond to this brutal reality, or at least the collapse in applications it has set off. In February, Valparaiso announced it was offering buyouts to tenured professors. As of May, 14 of 36 full-time faculty members had either accepted the package or retired. The law school plans to reduce its student body by roughly one-third over the next few years, from about 450 today.

To the faculty at Valparaiso and the roughly 20 percent of the 200 or so American Bar Association-accredited law schools that have cut back aggressively in recent years, these moves can feel shockingly harsh. ...

Given the tectonic shifts in the legal landscape, the relevant issue may not be how much law schools like Valparaiso should shrink. Today the more important question is whether they should exist at all. ...

Law schools, for their part, seem strangely oblivious to all this. ... “I counsel a lot of students and try to make them realize that a J.D.-advantaged job can be extremely useful,” said Del Wright Jr., a Valparaiso tax law professor who is one of the school’s most popular instructors.

“You see all these businesses, ‘We Buy Liens’ — what exactly is going on there?” he continued, explaining that buyers of tax liens can earn hefty state-sanctioned interest rates, as well as fees to get the liens removed. “If you are entrepreneurial but not the best lawyer, you might look into it.” ...

[I]n the mid- to late 1980s, [Valparaiso] put an increasing emphasis on legal scholarship and recruited faculty members who could produce it. Across the country, many law schools were undergoing a similar evolution.

It’s no coincidence that the average law school faculty began to grow quickly around this time: Each professor was teaching fewer courses to make time for research. [Retired Valparaiso professor Bruce] Berner said he went from teaching 15 or 16 credit hours a year — typically five classes — to no more than 12. ... It’s also no coincidence that law schools raised the cost of attending, which helped cover the additional expense. ...

In 2004, former President George H. W. Bush spoke at a gala celebrating the school’s 125th anniversary. It was around this time that Valparaiso, like many law schools, approached its peak competitiveness. Law school applications topped out at just over 100,000 nationally in 2004 and gradually began to decline.

For Valparaiso, the bottom fell out in two stages. Applications dropped from over 3,000 in 2007 to under 1,600 in 2009, although this was partly because of a change in recruitment strategy, then below 1,200 a few years later.

After this second drop, faculty members and administrators became anxious. “I was chair of the admissions committee and we’re sitting there watching this,” Mr. Berner said. “It’s a mess.”

The committee agonized over whether it should accept fewer students or keep its class size roughly constant and admit weaker candidates. In the end, it opted for the latter, a decision Mr. Berner admits wasn’t entirely on the merits, since fewer students would have meant less revenue. “There was a lot of pressure, of course, from the central administration to keep the numbers up,” he said. ...

By 2014, the limitations of the strategy had become apparent: The figures the school reported for the rate at which its graduates passed the Indiana bar exam, which had already been dipping, crashed to about 61 percent, from about 77 percent the year before. An enormous number of students wouldn’t be able to work as lawyers in the state even if jobs were theoretically available. ...

Valparaiso was, in effect, caught in a deflating financial bubble, one most law schools were slow to heed because of the government’s role in financing legal education. Applications ultimately tumbled about 40 percent nationally between 2010 and 2015, and by a roughly similar percentage at Valparaiso.

One telltale sign of the bursting bubble was that more prestigious schools began poaching the students of lower-ranked schools after their first year. “We were losing students to Indiana University,” said Professor Levinson at Valparaiso. “We lose two to three a year of our honors students to Notre Dame.”

By the fall of 2015, the university’s central administration began to debate several options for overhauling the law school; among the more drastic alternatives were to close it or merge it with another school. In the end, the leadership decided that shrinking the school would suffice.

By that point, the faculty put up little resistance. “I don’t think it’s moral to take someone’s money who can’t make it,” Dean Lyon told me. “It’s just wrong.”

Mr. Berner, for his part, feels a tinge of regret when he looks back on the years after the 2009 recession. “Everyone had good intentions,” he said. “If we could go back, I think we should have erred a little more on the side of turning people down.” ...

[T]he way Valparaiso and other lower-ranked schools lure [top] students ... is to offer sizable scholarships, and the only way they can afford these scholarships is if a large proportion of other students pay full freight.

Inevitably, many of these sticker-price payers are weak students who lack better options. Research by Prof. Jerome M. Organ, an expert on law school economics at the University of St. Thomas School of Law in Minneapolis, shows that students with low test scores and undergraduate grade-point averages tend to subsidize the stars; this is especially true of third- and fourth-tier schools like Valparaiso. It’s the marginal students who pay the bills, not [top] students.

And this dynamic is very likely to continue, for the simple reason that there is still too much law school capacity chasing too few good students. While law school applications have dropped by nearly 40 percent nationally since 2010, enrollment has dropped by only about 30 percent, and the number of full-time faculty members has dropped by less than 15 percent, according to data compiled from A.B.A. filings by the law school analyst Matt Leichter.

In such a world, schools like Valparaiso essentially face the following choice: Admit a large number of marginal students, or shut down.

Professor Organ believes that some law schools will in fact shut down. He draws an analogy to dental schools, which experienced a similar collapse in applications in the 1970s and 1980s, leading to the eventual demise of about 10 percent of all schools by the early 1990s.

 

https://taxprof.typepad.com/taxprof_blog/2016/06/ny-timesas-law-grads-seethe-with-atavistic-rage-at-their-financial-plight-many-law-schools-confront-.html

Legal Education | Permalink

Comments

Are they really marginal? Do we over-rely on the LSAT scores and UGPA averages in admissions? Is there a real correlation between those numbers and excellence in law school? See a recent study by Prof. Jeffrey Kinsler of Marquette on these questions @ file:///C:/Documents%20and%20Settings/KENTPROF/My%20Documents/Downloads/Article%20--%20LSAT%20a%20lousy%20predictive%20tool%20(1).pdf

Posted by: Ralph Brill | Jun 17, 2016 6:27:45 AM

*Are they really marginal?*

Yes. Full stop.

But hey, whatever helps you sleep at night while you keep drawing a salary from the human misery that student loans cause.

And you linked to your own computer's C drive.

Posted by: terry malloy | Jun 17, 2016 7:52:34 AM

Ralph Brill:

Given the trend of grade inflation and the lack of transparency regarding class rank at most institutions, I doubt that “excellence in law school”—whatever that means—is a good measure of whether more marginal students are being admitted. In addition, given the manner in which law schools have gamed their employment statistics and other measures affecting their U.S. News rank, I don’t think anyone should take an institution’s assessment of the “excellence” of its own student body at face value. If more marginal students are not being admitted, then how do you explain the dip in bar-passage rates?

Posted by: Curmudgeonly Ex-Clerk | Jun 17, 2016 8:07:43 AM

And I repeat for the 900th time: Where is the ABA in all this? How are these low-quality schools allowed to continue this scam year after year without the ABA stepping in and saying enough? Paid apologists like Ralph Brill and Jeff Kinsler should be ashamed of themselves, but it is really the ABA that is allowing this to continue - ruining our profession in the process. It's time for the DOE to cut off federal loans for these predatory law schools.

Posted by: Carl Osterlee | Jun 17, 2016 8:58:36 AM

Valpo's class entering in 2015 LSAT median: 145 (roughly the 25th percentile of all test takers, i.e. 3/4 of takers did better)
Unsubsidized cost of attendance: approx. $200,000
Percent of Valpo class of 2015 who found employment at firms of 11+, where they have a chance at paying off the average student loan debt: 10%
Percent of Valpo class of 2015 that obtained full time, long term attorney jobs at ANY salary within ten months of graduation: 42%
Percent of Valpo class of 2015 that was completely unemployed 10 months after graduation: 31%
Total number of ABA accredited law schools in Indiana: 5

Posted by: Lonnie | Jun 17, 2016 9:34:56 AM

This piece of "journalism" is a hit piece on law schools fed by the scamblog narrative. Notice no mention of key research showing lifelong advantage of a JD. And even more insulting to the Hoosier State no mention of BLS DATA (as opposed to Scheiber's anecdotes) that jobs and incomes for Indiana lawyers have increased substantially since 20009.

Posted by: Steve Diamond | Jun 17, 2016 9:35:31 AM

Michael Simkovic needs to explain the truth to us. And we all need to listen.

Posted by: correct the record | Jun 17, 2016 9:44:29 AM

Noam:

If you pay me $1,000, I will explain IRC Section 108 to you. Better yet, call one of the tax professors at Valpo, and they will explain it to you. That way, you can credit a Valpo professor when the NY Times prints the correction.

Posted by: Lux | Jun 17, 2016 9:50:28 AM

"Although he received a few offers, none came with a salary or benefits. The firms offered him little more than a desk and a business card. Any revenue he brought in would have to be shared with the partners 50-50, and they would not be reciprocating."

Wage premium!

Posted by: Unemployed Northeastern | Jun 17, 2016 10:25:52 AM

Hey Steve,

Is that the same Simkovic who risibly claimed that all incidents of law school depression are due to genetics because they self-select into law school, even though the actual scientific literature is very clear that only about 40% of depression cases can be linked to genetics and he offers absolutely no evidence of a self-selection & genetics link (and of course completely ignores law school as a common environmental stress factor)? Also, that wage premium study does not extend past the Class of 2008; I hate to break it to you, but it is now 2016, meaning that the data is now eight years out of date, which is about half as long as the entire period he studied. As I've stated ad nauseum on this thread, the NALP median starting salary has declined 21% in real dollars since 2008. And please do tell us why the newspapers would have some sort of anti-law school vendetta. I'd love to hear this Trumpian conspiracy theory.

Posted by: Unemployed Northeastern | Jun 17, 2016 10:49:06 AM

LOL at the NYT author correcting all of Steve Diamond's strawmen arguments on Twitter.

Posted by: Unemployed Northeastern | Jun 17, 2016 11:20:48 AM

Steve: I know what a waste of time it is trying to engage with you, but I feel like beating my head against the wall this afternoon, I guess.

Looking at these students and countless others like them (no, they're no just anecdotes, they're real people): do you think these people have a reasonable chance of repaying the money they've borrowed while living a reasonable life, and how do you assess the prospect of the US taxpayer not to lose massive sums of money? Honesty, please.

Posted by: correct the record | Jun 17, 2016 2:06:27 PM

Steve: I know what a waste of time it is trying to engage with you, but I feel like beating my head against the wall this afternoon, I guess.

Looking at these students and countless others like them (no, they're no just anecdotes, they're real people): do you think these people have a reasonable chance of repaying the money they've borrowed while living a reasonable life, and how do you assess the prospect of the US taxpayer not to lose massive sums of money? Honesty, please.

Posted by: correct the record | Jun 17, 2016 2:06:29 PM

1) Yes. See Simkovic & McIntyre
2) Nil. See Becker on Becker-Posner blog on value of higher ed and law school

Indiana has more than rebounded from the crisis low point and that makes the NYT piece misleading and false.

Posted by: Steve Diamond | Jun 17, 2016 4:39:11 PM

So your contention is that S&M's 1,382 data points of law school graduates, the most recent of whom graduated in 2008, somehow trumps or invalidates the declining NALP median starting salaries since that time, even though the NALP collects about 21,000 data points per year? Uh huh. And as I outlined above, that $160k level set in 2007 is worth about $184k today, so this first-time-in-a-decade raise doesn't even equal the increase in cost of living, to say nothing of the 50% increase in law school tuition at the institutions that feed large law firms.

Your second source died years ago. Sad, but still out of date. One feels obligated to point out that Posner was a signatory to that Coalition of Concerned Colleagues letter a few years ago that outlined how law school now costs too much relative to job outcomes. You know, the same letter that Campos, Tamanaha, Henderson, and Caron signed. Money quote: "The problematic economics are captured by this
fundamental mismatch: a graduate who earns the median salary cannot
afford to make the monthly loan payments on the average debt.... Legal education cannot continue on the current trajectory." http://www.americanbar.org/content/dam/aba/administrative/professional_responsibility/taskforcecomments/032013_coalition_revcomment.authcheckdam.pdf. Posner also recently wrote an entire book about how the legal academy is essentially irrelevant to the practicing bar and judiciary in the 21st century.

As to your third point, the NYT more than ably rebutted this point on Twitter. Law school grads in Indiana have been sucking wind compared to every other professional role in that state.

Posted by: Unemployed Northeastern | Jun 17, 2016 7:43:56 PM

Once again you either cannot read or are being purposely obtuse. NALP is recent graduate data from one point in time (ten months out) while S&M measures lifetime earnings. Only the latter answer the question posed by CTR.

WRT Becker and Posner, obviously I side with the Nobel Prize winner Gary Becker who knew a thing or two about human capital investments.

Posted by: Steve Diamond | Jun 17, 2016 9:48:13 PM

It's been five years since David Segal and Paul Campos got this ball rolling in the NYT. In each of those five years, there's been at least a few stories like this one - beleaguered, admirable recent graduates from a lower-ranked school, bleak job market, high debt, etc. In all, maybe a couple of dozen named recent JDs.

If Simkovic and McIntyre's contentions about the JD wage premium were true, don't you think that there would be at least one or two of these people in these stories who would have turned it all around by now, living their best lives as JDs? To be positive counter-examples to these stories?

Posted by: Morse Code for J | Jun 18, 2016 4:10:11 AM

Steve Diamond says: "Notice no mention of key research showing lifelong advantage of a JD."

To get data for lifelong advantages, you're looking at law school graduates from the 1960s and 1970s. Today's law graduates are entering a far different labor marketplace. That's the central issue in this debate.

Posted by: Michael W. Perry | Jun 18, 2016 5:29:43 AM

Revelation: Skip law school and do something useful. How about plumbing?

Posted by: Skip | Jun 18, 2016 6:30:36 AM

". . . fewer than 70 percent of Valparaiso law school graduates from the previous spring were employed and fewer than half were in jobs that required a law license."

Fewer than half of all grads, or fewer than half of those with jobs? The latter, I assume, but it's not completely clear.

Posted by: James O'Sullivan | Jun 18, 2016 8:26:53 AM

Steve, I've read about your knowledge of economics. http://www.lawyersgunsmoneyblog.com/2015/05/adventures-in-supply-and-demand-with-prof-steve-diamond, http://www.lawyersgunsmoneyblog.com/2013/07/steve-diamond-academic-fraud. Can't say I'm impressed.

Yeah, Becker unfortunately died some years ago, meaning his opinion for what law school grads go through today is unknown. We do know his co-blogger (and cofounder of Law & Economics jurisprudence) Richard Posner thinks, though, as I posted above.

I saw in your Twitter feud with Noam Schieber that the data (that minimal raise for a few hundred NYC Biglaw lawyers) shows that there is an insufficient supply of lawyers. LOL WUT? Median starting salary, per NALP, dropped 21% in real dollars between 2008 and 2014. 26,066 members of the Class of 2012 found full-time, long-term, license-required jobs within nine months of graduation; compare to just 24,832 graduates who found such work within TEN months from the Class of 2015. And as I said above, $180k today is not worth what $160k was in 2007, even before we get to the 50% increase in annual tuition at most T14 law schools. And the unemployment rate for recent law school grads remains multiple percentile points higher than the unemployment rate for recent four-year graduates. And using a study that ends with the Class of 2008 to prove anything about the outcomes of the Classes of 2008-2016 shows only that you probably have a 401(k) full of like Kodak and CMGI stock. So no, there is absolutely no sign of a law grad shortage.

Posted by: Unemployed Northeastern | Jun 18, 2016 11:36:20 AM

Actually Michael, as Mike Simkovic demonstrates in a post today at Brian Leiter's site, law students today are better off than those of a generation ago. And it turns out that even the anecdotes the Times relied on to paint their misleading picture have problems.

That law graduates can get work and can earn positive income at a significant level higher than just having a BA, however, does not explain the problems law schools are now having. But the point is that that is a separate story. The explanation is NOT that they are all following the HYS model. Most do not, in fact. I think that may be the problem - clinics and other efforts are more expensive. But that is another topic for another time.

Posted by: Steve Diamond | Jun 18, 2016 1:21:25 PM

Becker died in 2014 well after the law school debate began. He made the following comment in 2013: "I am optimistic that the demand for lawyers will pick up again once the American economy returns to long-term growth levels. The US remains a litigious society, and the number of laws and regulations to be litigated are increasing, not decreasing."

The data clearly justify his optimism.

Posted by: Steve Diamond | Jun 18, 2016 3:22:45 PM

UNE writes:

"Steve, I've read about your knowledge of economics. [...] Can't say I'm impressed."

I've read UNE's monomaniacal style of "argument", which relies on a static, Manichean world-view, gross over-simplifications about "law schools", as they were all identical in their practices, de-contextualized recitations of statistics, and undisguised *ad hominem*. I've also witnessed his cowardly (but, given the quality of his "argument", understandable) refusal to identify himself.

Can't say I'm impressed.

Posted by: Rob T. | Jun 18, 2016 3:49:46 PM

Let's see: anonymous interlocutor says I am a coward for being anonymous and then accuses me of writing in ad hominems. The projection is strong in your poste, "Rob T." And of course, you can't being to refute my data, or you would have. Res ipsa, friend.

Posted by: Unemployed Northeastern | Jun 18, 2016 9:58:54 PM

@Diamond/3:22 p.m.:

The recession (for the rest of the economy, at least) ended six years ago, and we've been in a constant if slow expansion ever since. How much longer should Sarah Tapia wait to receive her JD wage premium in the clothing department at Meijer's?

Posted by: Morse Code for J | Jun 19, 2016 6:23:19 AM

"How much longer should Sarah Tapia wait to receive her JD wage premium in the clothing department at Meijer's?"

Thank you, Morse Code for J. Exactly. Law profs out there: this is what's happening to your graduates! You need to pay attention.

Posted by: LaVonna | Jun 19, 2016 11:48:25 AM

Valparaiso is an RNP law school, meaning it is somewhere in the bottom quartile of ABA schools. The published S&M study found almost no premium at the 25th quartile. Why isn't that consistent with Valparaiso students not having a premium and bring hamstrung by debt?

Posted by: Former Editor | Jun 19, 2016 3:30:36 PM

"Actually Michael, as Mike Simkovic demonstrates in a post today at Brian Leiter's site, law students today are better off than those of a generation ago. And it turns out that even the anecdotes the Times relied on to paint their misleading picture have problems. That law graduates can get work and can earn positive income at a significant level higher than just having a BA"

The median starting salary for bachelor's degree recipients last year ACROSS ALL MAJORS was $45k and change. The median starting salary for Seton Hall Law School, Michael Simkovic's employer, was $50,707, per their NALP form. A Seton Hall Law grad who received the median discount of $25k per year who has the average undergrad debt of $35k will owe around $213,000 by the time they pass the bar. That means their average student loan repayment will be more than two thirds of their takehome salary. None of this is disputable. PAYE or ruin. Even if they eventually get to the vaunted BLS median lawyer salary after 15-20 years, they will never come within a hundred miles of touching the principal on their law school loans, will accrue around a quarter million dollars in interest, and will have a taxable forgiveness event of around $350,000 in middle age.

Posted by: Unemployed Northeastern | Jun 19, 2016 4:09:15 PM

LaVonna, What makes you believe law professors are responsible for what happens to graduates on the job market? They make the worse HR professionals, believe me.

Posted by: Anon | Jun 19, 2016 6:07:03 PM

Valpo and Indiana Tech are a breath of fresh, intellectual air to Indiana. Indiana is vast, flat dystopian wasteland. I have traveled extensively around Indiana. Indiana is filled with new jails, Chick fil A's, Walmarts, Dollar Generals, diabetes clinics and used car lots featuring vintage 90s Saturns, Pontiac, and Hyundais. Their governor closed down the one remaining Planned Parenthood Clinic and the STD rates have sored.

Posted by: Captain Hruska Carswell, Continuance King | Jun 19, 2016 9:46:27 PM

How about plumbing?

I tried plumbing, but I found it draining.

Posted by: AMT buff | Jun 20, 2016 8:44:05 AM