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Law and law school economics

[ 49 ] July 16, 2011 |

David Segal has written another interesting piece on the state of legal education, this time focusing on the business side of law schools. Much of the piece is taken up with a case study of New York Law School and its dean, Richard Matasar. I’ve long been an admirer of Matasar’s efforts to reform the basic structure of legal education in America, which he was involved in long before he became a dean (in my view reform efforts hinge largely on being able to convince the ABA to make its accreditation standards more flexible). As the piece illustrates, Matasar’s reformist agenda has ended up in considerable tension with many aspects of his administrative career.

A cynic might consider Matasar a hypocrite. If even he ends up engaging in many of the same practices he deplores, does that mean his efforts at reforming legal education are a sham? I disagree with this interpretation. In my view, Matasar’s career illustrates the paradoxical and even potentially tragic character of attempts to reform powerful, well-established institutions. Unlike the revolutionary, who can indulge in creative destruction, the reformer must work within a system, using tools that are designed to impede his efforts at reform. His position ensures he runs the risk that his efforts will be so compromised by practical realities that he will end up helping to perpetuate the very things he is trying to change.

Anyway, a question that deserves more attention than it has gotten from legal academics is, precisely why has the cost of legal education skyrocketed over the past generation?

This is a complicated matter, but I’ll use a few statistics from the law school from which I graduated (Michigan) to illustrate the current situation. (All of the following financial information is expressed in constant, 2010 dollars).

Thirty years ago, annual in-state tuition+fees at UM Law was $5,367, and out of state tuition was $11,514. This fall, the respective figures will be about $47,000 and $49,500. In other words, in-state tuition has increased by a factor of nine in real inflation adjusted terms. Part of this is no doubt a function of the gradual withdrawal of tax subsidies for in-state tuition. But note that out of state tuition, which was never tax-subsidized, has increased by four and a half times in real terms. One result of these trends is that the 84% of 2010 UM Law grads who borrowed money during law school graduated with an average debt of $112,133. (That class matriculated when tuition was nearly $10,000 per year lower, so the entering class of 2011 is likely to average close to $150,000 in law school debt when it graduates three years from now).

One main driver of increasing costs across legal academia has been an increase in the size and the compensation of law school faculty. For example, 30 years ago the salaries of Michigan’s tenure-track law faculty ran from about $75,000 to $155,000 in 2010 dollars. Today the comparable figures are about $140,000 to $300,000 (This counts only base salary. Actual salaries are about 15% higher for most faculty because of “summer research grants” that for most faculty are de facto salary supplements.). Interestingly, 30 years ago the law school’s dean’s salary was no higher than that of several other senior faculty. Last year the dean’s published salary was $442,000.

Meanwhile over just the past decade the number of full-time law faculty at ABA-accredited schools has increased by 40% (a related statistic that will surprise no one familiar with academia is that over the same period the number of law school administrators more than tripled).

All this has been taking place at a time when the number of jobs for law graduates whose salaries justify six-figure debt loads has dropped sharply. Meanwhile, legal academia has barely begun to grapple seriously with the issue of who (other than independently wealthy people and partners of well-paid spouses) is going to be able to afford to take public interest legal jobs, the vast majority of which pay salaries that will not allow today’s average law school graduates to service their educational debts while at the same time paying for even a modest life style. (Note that the figures on law school indebtedness do not include undergraduate or consumer debt).

Comments (49)

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  1. strannix says:

    I don’t know anything about all this, but it seems to me that the educational lending industry has become much more of a political player over the last couple of decades as well. If I’m correct in this assessment, what effect might this be having on tuition increases? Which way does causation run here?

    • Paul Campos says:

      It has had a huge effect on higher education in general. Total outstanding student debt has risen from about $180 billion in 2000 to nearly $900 billion in 2010. Much of this debt is both non-dischargeable in bankruptcy and taxpayer guaranteed. It creates an incentive structure for schools to increase tuition and for students to borrow more than they can afford.

      In the typical style of our political system, instead of providing direct subsidies for higher education we are moving more and more to indirect subsidies, with all the massive distortions and inefficiencies such subsidies produce.

      • John Protevi says:

        This is a very important point w/r/t undergraduate programs as well, as Paul notes.

      • strannix says:

        So this being the case, isn’t it likely that the administrative growth and faculty salary increases are a result of higher tuition, and causes of it?

      • 123kid says:

        That’s a great but scary point, because then, in the typical style of our political system, nothing will change until after the entire artiface implodes and collapses, bringing down a whole bunch of more innocent actors with it.

        O.T.: Thomas M. Cooley’s President makes substantially more than a half million each year. Thank Jeebus we haven’t discouraged him from greatness with a more progressive tax system: don’t punish the Winners!

  2. Malaclypse says:

    Thirty years ago, annual in-state tuition+fees at UM Law was $5,367, and out of state tuition was $11,514. This fall, the respective figures will be about $47,000 and $49,500. In other words, in-state tuition has increased by a factor of nine in real inflation adjusted terms.

    Unless I misread you, this is only true if inflation was 0% for the last thirty years, which it wasn’t.

  3. Chuchundra says:

    As long as the government keeps underwriting loans for ridiculous amounts of tuition, there’s limited incentive for these institutions to control costs and keep prices down. Moreover, many of these third and fourth tier law schools are taking students’ money and encouraging them to go deeply into debt to pay for a degree that’s worth very little on the open market.

    • Meyer says:

      Shouldn’t schools take some ownership for the outcomes of their graduates? I’m not sure how that can be done; as most of my blog posts indicate, this isn’t my area of expertise.

      • Warren Terra says:

        This was the subject of the epic and somewhat shocking New York Times story some time ago. They take responsibility in no small part by lying through their teeth.

      • WallyP says:

        Shouldn’t schools take some ownership for the outcomes of their graduates?

        High school teachers should also “take some ownership” for the performance of their students?

        Is this somehow different?

        • Meyer says:

          To be fair, high school teachers should also own the outcomes for their graduates. But high school students are required by law to go to school and do so for free. Law students pay large sums of money to because they were let to believe doing so would be a financially good choice.

  4. Brian says:

    When we subsidized housing, through a couple quasi-governmental companies with names ending in Mae, we got more of it, and everyone seemed happy until housing prices stopped rising, and those with low incomes could not sell or re-finance. When we subsidized legal education through Sallie Mae and through public guarantees backing nominally private loans, we got more of it, and everyone seemed happy until the market for legal services tanked, and under-employed lawyers could not discharge or repay their monthly obligations.

    If we withdraw or significantly reduced the governmental subsidy benefiting the law school cartel, tuition prices would by necessity decline, and those who complete law school would not enter the workforce with onerous debts limiting their freedom and their career choices.

    • Bill Murray says:

      tuition prices would by necessity decline, and those who complete law school would not enter the workforce with onerous debts limiting their freedom and their career choices.

      or you would have few but the children of the rich getting law degrees

    • L2P says:

      With the major difference that “more housing,” absent bad price distortions and fraud and stuff like that, is almost certainly a good thing. “More lawyers,” absent jobs for those lawyers, is not a good thing; it’s just getting us extremely argumentative, well-educated insurance salespeople and realtors.

      I think Paul’s overall point would be if we could find some way to lower law school prices, but expand the number of law schools, we could get a bunch of cheaper lawyers and middle class people could afford legal help.

      IMHO, that’s never going to happen.
      Academics tend to miss the sheer drudgery and asswork involved in being a lawyer; the only reason people do it is because they believed at one point they’d be millionaires. If you are reasonably likely to make as much money being a nurse, no one will go to law school. I don’t know why so many reformers think there’s a bunch of potential lawyers in Los Angeles waiting in the wings to get yelled at by judges for $60k a year – they’re entire career.

      Even the academics that practiced for a long time tended to have surprisingly, uh, delicate careers; I don’t think many of them were hired to handle appearances day after day. Being an attorney is pure ass, and the only reason people do it is the idea of riches. A lot of attorneys don’t get to riches, but if you’re 45, w/ 20 years in on your job, you don’t have a lot of choice.

    • WallyP says:

      I thihk Brian is correct.

      Anything you subsdize, you get more of.
      Anything you tax, you get less of it.

      What many either don’t remember or really never knew is the science of economics is a social science. It’s how people behave.

  5. Ben says:

    As a recent law school graduate, it seems to me that a big part of the problem, and a possible driver for the increased faculty size, is really low teaching loads.
    For reference, at my big ten public law school, not Michigan, the professors had to teach 10 credits a year. I am given to understand that this is much lower than the humanities and the social sciences. As well, no or very few law professors have the time commitment of supervising PhDs.
    There is periodically a lot of discussion in the legal blogosphere about controlling costs, but they never alight on the obvious answer of having professors teach 3 classes a semester instead of three a year.

  6. Michael H Schneider says:

    Law is a guild. Admission to the guild is controlled by current members of the guild, through ABA accreditation of guild training programs, which are required for guild membership. The guild members who are rich have a larger voice in running the schools, through gifts and financial support. The guild members can extract astounding rents through control of guild memberships and guild connections – those guild connections determine whose product not only gets the highest price but whose product is viewed as of superior quality. Requiring more guild approved training at higher cost also provides more empoyment at higher salaries for current guild members.

    I’m shocked, shocked to discover that the price of guild initiation has skyrocketed.

  7. Ragout says:

    The obvious explanation is Baumol’s Disease.

  8. strategichamlet says:

    “a related statistic that will surprise no one familiar with academia is that over the same period the number of law school administrators more than tripled”

    This in itself really deserves much more discussion than just a parenthetical. Who are these people? What “work” are they doing? Shouldn’t the digitization/automation of some administrative tasks meant that *less* workers were needed? Has any other industry seen anything like this kind of rise in administration / bureaucracy in the same time period? How can this be fixed?

    • Snarki, child of Loki says:

      Admin bloat is a symptom, not a cause.

      The reason for law-school tuition inflation is the same as general higher-ed inflation:

      Demand.

      The education loan industry has helped to put off the day of reckoning, but as long as there is a strong demand for higher-ed (undergrad, medical, legal, etc) as a prereq to reasonable earning potential, tuition will continue to climb.

      The only constraints are with many providers in the game, each can only ratchet up tuition a certain amount per year, lest they loose their students.

      The excess cash generated isn’t *primarily* going into faculty salaries or facilities, some is going into stuff like medical benefits. It’s going into admin bloat, simply because higher-ed is overwhelmingly non-profit, so there’s no dividends to pay, and the CEO doesn’t get stock-options.

      It will all end in tears.

    • Hogan says:

      The article doesn’t say “law school administrators”; it says “deans, librarians and other full-time administrators who teach.” IOW, people who teach and do other things as well.

    • Tired says:

      I’m a law school administrator. And I can tell you why there are more of us. We do the work that law professors used to do outside the classroom and are no longer willing to do, any more than they are willing to teach “overloads.” Students’ demands, expectations and needs have skyrocketed also. When law faculty spend most of their time on scholarship, teach only a few classes, and spend much of their non-teaching, non-research time doing lucrative outside consulting, who will pick up the slack and meet the students’ needs? Administrators. And no, most of what we do cannot be automated, as it involves the face-to-face messy human contact with needy young people that many (not all) professors avoid.

  9. MikeJake says:

    “Admire” should never appear in the same sentence as “Matasar.”

  10. Rarely Posts says:

    I would just point out that there are public law schools that have much, much lower tuition:

    http://testprep.about.com/od/thelsat/tp/Top_LawSchools.htm

    1. North Carolina Central University; Durham, North Carolina
    In-state tuition and fees: $6,856
    Out-of-state tuition and fees: $18,956

    2. The University of the District of Columbia, David A. Clarke School of Law
    In-state tuition and fees: $7,350
    Out-of-state tuition and fees: $14,700

    I have no knowledge about the quality of their education, and I’m fairly sure that they don’t open the same doors as a lot of the top tier Universities (like Michigan). However, as long as they manage to turn people into adequate lawyers, they’re probably occupying a very important niche by turning out lawyers with low enough debt levels that they can afford to represent middle class and working class people.

    The biggest scandals, in my mind, are the third and fourth tier schools that charge high tuition, burden their students with massive debt, and then don’t open the door to jobs where they can pay off those debts.

    • Warren Terra says:

      I haven’t read today’s story – maybe I’ll find the time later – but one message from the previous story was that accumulating any debt whatsoever for a law degree not from a top tier school was an incredibly bad decision. I assume this means that even an extremely affordable third- or fourth-tier school isn’t a great investment of three years in law school. Even absolutely top students from non-first-tier schools were faring extremely badly. And it wasn’t clear that a middling performance at a first-tier school was any guarantee of later security.

  11. INotI says:

    Canada seems to be doing okay with only 20 law schools in the entire country, all of which are at public universities. Costs are more reasonable, and there’s really only as many grads as there are jobs available.

    • Aaron says:

      Does Canada still impose an “articling” requirement, even following the scandals of a few years back, through which law firms had to find a firm with which to “article” (basically, work for a year, lots of hours for meager wages) before they could qualify for bar membership? That sounds like a wonderful means to artificially suppress bar membership and to protect the salaries of members of the bar, while discouraging students who don’t have legal connections to draw upon from entering law school out of concern that they’ll ultimately be locked out of the profession.

      • BKN in Canadia says:

        When I was a law student in Canada in the early 90s, our understanding was that in the U.S. anyone with a law degree could write the bar exam, but that the fail rate was high, whereas in Canada only those who had articles could write the bar, and that the fail rate was low. The “choke point” at which entry to the guild was controlled was not the bar exam but market supply of articling positions. In my graduating year, IIRC, 25-30% of the graduating class was still without an articling position one year after graduation.

        • INotI says:

          I graduated law three years ago, and I don’t think that more than 5% of the class was without articles by the time of graduation. Our understanding was always that the choke point in Canada was law school admission itself.

          Frankly, if you’re going to have a choke point on admissions, doing it before people have spent thousands of dollars seems like the sensible and moral place to do it.

          • rhino says:

            Frankly, if you’re going to have a choke point on admissions, doing it before people have spent thousands of dollars seems like the sensible and moral place to do it.

            They’re lawyers. What did you expect?

            And for those of you who are lawyers who actually have morals, and adhere to ethics, surely you understand you are only slightly more common than unicorns?

          • Tiercelet says:

            if you’re going to have a choke point on admissions, doing it before people have spent thousands of dollars seems like the sensible and moral place to do it.

            Well, sure. But then how would you fund your law school? You don’t expect them to just shut down, do you?

    • David M. Nieporent says:

      The population of Canada is 10% that of the U.S. Thus, “Only 20 law schools in the entire country” is the equivalent of 200 law schools in the U.S.

      Obviously the schools could be much smaller than U.S. ones, and therefore produce proportionately fewer lawyers, but the number of law schools by itself does not indicate what you imply it does.

  12. Eli Rabett says:

    Who pays for those summer research grants?

  13. Steve LaBonne says:

    Law school is only a special (and perhaps extreme) case of a general problem that would be bothering my conscience a lot if I were still in academia. There is a severe overproduction of many kinds of degrees relative to the demand for people holding them, at an increasingly crushing cost to the students; the colleges and universities churn them out in the numbers required for their own institutional goals and refuse to take any responsibility at all for their masses of underemployed, debt-burdened graduates. Even where student debt is not an issue, as with the better Ph.D. programs in the sciences, there is a huge opportunity cost which even the most successful graduates will barely recoup, and the great majority who will never have the kind of careers they envisioned will never come close to recouping. (At least nowadays, unlike in my time, some Ph.D. programs make some attempt to educate their students about alternatives to academic careers; but this is a bandaid, when the real problem is simply that too many slots exist in too many Ph.D. programs.)

  14. BKN in Canadia says:

    Steven: I agree 100+% with your post. But to be devil’s avocate, I’ll lay out some of the various counter-arguments I’ve heard: we’re not a trade school, it’s not our responsibility to guarantee you a job at the end of your studies, whoever wants to learn about X should have the right to pursue a degree in X, and access to the ability to learn about X should not be premised on the current or future demand for people with degrees in X etc…

    • rhino says:

      Um, law schools, like medical schools, schools of engineering, and business schools are *precisely* trade schools.

      These degrees prepare students to practice a specific trade. The fact that they’ve traditionally been more prestigious than, say, roofing does not mean they are not trades.

      Hell, I was perusing an article lately that stated. fairly convincingly, that you were better off apprenticing as a plumber at 17 than paying tuition to Harvard Law school. On average you would earn more, once corrected for debts, etc etc. Wish I could find a link for it.

      Disclosure: Rhino is a plumber. I builds hospitals. Big ones.

  15. Xenocrates says:

    Supply, meet Demand. There ain’t enough jerbs out there for law school graduates; so the solution is to enroll more students?? Don’t think that’s the way it’s supposed to work.

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