October 28, 2015
N.Y. Times is Mistaken: Law Student Loans are Safe and Profitable for the Government (Michael Simkovic)
This weekend, The New York Times Editorial Board published a sensationalist lead editorial, “The Law School Debt Crisis,” claiming that law student borrowing is harmful to taxpayers. The New York Times is mistaken.
The Times cited Florida Coastal School of Law, a for-profit institution, as its prime example of law schools “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.” Florida Coastal seems like an easy target—even a Federal Court which dismissed a fraud suit against Florida Coastal described it as having “some of the lowest admissions standards of accredited or provisionally accredited law schools in the nation.” The Times has repeatedly criticized for-profit colleges, which it deems “predatory” based on their unusually high student loan default rates. (See opinion, upshot, news and news again).
If the Editorial Board's accusations were true—if the “majority of law schools” really were running “a scam” in which they load down their students with “crushing amounts of debt” which “they can’t repay”—Florida Coastal and other law schools should have among the highest default rates of any institutions of higher education in the country.
They don’t and they aren’t.
For the cohort entering repayment in 2012—the most recent year of data available*—the national 3-year cohort default rate on federal student loans was 11.8 percent. The comparable figure for Florida Coastal was only 1.1 percent—more than 10 times lower.
Other measures tracked by the Department of Education, like repayment rates, also show law school borrowers performing as well or better than most.
We see the same pattern across law schools and going back decades for which data is available.** Even low ranked law schools with allegedly “outrageously high” tuition generally have much lower student loan default rates than either the national average, or the average for institutions that grant bachelor’s or advanced degrees.
Law students not only have higher debts than most student loan borrowers; as professional students, they also pay higher interest rates on government loans than undergraduates.
Law students rarely default because the financial benefits they receive from attending law school are usually far greater than the costs.*** Law school typically boosts annual earnings by around $30,000 (median) to $60,000 per year (mean) compared to a bachelor’s degree.**** Even at the 25th percentile, toward the low end of the distribution, the annual boost to earnings is around $20,000 per year—more than enough to repay typical law school loans over the course of a career.
Taxpayers also benefit. For every extra dollar a law graduate earns, the federal government receives an extra 30 to 40 cents in payroll and income taxes. The federal government charges far more in taxes than most law schools charge in tuition.
But the government isn’t paying for most law graduates’ education. In fact, loans to law students are among the most profitable in the federal government’s student loan portfolio, thanks to high interest rates and low default rates. Many law graduates are such good credit risks, and are overcharged so much by the government, that private lenders have offered to refinance law graduate loans for substantially lower interest rates.
There are cases in which particular individuals have unusually bad outcomes and struggle to repay their loans. Thankfully, these situations are relatively rare among law graduates.
Incomes for law graduates may seem low when they first graduate, but typically climb rapidly over the next several decades. Education loans exist precisely so that borrowed money can be repaid later in life, when employment is more stable and incomes are usually higher.
The New York Times is right that many law school graduates—around 40 percent—do not practice law. But law graduates do not have to practice law or earn spectacular salaries to benefit financially from their degrees and repay their loans over their careers. They need only earn roughly $10,000 per year more than they would have earned without a law degree. The overwhelming majority of law graduates, including those not practicing law, receive substantially larger boosts to their earnings.
Thanks to income based repayment programs with debt forgiveness and progressive taxation, the overwhelming majority of successful law school graduates can offset the risks of investment in education for those rare unfortunate individuals who do not benefit as much from their educations.
It would be a mistake to let the small tail of defaults wag the much larger dog of public benefits.
Scaling back access to federal student loans to law students will not benefit taxpayers. To the contrary, the loss of revenue would mean larger deficits for the government, and eventually higher taxes for the rest of us.
October 25, 2015
Frank Pasquale responds to a very poorly researched editorial by The New York Times Editorial Board. My own response is forthcoming and I'll link to other responses in the coming days.
Update 10.25.2015 8:30pm: Pasquale places the student loan debate in the broader context of privatization efforts.
October 23, 2015
October 16, 2015
Federal Court dismisses another suit alleging misleading law school employment statistics (Michael Simkovic)
The Wall Street Journal reports that a Federal District Court recently dismissed a lawsuit alleging that Florida Coastal School of Law defrauded its students through misleading employment statistics. (hat tip Paul Caron) As noted in the Journal, this is the latest in a long string of victories for defendant law schools in these cases.
The legal issues and relevant facts of many of the suits against law schools are substantially similar because of standardized data collection techniques and methods of disclosure. Although courts thus far have either denied class certification or dismissed these fraud suits on the merits, the language of opinions has tended to be somewhat more sympathetic toward plaintiffs when the defendant law school admitted students with lower undergraduate GPAs and standardized test scores. (For example, compare the decision in Brooklyn to the decision in New York Law School (especially the more plaintiff-friendly appellate opinion)).
Given Florida Coastal's admissions standards--described by the Court as among "the lowest . . .of accredited law schools . . . in the nation"--Florida Coastal may have been among plaintiffs' attorneys best chances for success. Failure in this case does not bode well for future lawsuits against law schools based on similar legal theories and fact patterns.
The Florida Court explained that Florida Coastal students were college-educated and therefore sufficiently sophisticated that they were unlikely to be misled, but rather would have reasonably understood the limits of the data disclosures or requested additional clarifying information.
The Court's detailed reasoning follows:
October 02, 2015
September 30, 2015
September 21, 2015
MOVING TO FRONT FROM LAST WEEK--MORE COMMENTS WELCOME
Prof. Jeff Sovern (St. John's) writes:
We often hear Chief Justice Roberts’s famous complaint about law review articles: “Pick up a copy of any law review that you see and the first article is likely to be, you know, the influence of Immanuel Kant on evidentiary approaches in 18th-century Bulgaria, or something, which I'm sure was of great interest to the academic that wrote it, but isn't of much help to the bar.” I’ve been wondering how many law review articles have changed the law. Given your role, through your blog, as a connector of legal academics, I wondered if you would be interested in inviting people who know of such articles to list them in the comments. I would limit it to articles written in the last ten or fifteen years on the theory that the Chief Justice was probably not complaining about older scholarship. I can start the list off with citations my co-author, Dee Pridgen of Wyoming, compiled to articles in our field of consumer law. Her list consists of Oren Bar-Gill and Elizabeth Warren, Making Credit Safer, 157 U.PA. L. Rev.1 (2008); Kathleen C. Engel and Patricia McCoy, A Tale of Three Markets, 82 Tex. L. Rev. 439 (2003). Kathleen C. Engel and Patricia A. McCoy, A Tale of Three Markets: The Law and Economics of Predatory Lending, 80 Tex. L. Rev. 1255 (2002)—all of which contributed to the Dodd-Frank Act; Oren Bar-Gill, Seduction by Plastic, 98 Nw. U.L. Rev. 1373 (2004)—which led to the Credit CARD Act; and Steven M. Graves and Christopher L. Peterson, Predatory Lending and the Military: The Law and Geography of “Payday” Loan in Military Towns, 66 Ohio St. L.J. 653 (2005)—which brought about the Military Loan Act. The pieces on that list produced statutes, rather than case law, but I would still count them. Of course, it is impossible to show that the changes in the law would not have occurred anyway in the absence of the writings, but perhaps we can take it on faith that the articles helped push things along.
Comments are open for other examples. (And just for the record, the idea that legal scholarship has to be interesting to the Chief Justice or to lawmakers is silly, though if some is, that's fine too [assuming it's a good influence!].)
September 08, 2015
Blog Emperor Caron has some excerpts (it is otherwise behind a paywall). The chart overstates the hiring, since it includes all faculty appointments, not only tenure-stream academic lines. My anecdotal impression is that more schools are hiring, and hiring for more positions, this year--we won't get over 100 new hires, but I am guessing we will get to 80 or more (compared to 60 or 65 the last two years). With the enrollment decline over, schools can now budget for the future and start filling positions that need to be filled.