Brian Leiter's Law School Reports

LSAT takers up 7.4% in Sept/Oct compared to last year...

...the first increase in six years (link now fixed).  (Recall that June also saw an increase.)  While enrollments will not return to 2010 highs (a good thing!), it's clear that we are arriving at a "new normal" for enrollments.  This is already being felt in the hiring market for new law teachers, which is much more active this year than last.

Brooklyn Dean Allard: Legal Profession Should Challenge Slanted, Inaccurate Press Coverage (Michael Simkovic)

Dean Nick Allard of Brooklyn Law School writes:

[T]he New York Times editorial . . . “The Law School Debt Crisis,” . . . is symptomatic of . . . the continuing negative drum beat that is demeaning law schools, law students, and the entire profession. 

The time has come for the legal community – and law schools in particular – to press the reset button on the reputation of our profession. As Deans, we should not stand silent as those with biases and outdated or inaccurate information recycle myths and tired, predictable versions of their “wisdom” about our profession, law schools and the quality of newly minted lawyers. Over and over again.

The overarching challenge facing lawyers and the law school community across the country is that there is virtually no effective public counterweight to offset the worn perceptions repeated by high visibility media and others. We must, together, come to the defense of the value of law and lawyers, and make the compelling case for lawyers’ contribution to society . . .

Let's stop the hand wringing, whining and the recycling of misperceptions. Let’s instead call attention to the positive value of our profession and the contribution we, our colleagues, and our students make. Let’s challenge ourselves and our institutions to do better. . . .

I've expressed similar sentiments about the need to work to improve the accuracy of increasingly slanted and inaccurate press coverage. 

 

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.

This isn’t a one-time fluke.  In 2010 and 2011, Flordida Coastal's 3-year Default rates  were 1.6 and 5.2 percent, respectively, compared to much higher national rates of 13.7 and 14.7 percent.

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 25^th 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. 

 

*This reflects defaults for those who entered repayment in 2012 over the following 3 years.   Thus it includes relatively recent defaults.  The data was released in September.

**Data on default rates is available for approximately 25 law schools that report separately from a larger university.  23 out of these 25 institutions rank in the bottom half of ABA-approved law schools (one is not ABA-approved), and only one ranks in the top quarter of law schools.  2-year cohort default rates are available from FY 1990 to 2011.  3-year cohort default rates are available from 2009 to 2012.

***A rival explanation is that law students will not default on their loans even though repaying them is a hardship, because defaulting would preclude bar admittance on “character and fitness” grounds.  If that were driving the difference in default rates, then law schools’ relative advantage would shrink as more law graduates gained admission to the bar.  But in fact, law schools’ default rate advantage does not diminish as we move from default within 2 years to default within 3 years.

Another explanation is that law graduates could be avoiding default by disproportionately taking advantage of income based repayment plans with debt forgiveness.  This explanation is also unlikely to explain most of the gap because (1) law school borrowers default rates were relatively low long before these programs were introduced and their advantage has remained relatively constant after their introduction; (2) if law students were disproportionately using income based repayment to avoid default (rather than to pay down their loans at a slower pace, similar to schedules available through graduated and extended repayment plans), the percent paying down their debt should be unusually low; in fact, law school borrowers repayment rates are generally as high or higher than most institutions according to recent Department of Education data; (3) law schools are nowhere near the default rates at which negative institutional consequences materialize, and therefore have little incentive to try to artificially push down their default rates (4) After the JD found that law students from the class of 2000/2001 have paid down their loans rapidly (5) to the extent that law graduates are enrolled in programs tied to public service, rather than low incomes and high debts, these public service loan forgiveness programs are working as intended by narrowing the compensation gap between private and public sector work.

**** These estimates take into account the fact that law school graduates and bachelor’s degree holders will both suffer periods of unemployment and that the average law student has higher innate earning potential than the average college graduate.  The estimates include the many law school graduates who do not practice law and the few who never pass the bar exam.  (The data only has a field for law degree, not one for bar passage, so those who do not pass the bar exam are indistinguishable from those who do but do not practice law).

In Memoriam: Peter Tillers (1943-2015)

Emeritus at Cardozo Law School, he was well-known for his contribution to evidence scholarship.  The Cardozo memorial notice is here.

Pasquale responds to New York Times' latest critique of law student loans (Michael Simkovic)

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.

$100 million naming gift for the law school at Northwestern University

Wow!  The Pritzkers are Chicago billionaires, heir to the Hyatt Hotel chain fortune.  There is also a Pritzker School of Medicine at the University of Chicago.

(Sorry for not posting this sooner, I was on the road.)

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:

A claim of deceptive trade practice "requires proof that defendant's act would likely 'mislead the [objective] consumer acting reasonably in the circumstances.'" . . . An unfair trade practice requires (1) substantial injury to the consumer; (2) "must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and (3) must be an injury that consumers themselves could not reasonably have avoided." 

 

The Court notes that Plaintiffs are consumers of a legal education. As such, they are college graduates and "[b]y anyone's definition . . . a sophisticated subset of education consumers, capable of sifting through data and weighing alternatives." Gomez-Jimenez v. New York Law Sch.. 943 N.Y.S.2d 834, 843 (N.Y. Sup. Ct. 2012) affd. 103 A.D.3d 13, 956 N.Y.S.2d 54 (N.Y. App. Div. 2012). Plaintiffs do not allege that Defendant presented objectively false employment and salary data of Defendant's graduates. Rather, Plaintiffs contend that Defendant's presentation was misleading because (1) the employment data presented failed to distinguish between the types of employment Defendant's graduates obtained and (2) the salary data consisted only of those who responded to the school's surveys, which represented only a fraction of Defendant's graduates.

 

Plaintiffs place much emphasis on the effect the employment rate reported by various news companies and Defendant's website played in misleading reasonable consumers, like Plaintiffs. Yet, Plaintiffs also acknowledge that Defendant had some of the lowest admissions standards of accredited or provisionally accredited law schools in the nation. . . . Despite its low ranking, Plaintiffs allege that Defendant's Employment numbers rivaled "those of much higher ranked, top-tier schools, such as the University of Florida." . . .  This would have been a red flag to a reasonable consumer in Plaintiffs' position, and should have caused the reasonable consumer to, at a minimum, seek out more nuanced information to allow for a meaningful comparison of law schools, including the types of employment graduates obtained. Such an inquiry was reasonably expected and could have prevented Plaintiffs' alleged injuries.  Therefore, Plaintiffs failed to state a plausible claim that Defendant's publishing of the employment data in the manner alleged would result in probable deception to a reasonable consumer, or that that the substantial injury alleged could not have been reasonably avoided.

 

On the point of Defendant's salary data presentation, Plaintiffs take issue with the manner in which Defendant reported the salary data of its employed graduates. Specifically, Plaintiffs allege that Defendant's "employment reports published before July 2011 .. . failed to disclose the overall percentage of graduates who reported salary information." . . . Plaintiffs claim this was misleading because those who reported salary information were only a fraction of those that graduated from Florida Coastal and tended to be from high-earning graduates. . . .While the Court agrees with Plaintiffs to the extent that Defendant's alleged salary data presentation was less than candid, it was unreasonable for Plaintiffs to assume that the salary information offered by Defendants was a true and accurate representation of all graduates. Indeed, unless Plaintiffs assumed that Defendant had a full-proof method of tracking each and every one of its graduates, Plaintiffs had reason to suspect that the salary data offered only a limited picture of the salaries actually earned by Florida Coastal graduates and further inquiry would be required. Accordingly, the Court finds that Plaintiffs failed to state a plausible claim that publishing the salary data in the manner alleged would result in probable deception to a reasonable consumer, or that the substantial injury alleged could not have been reasonably avoided. 

Light blogging for a bit...

...regular blogging will resume in less than two weeks.

Growing Support for Bankruptcy Relief for Student Debtors (Michael Simkovic)

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.

UC Irvine's Lawsky on the entry-level hiring market in law schools

A podcast.