June 12, 2015
The Department of Education has been overcharging low-risk professional school students for federal student loans (relative to the market rate) while keeping rates low for undergraduates who are far more likely to default. (For previous coverage, see here, here and here).
Bloomberg BNA's Bankruptcy Reporter describes the predictable consequences of this politically driven mispricing: Professional graduates are refinancing into less expensive private loans and removing themselves from the government's risk pool.
There is a simple solution that will shut down what Bloomberg describes as an "exodus of top borrowers" while preserving student lending profits for the benefit of taxpayers. The government should charge low risk graduate students less.
Update, June 13, 2015: Jordan Weissmann at Slate covers the story.
May 25, 2015
...while undertaking additional cost-cutting measures. It appears the School enjoys some strong support in the local Charleston community.
May 19, 2015
A curious sign of the times: Charleston Law students, acting as "creditors," seek to put school into receivership
May 14, 2015
According to a faculty member, the Law School ran nearly a five million dollar deficit this year, and the Dean has pledged to cut $2.1 million of that next year, with a combination of moves: the elimination of all sabbaticals, all research stipends, a 5% salary cut for senior staff, and a 10% salary cut for all faculty. To make matters worse, the Dean, according to one source, "forbade anyone from speaking to the press about this. The materials he passed out carried two watermarks, one large across the text, and another secret one (or so he said), with each faculty member's name so he will know who the leak is, he said." Since everyone familiar with legal education knows that many law schools are struggling with financial problems, it's mysterious (and counter-productive) for a Dean to make such a threat.
Pace faculty are concerned that there has been no attempt to buy out faculty (as other schools have done) and fear a further salary cut is in the offing before long. The elimination of sabbaticals also has a number of Pace faculty perplexed, since with a reduction in its class size, Pace has excess teaching capacity, so it's not like sabbaticals require hiring adjuncts or visitors, so they do not add to costs.
UPDATE: Prof. Alexander Greenawalt (Pace) writes:
I have not polled my peers but I believe that most of my colleagues would agree that there are serious inaccuracies in the report you received. Of course I’m not thrilled to have my salary cut, but the truth is that we are part of a university that is continuing to support us, and I still have a great job at a great law school. The main thrust of the dean’s remarks was that he is implementing budget cuts that will reduce our deficit without compromising the quality of the education we provide our students. On that score, I believe he succeeded. We are not the first law school to experience a faculty salary cut, and I don’t think this is a sign that we are a sinking ship.
As to the specific allegations, the document in question is an internal memorandum written by my some of my faculty colleagues identifying possible budget cuts, several of which have not been adopted. I think it’s obvious that any law school would treat this as a confidential document. I doubt that my colleagues who authored it wanted it made public, and I think the dean would have been well within his rights to limit our access to it, for example by making it available for review only in hard copy in the dean’s suite. Instead he decided to distribute individual copies, while taking measures to discourage (without prohibiting) public disclosure. I haven’t picked up my copy yet, so I can’t tell you what it looks like or what watermarks it might have. Perhaps he should have handled this distribution differently, but my honest belief is that he was acting out of a desire to be transparent rather than punitive.
In particular, I want to emphasize that there were no threats of any kind. David did not forbid communications with the press, and indeed when asked about this he was quite clear that we were free to do what we wanted. He did ask that we not leak the document to the press, and I think that’s a reasonable request. Certainly, he did not specify any consequences if we did.
Regarding sabbaticals, David [the Dean] was clear that they will still be available for important scholarly projects.
I can’t speak for my anonymous faculty colleague, and certainly I am not accusing that person of dishonesty, but obviously we have very different recollections!
I thank Prof. Greenawalt for contacting me about this. My source stands by the original account. I think some of these issues may be matters of interpretation. I do not think Pace is a "sinking ship" at all; it has an unusually strong faculty for a regional law school, and, as I noted originally, is facing the same issues that most American law schools are now facing.
May 12, 2015
Law students are more likely than college students to retain competitive scholarships (Michael Simkovic)
Critics of competitive scholarships tied to GPA or class rank claim that these scholarships are especially troubling when used by law schools, because the mandatory grading curve means that more law students are likely to lose their scholarships than undergraduates. However, as I noted in my last post, the data actually shows that law students are more likely to retain their competitive scholarships than are undergraduates.
The remaining critiques of competitive scholarships are not strong. According to one critique, if competitive scholarships are disproportionately used by law schools who admit students with low LSAT scores and GPA and are not used by the elite law schools, this suggests something suspicious about these scholarships. Lower ranked law schools serve different student populations with spottier academic preparation who are at greater risk of failing the bar exam and may have worse study habits. Some policies and practices that are helpful to motivate this population and encourage greater study effort may not be necessary for higher ranked law schools, whose students are already highly motivated and can pass the bar exam and learn challenging material without much effort.
Another argument is that after law school critics and The New York Times attacked law school competitive scholarships, and the ABA responded by requiring disclosure of this practice, the number of law schools using competitive scholarships declined. Critics claim that the disclosure caused law schools to stop using competitive scholarships, thereby proving the scholarships were unethical all along.
But perhaps law schools were simply attempting to avoid criticism, whether merited or not. In other words, perhaps the criticism caused both the mandatory disclosure and the reduction in the use of competitive scholarships. If The New York Times quoted an impressive sounding source claiming that those who typically tie their left shoe before their right were liars and thieves, and the Justice Department disclosed an annual list of everyone who tied their left shoe first, we might find that the percent of people who tie their left shoe first would drop, notwithstanding the fact that which shoe you tie first has absolutely nothing to do with ethics. Or, as Matt Bruckner suggests, perhaps some other factor, such as changes in relative market power or law school budgets help explain the shift in financial aid policy and neither the criticism nor the disclosure had much to do with it. Without more sophisticated methods of causal inference, its premature to make strong causal claims.
May 10, 2015
Competitive Scholarships, Mandatory Courses, and the Costs and Benefits of Disclosure (Michael Simkovic)
There is a wide range of views about the benefits, costs, and appropriate use of conditional merit scholarships—scholarships that under their terms, will only be retained after the first year of law school if students maintain a minimum GPA or minimum class rank (if there is a mandatory grading curve, a minimum GPA effectively is a class rank requirement). These questions implicate both broad value judgments and also very specific empirical questions to which we many not have clear answers.
1) Is competition for grades a help or a hindrance to learning?
2) Is competition, with greater rewards for winners than for losers, inherently moral or immoral?
- Does the answer depend on whether the outcome of the competition is driven by luck, skill, or effort?
- Does the answer depend on how large the differences in rewards are between winners and losers?
3) Does disclosure alter student decision-making?
- If so, how?
- Is this a good thing or a bad thing?
- If it is a good thing do the benefits of disclosure outweigh the costs of providing disclosure?
- Are some ways of providing disclosure clearer and more meaningful than others? Could too much disclosure be overwhelming?
Disclosures are sometimes very effective at improving market efficiency. Sometimes disclosures appear to have no effect. Sometimes they have the opposite of the intended or expected effect. For example, disclosure of compensation of high level corporate executives of publicly traded companies may have contributed to an increase in executive pay (see also here.)
In the case of conditional merit scholarships, the direct administrative costs of providing disclosure appear minimal. The effects of such disclosure, if any, remain unknown. I support access to greater information about conditional scholarship retention rates, not only for law schools but also for all educational institutions.
Scholarship retention rates at many undergraduate institutions under government-backed programs appear to be lower than scholarship retention rates at most law schools. Around half of Georgia Hope Scholarship recipients lost their scholarship after the first year. Around 25 to 30 percent of Georgia Hope Scholarship recipients retained their scholarships for all four years of college. Nevertheless, conditional merit scholarships can have positive effects on undergraduate enrollment and academic performance. A fascinating randomized experiment by Angrist, Lang and Oreopolous found that financial incentives improved grades for women but not for men. A recent experiment also found evidence that merit scholarships tied to grades can increase student effort and academic performance at community colleges.
Unfortunately, there is some evidence that the use of merit scholarships tied to GPA by undergraduate institutions—where grade distributions and course workload vary widely by major—can reduce the likelihood that students complete their studies in science technology engineering and math (STEM) fields. Students who major in STEM fields have a higher chance of losing their scholarships
In other words, if students can shop for “easy As” rather than study harder to improve their performance, they can reduce their own future earning prospects. The approach law schools take—merit scholarships tied to mandatory grading curves and a required curriculum—may be better for students in the long run. Indeed, law students might benefit financially if additional courses, such as instruction in financial literacy, were mandatory.*
Greater disclosure of grading distributions may exacerbate grade shopping and grade inflation, which can undermine student effort and learning. Some models suggest that grade inflation is contagious across institutions (see also here). (It should be possible to disclose scholarship retention rates without disclosing grade distributions).
In some contexts, such as securities regulation or pharmaceuticals, disclosure requirements tend to be high. In other areas, such as employment contracts, disclosure tends to be more limited. We may not always get the balance right. These questions have lead to a rich research literature in law, economics, and psychology (see Bainbridge, Lang, Mathios, Coffee, Kaplow, Easterbrook and Fischel, Romano, and Schwartz). In all cases, whether and how disclosures alter behavior is an empirical question. How the benefits compare to the costs are empirical questions mixed with subjective value judgments.
Given the current limited state of knowledge, and good faith and understandable disagreements about subjective value differences, strident views on one side or another, and moral condemnations of those entertaining different viewpoints, are not appropriate.
Law professors have an obligation to teach students to think like lawyers, weigh evidence, and consider different arguments and different perspectives. We should not shut down discussion with swaggering declarations of the moral superiority of our own views or ad-hominem attacks against those with whom we disagree.
A recent post (in the comments) by Brian Tamanaha (or someone posting under his name and with a similar rhetorical style**) highlights the unfortunate tendency by some toward moral posturing. Tamanaha writes:
“[Those who condemn conditional scholarships are] speaking up for the integrity of legal academia. It is embarrassing that law professors would now rise up to defend employment reporting standards … criticized by outsiders (see New York Times "Bait and Switch" piece), practices which have since been repudiated and reformed by new ABA standards. I do not understand why Simkovic is re-raising these resolved issues, but it does not help us regain our collective credibility.
After reading these posts, I have begun to wonder whether a sense of professional responsibility is what separates the two sides in this discussion. It is not a coincidence that John Steele, [Bernard Burk], and others who strongly condemn these practices have taught legal ethics.”
In other words, if you question Brian Tamanaha’s reasoning and conclusions—as I have—then you have no integrity and dubious ethics, are irresponsible and unprofessional, and are an embarrassment to the legal academy.
Bernard Burk, though declaring his disdain for ad-hominem attacks, accuses those with whom he disagrees of being “partisan.” He compares competition for grades and scholarships to physically beating students. Burk compares law schools to gangsters and evil witches. He claims that the positive effects of conditional scholarships on student motivation and learning “smells of post-hoc rationalization.” (Most of the labor economics studies demonstrating positive effects of financial incentives on student performance were available before The New York Times and the law school critics targeted law school conditional scholarships; the critics overlooked the peer-reviewed literature).
Deborah Merritt, though generally providing an intelligent discussion of conditional scholarship issues, compares conditional scholarships in which adults who lose the competition for grades receive a free year of law school to the fictional “Hunger Games” in which children who lose a physical struggle are murdered. (Paul Caron repeats this unfortunate comparison when summarizing the debate; so does Bernard Burk).
Paul Campos compares those who disagree with him about data disclosure standards to “Holocaust deniers.”
Law school critics have not persisted through the force of argument or evidence, but rather through their ability to make an honest discussion of the issues so unpleasant that very few who disagree with them wish to engage. We should thank Professor Telman for his courage and for elevating the conversation from polemics to evidence-based inquiry. As more professors and journalists raise substantive questions about law school critics’ narrative, it will become increasingly difficult for the critics to foreclose factual and ethical inquiry through ad-hominem attacks and hyperbole.
* A recent survey by John Coates, Jessie Fried, and Kathryn Spier at Harvard suggests that large law firm employers believe instruction in certain technically challenging business electives, especially accounting, corporate finance, and corporations, is particularly valuable on the job. Data does not exist to evaluate whether enrollment in such courses actually boosts earnings or employment, or is even correlated with greater earnings or employment. However, one working hypothesis is that such courses might be the law school equivalent of undergraduate STEM or economics majors. A study of high school financial literacy mandates suggests positive long-term effects on enrollees’ financial well-being.
** The first and only time I met Brian Tamanaha in person was at the 2013 Law & Society meeting in Boston where he spoke on a panel. Professor Tamanaha shut down questions from the audience about whether his presentation of law school data was misleading by insisting that in our hearts surely we all knew he was right and that any question about whether he was wrong on the facts, and any attempt to rely on data rather than emotionally charged anecdotes, was a sign of flawed moral character.
May 10, 2015 in Guest Blogger: Michael Simkovic, Law in Cyberspace, Legal Profession, Ludicrous Hyperbole Watch, Of Academic Interest, Professional Advice, Science, Student Advice, Web/Tech, Weblogs | Permalink
May 07, 2015
One question in the labor economics literature is why education increases earnings. The dominant view is Human Capital Theory—education increases earnings by increasing productivity of educated workers. A minority view, signaling theory, holds that education increases earnings by revealing information about potential employees to employers and facilitating the employer-employee matching process, similar to marketing expenditures matching products with customers. In other words, education indicates to employers which employees were the best all along.
On some level, the distinction is irrelevant—from the perspective of potential students it does not really matter how education increases earnings, only that it does. Whether education makes workers more efficient individually or makes the economy in aggregate more efficient by moving workers to where they can do the most good does not change the fact that employers, employees, and the economy as a whole are better off with additional education as long as the marginal benefits of additional education exceed marginal costs.
Critics of higher education sometimes claim that there is over-investment in signaling and credentialing, a kind of arms race producing negative externalities in which the social returns to education are lower than the private returns. This view, though popular with political movements seeking to reduce public support for education, does not hold much sway in the modern peer-reviewed labor economics literature.
A recent literature review by Professors Fabian Lange at Yale and Robert Topel at the University of Chicago explains the problems with the view that employers would expend valuable resources paying a premium for employees who had over-invested in education as a signal of ability: “Employer learning about productivity occurs fairly quickly after labor market entry, implying that the signaling effects of schooling are small.”
In other words, employers can quickly and efficiently sort employees on their own by observing their productivity on the job, retaining and promoting strong performers, and terminating weaker employees. Employers do not need educational institutions to perform this task for them, nor are employers willing to pay premium wages for information they can more cheaply obtain themselves.
Suppose, for example, that the only value of a Harvard Law degree were as signal of ability to employers. Harvard admits students based almost exclusively on standardized test scores and undergraduate grades, which are also observable to employers. Almost everyone who is admitted to Harvard graduates.
A clever employer realizes it can save money by employing bachelor’s degree holders with admissions letters from Harvard, but who have not yet attended. Harvard gets wise and refuses to confirm admissions. Employers now look directly at LSATs and GPAs, and perhaps hire former admissions officers to consider softer factors. The employer and employee can effectively split the cost savings of not getting the Harvard degree and also the value of the time that would be spent in schooling instead of working.* If additional information is required, personality testing, assessments of physical and mental health, assessments of writing samples, background checks and the like can all be performed for a fraction of the cost and in a fraction of the time as a Harvard degree.
In spite of potentially massive efficiency gains and financial reward for employers and employees, this is not what actually happens in the real world (with the exception of a stacked "experiment" by Peter Thiel). Why not? Because employers believe that the schooling itself is valuable and makes employees more productive.
Lange and Topel also explain how “sheepskin effects” (disproportionately higher earnings premiums for college completers than for college dropouts with a few years of college) have been misinterpreted as support for the signaling hypothesis, when they actually reflect selection effects and dynamic decision making about educational investments:
"Diploma effects are often presented as evidence for screening theories of schooling. We disagree. Instead we view diploma effects as evidence that individuals face uncertainty about their individual returns to schooling and that this uncertainty is revealed as individuals acquire schooling. Those least capable to profit from schooling drop out before the completion of degree years. Those graduating exhibit larger returns than those who dropped out at lower levels of schooling. This reasoning was informally developed by Chiswick (1973). Since then, a number of authors (Altonji (1993), Heckman, Lochner and Todd (2003), Keane and Wolpin (1997) and Eckstein and Wolpin (1999)) examined different aspects of sequential schooling choice under uncertainty. We build a simple model in this spirit with the intention to show how individual’s schooling decisions can generate (large) diploma effects if individuals learn about their returns while in school."
There are additional problems with signaling theory, which I explained in Risk Based Student Loans:
“Signaling Theory implies that labor market outcomes should not depend on what students study, but only on how well they perform academically relative to other students with similar standardized test scores, or perhaps whether they demonstrate a strong work ethic by choosing a challenging major. Differences in earnings by field of study appear to reflect the value of field-specific skill development rather than differences in ability levels. Even within engineering, there are large starting wage differences by specialty.
Human Capital Theory also helps explain higher average per-capita productivity and wages in states and nations with higher levels of educational attainment. If education only sorted workers according to ability, it would presumably only increase the variance of wages (i.e., income inequality), while leaving the mean unaltered.
Further, Human Capital Theory helps explain the willingness of many employers to pay for professional degree programs for successful employees. Employers’ willingness to educate workers whom employers already know to be of high quality suggests that employers believe that professional education has skill-development value rather than mere sorting value.”
In The Knowledge Tax I expand on this, explaining the evidence linking investment in education to more rapid economic growth rather than merely redistributing income from the less educated to the more educated.
* Note that in many states, including New York and California which collectively comprise 28 percent of the law market, a law degree is not legally required to sit for the bar exam. Instead, “law office study”, or an apprenticeship under the supervision of an attorney, possibly following one year of law school, will suffice.
May 05, 2015
A better grading system
Professor Merritt argues that mandatory grading curves can be unfair when one class has stronger students than another. I agree.
Statistician Valen Johnson—whom I cite in my last post as an authority on grade inflation— has developed a clever solution to this problem which involves adjusting grading curves within each class based on the ability levels of the students. A Johnson-inspired proposal was nearly adopted at Duke University in the late 1990s, but was blocked by departments that offered higher grades and attracted weaker students.
Most law schools try to balance their sections in term of student ability levels and overall quality of faculty. Nevertheless, anomalies like a “smart section” (as Professor Merritt calls it) may occasionally occur. Johnson’s proposal would be an excellent solution to this problem.
Professor Merritt asserts that there is some sort of problem with the market for lawyers and law graduates that makes competition and inequality uniquely bad in the context of law. These assertions are implausible given the low barriers to entry for both law schools and lawyers, aggressive competition between law schools for students and between lawyers for clients, and widespread inequality outside of law school and legal practice. Some form of regulation is the norm in many areas of employment and in many industries, and a licensing regime for lawyers and an accreditation system for law schools do not in any way make these occupations and institutions unique or unusual. According to a recent study, nearly a third of U.S. workers are licensed, licensing is more common as education and skill levels increase, and licensing does not affect inequality among the licensed.
As a general matter, deregulated market competition and greater inequality are a package deal. Inequality can be reduced through regulation, taxation, and politicization of compensation through unionization or growth of public sector employment.
Professor Merritt’s critiques follow the standard playbook of law school critics—take something about law schools that is widespread and common out of context, claim that it is somehow unique to law schools when it is neither unique nor unusual, and then demonize it.
Jeremy Telman responds.