Wednesday, 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.
Tuesday, October 27, 2015
Sunday, 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.
Friday, October 23, 2015
Wednesday, October 21, 2015
MOVING TO FRONT FROM LAST YEAR (SINCE TIMELY AGAIN--AND MORE COMMENTS WELCOME--ORIGINALLY POSTED NOVEMBER 2007)
A rookie job seeker writes:
A question about the law teaching market, which I suspect will be of interest to a number of candidates who read your Law School Reports blog: When can we expect to hear from hiring committees we spoke with at AALS? Do the better schools tend to wait longer to make their calls? And do schools tend to notify candidates that they *won't* be inviting them for a job talk, or do you only hear from them if they're interested?
If you think this is a worthwhile topic, perhaps you could open a post for comments so that hiring committee members could say what their procedure is.
My impression is that schools will contact the candidates they are most interested in within the first two weeks after the AALS hiring convention, and, more often than not, within the first week. Schools will often have some candidates "on hold" beyond this period of time: e.g., because they are reading more work by the candidate, or collecting references, or waiting to see how they fare with their top choices. So it is quite possible to get call-backs beyond the two-week window. Schools tend to be much slower in notifying candidates they are no longer in contention (you might not hear for a month or more).
Schools higher in the "food chain" in general do move at a somewhat more, shall we say, "leisurely" pace, and schools lower in the "food chain" are more likely to have tiers of candidates they remain interested in, on the theory that they are likely to lose their first-round choices.
Those, to repeat, are my impressions, based on a decent amount of anecdotal evidence. But I invite others to post their impressions and/or information about their school's practices. No anonymous postings. Post only once, comments are moderated and may take awhile to appear.
Friday, 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:
Monday, October 12, 2015
...regular blogging will resume in less than two weeks.
October 12, 2015 | Permalink
Thursday, October 8, 2015
Student loans are more difficult to discharge in bankruptcy than most consumer or business debts. Discharge is only available if repayment “would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8).
These restrictions on discharge are controversial. Supporters note the possibility of strategic filings by student debtors with low assets and high expected future incomes and the danger of such defaults driving up the costs of credit. Skeptics argue that such concerns are empirically unsupported and that bankruptcy discharge provides an important mechanism for spreading the risks of investments in higher education.
In policy circles, momentum seems to be building for at least some relaxation of the restrictions on student loan discharge. The Department of Education recently released a report supporting discharge of private student loans in bankruptcy. The report argues that federal student loans should be treated differently from private loans because federal loans are not underwritten and because income based repayment with debt forgiveness is available for federal loans. Adam Levitin made similar arguments in the Wall Street Journal several months ago.
Access Group announced its support for discharge of student loans after a 7 year waiting period, as long as the loans are not already eligible for income based repayment with debt forgiveness after at most 25 years. The proposal also calls for restricting discharge for those who have previously discharged student loans in bankruptcy.
Access Group’s proposal appears to leave open the possibility of private student loans retaining current protection against discharge in bankruptcy by offering income-based repayment terms similar to those available from the federal government.
The top ten:
1. Cass Sunstein (Harvard) (34,636 downloads, 34 new papers)
2. Mark Lemley (Stanford) (17,511 downloads, 10 new papers)
3. Daniel Solove (George Washington) (17,219 downloads, 1 new paper)
4. Dan Kahan (Yale) (17,114 downloads, 4 new papers)
5. Orin Kerr (George Washington) (14,368 downloads, 6 new papers)
6. Lucian Bebchuk (Harvard) (13,657 downloads, 1 new paper)
7. Brian Leiter (Chicago) (11,955 downloads, 10 new papers)
8. Bernard Black (Northwestern) (10,674 downloads, 2 new papers)
9. Kent Roach (Toronto) (9,109 downloads, 11 new papers)
10. Eric Posner (Chicago) (8,671 downloads, 8 new papers)