Saturday, June 18, 2016

6 factual errors and several misleading statements in recent New York Times story by Noam Scheiber

New York Times reporter Noam Scheiber was kind enough to respond to my open letter and ask if I could point to anything specifically factually wrong with his story.  My response is below.

 

Noam,

Thanks so much for responding. Yes, there are at least 6 factual errors in the article, and several misleading statements.

I’ll start with my interview with Acosta from earlier today, and then we can discuss empirics. Here’s what Acosta said:

"There’s no way I could pay back my student loans under a 10-year standard payment plan. With my current income, I can support myself and my family, but I need to keep my loan payments low for now. I’ve been practicing law since May, and I’m on track to make $40,000 this year. I think my income will go up over time, but I don’t know if it will be enough for me to pay back my loans without debt forgiveness after 20 years. What happens is up in the air.   I’m optimistic that I can make this work and pay my student loans. I view the glass now as half full.

 

Valparaiso did not mislead me about employment prospects. I had done my research. I knew the job market was competitive going in. I knew what debt I was walking into. I think very few Americans don’t have debt, but for me it was an investment. I saw the debt as an investment in my career, my future, and my family.

 

Valparaiso gave a guy like me, a non-traditional student a shot at becoming a lawyer. Most law schools say they take a holistic approach, but they don’t really do it. I had to work hard to overcome adversity, and they gave me a shot to go to law school and to succeed. They gave me a shot at something that I wanted to do where most law schools wouldn’t.

 

My situation might be different from other law students who start law school right out of college. I was older and I have a family to support."

On to empirics.

The story states that:

“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.”

This is incorrect.

First, the number of jobs for lawyers has increased beyond pre-recession levels (2007 or earlier), both in absolute terms and relative to growth in overall employment. (error #1)

Focusing only on lawyers working full-time in law firms or for businesses (I’m not sure why you exclude those working in government), there are more full-time corporate and law firm lawyers in 2014 according to the  U.S. Census Bureau’s Current Population Survey (CPS)—870,000—than in 2007—786,000. There have been more full-time corporate and law firm lawyers in every year from 2009 on than there were in 2007 and earlier.

You were looking at NALP or ABA data, which is measured at a single point in time—9 or 10 months after graduation—and is therefore much less representative of outcomes for law graduates—even recent law graduates—than Census data. Indeed, many law graduates who will eventually gain admission to a state bar will not have done so as of the date when NALP collects data. NALP and the ABA also use different definitions from the Census, so you cannot readily use their data to compare law graduates to others.

The trend of growth in lawyer jobs holds true for other cuts of the data (all lawyers; all full time lawyers) using other data sources—U.S. Census or Department of Labor (BLS OES) data.[i]

This is in spite of large declines in law school enrollments, which would be expected to reduce the number of working lawyers.

Second, employment has not rebounded to pre-recession (2007 or earlier) levels outside of law. (error #2)

This is the employment population ratio for individuals with a bachelor’s degree or advanced degree.  It is the percentage of the population that is employed under a broad definition of employment (part time jobs count; jobs not requiring a bachelor’s or advanced degree count; jobs not related to field of study count)).

You can see clearly from the chart that the employment population ratio has not recovered to pre-recession levels. The total number of jobs (broadly defined) has increased, but this increase is not keeping pace with growth in the educated population. Employment rates are lower for those with lower levels of education, so these educated folks—only around 73 percent of whom have any job whatsoever—are the lucky ones in this economy.

 

The story states

“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 . . .”

This implies that things were better financially for “earlier generations” of law graduates than they are for recent graduates. That’s incorrect. (error #3).

Student loan default rates for law school graduates were lower in recent years than in the 1990s.

Lawyer and law graduate earnings and earnings premiums have also increased over the long term after adjusting for inflation and controlling for race and sex.   Whites with or without a law degree typically earn more than minorities with the same level of education. Men with or without a law degree typically earn more than women with the same level of education. Law is more diverse than it used to be, but each race-sex group is doing better financially than similar individuals in the past.

Because the value of a law degree is so much higher than tuition (around 10 times as high on average), even relatively small increases in the law earnings premium can offset a large increase in tuition.

 

The story states:

“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.”

First, the 25-year payment period is incorrect for Acosta, and would apply to very few people contemplating law school today. (error # 4/misleading statement)

Federal student loans are forgiven after 20 years of payments under the recent PAYE program—not 25—and after 10 years of work for the government or non-profits.  

Acosta is eligible for PAYE because he had no federal student loans outstanding as of October 2007 and borrowed for law school starting in 2013. I confirmed these facts in an interview with Acosta today.

Most recent law students will also be eligible for PAYE, so this is also misleading.

Second, the description of taxation of debt forgiveness is incorrect. (error #5)

Section 108 of the Internal Revenue Code provides that debt forgiveness is only taxable as income to the extent that the taxpayer has assets greater than his debts at the time of the forgiveness. If a student borrower has unencumbered assets that exceed his debts, he can use those assets to repay his loans. If he doesn’t have unencumbered assets, then he won’t pay any taxes when his student loans are forgiven.

In other words, either he is required to pays no taxes on debt forgiveness, or he accumulates enough assets that even after paying any taxes on debt forgiveness he will still have savings left over. If it’s the latter, then it means he can afford to pay those taxes and might have been able to afford to repay his student loans in full without any student loan forgiveness.

More broadly, the Acosta anecdote is atypical and potentially misleading because the data indicates that most law school graduates do in fact repay their debts in full—and earn more than enough extra to do so compared to bachelor’s degree holders. Acosta says he is hopeful that he will eventually be able to repay his debts, that he fully understood the employment prospects and the debt going in, and that Valparaiso did not mislead him but rather gave him an opportunity. (see quote above)

Even at the 25th percentile, toward the bottom, the lifetime present value of a law degree as of the start of law school is around $400,000 (based on around a $20,000 boost to earnings per year). Law graduates typically see their earnings rise over time and not peak until middle age (around their 50s).

After the JD III shows graduates of 4th tier law schools who passed the bar exam and were working full time (not necessarily as a lawyer) earning a median of $100,000 per year 12 years after graduation.

Even at 4th tier law schools, by 12 years after graduation, the percent of students with zero debt had increased from 13% to 37%, and the percent with more than $100,000 in debt fell from 17% to 14%. This was a group that graduated in 2001 when debt levels were somewhat lower, but not spectacularly so.

Acosta may be unusual because his advanced age means he’ll likely have fewer years of work with a boost to earnings and his decision to focus on criminal law rather than a more lucrative area means he may earn less than most. But most law graduates complete their educations in their mid to late 20s, and most do not go into low paid areas like criminal law.

I think you could do more to avoid suggesting to your readers that Acosta is the typical law school graduate. Acosta realizes that he isn’t.

 

You have a quote from Campos saying:

“Why does Valpo have an economic structure that looks like Harvard Law School’s? . . .It makes absolutely no sense to do it. It’s why they have to charge Harvardesque prices.”

This is incorrect. Harvard at full price costs about 50% more than Valparaiso at full price. (error #6)

Valparaiso's annual tuition is $40,000.  Harvard’s annual tuition is $60,000

The kind of student who can gain admission to Harvard with no scholarship money can probably gain a full scholarship to Valparaiso. For anyone choosing between Valparaiso and Harvard, Valparaiso would be a much less expensive option.

And for anyone admitted to Valparaiso without any scholarship, there are less expensive and lower quality law schools which will enable the prospective law student to sit for a bar exam, including non-ABA approved law schools in California.

Prospective law students are routinely presented with cost and quality tradeoffs, and they decide how much they want to invest in their education, just as they decide how much house they want to buy or what health insurance plan they are willing to pay for.

 

The story relies on Campos saying:

“Officially, many stress the growing availability of jobs for which a law degree is preferred rather than required — the kind of job Ms. Anderson has been searching for. But given the vagueness of the category, Mr. Campos said, discounting the number of these jobs by 50 percent is a good rule of thumb.”

This is Campos’s opinion and not a fact, but it highlights the problem with relying on “experts” without expertise.

Even when law graduates do not practice law, over the long term, they make substantially more money than they would likely have made without a law degree.

The labor economics literature routinely finds that the financial benefits of higher education are broad based across occupations.

 

[i] In 2007, there were 556,000 employed lawyers according to BLS Occupational Employment Statistics, and they accounted for 0.41% of the workforce. In 2014, according to the same data source, there were 603,000 lawyers and they accounted for 0.45% of the workforce. (There was further growth in lawyer employment in 2015). The numbers in 2014 and 2015 are clearly higher than the numbers in 2007. In fact, the numbers were higher than 2007 numbers in every year from 2009 forward.

U.S. Census data (Current Population Survey) paints the same picture. The number of jobs for lawyers grew since 2007, and lawyers constitute a larger share of the workforce since 2007.

The BLS and CPS data give different numbers because BLS only includes those working at businesses as employees, and not those who are owners (i.e., law firm partners) or self-employed.

If you want to focus only on lawyers working full time (i.e., 35 hours per week or more), you’ll get the same picture—there are more lawyers working full time in 2014 than there were in 2007, and among full time workers—1,064,000 full-time lawyers in 2014 versus 964,000 in 2007.  

Lawyers also comprise a larger fraction of the full-time workforce in 2014 than they did in 2007. Lawyers were 0.92% of the full-time workforce in 2014, up from 0.82% in 2007.

Once again, the recent numbers have been higher than 2007 in every year since 2009. 

If you’re looking at “Legal Services” jobs, that’s a mistake because you’ll pick up a decline in jobs for legal secretaries and other low skill support workers, which hides the growth in jobs for lawyers and other highly educated workers.

 

UPDATES:

June 21, 2016: Steven Davidoff Solomon weighs in at N.Y. Times Dealbook.

June 21, 2016, 10:05pm EST:  Noam Scheiber sent a lengthy response by email and posted his response to his facebook page.   Scheiber informs me that his response was reviewed by his editors at the New York Times.  I may respond to his response in one or several posts.  The sum of it is that Scheiber's response depends on a series of problematic assumptions that are not consistent with well-established methods of analysis in labor economics and are also often inconsistent with the data.

June 24: I responded to Scheiber and explain Why The New York Times Should Correct The Remaining Factual Errors in Its Law School Coverage.  In response, the New York Times posted a correction to the most minor of the 5 remaining errors.

 

http://leiterlawschool.typepad.com/leiter/2016/06/6-factual-errors-and-several-misleading-statements-in-recent-new-york-times-story.html

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