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

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.