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Only 22 people elect to cash million-dollar admission ticket

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Here’s a puzzler for econometric analysis: Why are only 22 prospective students scheduled to enroll in Indiana Tech’s inaugural law school class next month, when social science has proven that getting a law degree is equivalent to being handed one million dollars in cash?

Speaking of the Simkovic paper, Matt Leichter makes an intriguing suggestion:

(1) On page 44, it says,

Thus, on average and ignoring obvious behavioral changes, the federal government would hypothetically profit from legal education even if it provided legal education free at the point of service.

This is about the moment that I opened to the possibility that “Economic Value” was a hoax like Alan Sokal’s famous “Transgressing the Boundaries: Toward a Transformative Hermeneutics of Quantum Gravity,” because it’s the exact kind of absurd policy proposal that a satirist would put into an article claiming law school is worth the money. Just hedging my bets. (Please be a hoax. Please be hoax. Please be hoax.)

(2) Otherwise, “Economic Value” is the “Reinhart and Rogoff” of legal education. I’m surprised I haven’t seen the parallel made elsewhere, and we really should have seen it coming. Sure, it’s probably not going to contain any MS Excel errors or strange weightings, but it’s causal theory is equally nonsensical and should not be taken any more seriously than “Growth in a Time of Debt” is taken today.

Leichter’s more polite criticisms are here.

Seriously, is it necessary to point out the logical fallacies and associated pseudo-empirical leaps of faith at the core of these sorts of arguments?

Those holding bachelor’s degrees earn about $2.27 million over their lifetime . . . earn vastly more than counterparts with some college ($1.55 million in lifetime earnings) or a high school diploma ($1.30 million lifetime), indicating that no matter the level of attainment or the field of study, simply earning a four-year degree is often integral to financial success later in life.

“The payoff from getting a college degree is huge and is actually increasing,” says Jamie Merisotis, president and CEO of Lumina Foundation, a nonprofit focused on boosting America’s number of college graduates. “For people wondering [if] a college degree [is] worth it: Not only is it worth it, but the premium is growing.”

Ah yes, the good folks at Lumina want everyone in America to enjoy the extra million dollars a college degree bestows on its owner:

“Lumina Foundation is a conversion foundation created in mid-2000 as USA Group, Inc., the nation’s largest private guarantor and administrator of education loans, sold most of its operating assets to Sallie Mae. Proceeds from the sale established the USA Group Foundation with an endowment of $770M. The Foundation was renamed Lumina Foundation for Education in February, 2001.”

It should be mentioned that with $1.5B in endowment, they give out no scholarships and seem to exist solely to propogate “we need many millions more college graduates” studies, with a particular emphasis on higher matriculation rates from the lower socioeconomic classes. Now, what do the lower classes need to get through college? That’s right: student loans – both private (which Sallie turns into SLABS) and federal (which Sallie still administers and collects).

Funding source: Sallie Mae

Sponsors/operators: Sallie Mae, USA Group [erstwhile SL guarantor that was in danger of losing its non-profit status when Sallie bought its assets and turned it into Lumina]

Public Agenda: double the percentage of college grads in the US, even though college grads have sported 50% un/underemployment for the better part of a decade now.

Other possible agendas: to ensure the financial health of Sallie Mae by decrying our supposed lack of college grads and getting everyone and their dog to enroll in college, especially if they need student loans. There has been a lot of media coverage on the burgeoning student loan crisis: the 1 in 4 in delinquency, with only 1 in 2 in active repayment (per NY Fed Reserve). The law school crisis. The biz school crisis. The humanities grad school crisis. The liberal arts crisis. The supposed STEM shortage. One can go on and on and on. I have collected north of 300 articles, studies, papers, etc on these trends over just the last two years. Lumina, despite being the largest higher ed foundation in the country, is very careful to…. not say anything about these horrendous outcomes. Nope, all that is needed to solve the country’s ills is to double the percentage of college grads, even though we already have twice as many college grads as the country can absorb. Any correlation between this goal and continued prosperity and revenue growth at Sallie is purely coincidental, of course…

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  • Cody

    Well, if you just accept the fact that the wages of people without degrees are plummeting then I suppose that does make a college degree more ‘valuable’ than before.

    Lets just ignore comparing its value to a college degree 5 years ago, but that’s just crazy. Back then we had a middle class. We finally got rid of socialism though!

    • geek49203

      The middle class that was lost is largely well-paid manufacturing jobs that disappeared due to many factors, not the least of which 1) robots finally came of age, 2) stuff lasts a lot longer, 3) the American advantage post-WWII ended and 4) the unions don’t have the mafia to assist them in their “negotiations.”

      Many of those jobs needed a skilled trades credential, NOT a college degree. In fact, many with college degrees “went to work in the factory” back in the day to make more money.

  • Jameson

    Wow. Do we even know how many of these 22 students are paying sticker? Remember that UC Irvine offered free tuition to entice students to enroll in the inaugural class… If Indiana Tech has subsidized the tuition of a few of these students there is no way the school comes close to covering its operating budget, let alone recoup any of the construction costs. If Indiana Tech has subsidized the tuition of NONE of these students, there is no way the school comes close to covering its operating budget, let alone recoup any of the construction costs.

    • Paul Campos

      UC Irvine seems to be getting off the ground, despite the patent absurdity of the venture (as if what southern California needed was another $75,000 per year law school). It’s succeeding so far thanks to an enormous founding gift from an OC real estate mogul, which as you say allowed the school to offer free tuition to its entering class. It’ll be interesting to see what happens to the school once it’s burned through all that money, if it hasn’t already.

      Indiana Tech, OTOH, probably figured it would absorb a few million dollars in start up costs to get this thing off the ground (it’s a vastly lower budget operation, in part because it doesn’t have Erwin Chemerinksy’s ego fueling its more modest ambitions.

      But 22 people . . . my guess is that maybe half of them look around on the first day of orientation next month and decide this dog won’t hunt. Then it’ll be a question of how long the central administrators who pushed this venture will wait before admitting they made a bad mistake.

      • My $0.02

        If we’re offering predictions, my guess is that Indiana Tech converts its program to a parttime one and encourages the handful of students to get day jobs, then closes up after a year.

      • fledermaus

        “Look to your left, look to your right, because one of you won’t be here by the add/drop date.”

        • Look to your left, look to your right. Could you all move forward, and towards the center of the row please? We don’t need to have you all spread out across the entire auditorium.

      • pantani

        Maybe the Tech administration can sell it off to Infilaw a la Charleston School of Law

      • Anonymous

        They should convert some of the building to apartments and offer the students free housing.

  • My $0.02

    If Indiana Tech accepts a single dollar in tuition from those students knowing that it won’t be able to see them through graduation then someone should be prosecuted for fraud.

    • Glenn

      You obviously haven’t been following the state of the law in this area. You can’t be defrauded because no rational person would take anything the law schools say seriously!

  • CJColucci

    While I am skeptical of the study, for a variety of reasons, there’s a huge difference between a $1,000,000 increase in lifetime earnings and being handed $1,000,000 in cash.

  • Anna in PDX

    You really can figure out a lot of these arguments if you just follow the money, can’t you.

  • Monday Night Frotteur

    Another good one Paul.

    Would any bank on the planet loan money to a kid to attend that law school? If the answer is “LOLno,” why is Uncle Sucker doing it?

    • Most English high-street banks got out of the law-student lending business back in 2007 when would-be lawyers just became too bad a bet, this despite much stricter bankruptcy laws in England. The government doesn’t subsidise post-graduate education, so the law schools just stepped in with their own high-interest loans, knowing full-well that maybe only about 1/3rd of their students would get a job requiring the education they were paying for.

      If the US government gets out of lending to law students, expect the law schools to offer loans of their own, but with higher interest rates and stiffer terms.

      • Unemployed Northeastern

        You mean, like Access Group – the membership non-profit corporation jointly owned by all the accredited law schools and largest law school lender in the pre-Direct Lending days? The entity that originated more than $11 billion in SLABS (Student Loan Asset-Backed Securities) between 2000 and 2008?

        I’ve always wondered why law schools didn’t raise a fuss when Congress made private student loans nondischargeable back in 2005, since law students were the biggest borrowers of private student loans back in the years that were pre-GradPLUS with a $18.5k Stafford annual Stafford cap. I think the first paragraph makes a good explanation of why they didn’t complain: their wholly-owned Access Group was making billions off the SLABS market, and the nondischargeability of private student loans was the best thing that ever happened to the SLABS market.

  • chris

    Those holding bachelor’s degrees earn about $2.27 million over their lifetime . . . earn vastly more than counterparts with some college ($1.55 million in lifetime earnings) or a high school diploma ($1.30 million lifetime), indicating that no matter the level of attainment or the field of study, simply earning a four-year degree is often integral to financial success later in life.

    Holy confounding variables, Batman. Did they even attempt to control for SES? Children of rich parents will tend to be richer themselves and can afford to go to college, but that doesn’t mean the college makes them richer.

  • Anonymous

    Just looked at Indiana Tech’s website. Holy crap, that is an expensive-looking building. If they wanted to do this right, they would have started off by holding law classes in pre-existing buildings on campus, and only build a dedicated law school building once they actually had a healthy law school up and running. I am really curious as to how all this happened. This misadventure would be a good subject for a Michael Lewis book.

    • Lawlcat

      The university doesn’t lose much from constructing the building though–it can easily be repurposed to house the Department of Air Conditioning Repair.

      • sharculese

        But Donald Glover is leaving Community, so where are they going to find a sufficiently qualified person to head the department?

    • fledermaus

      You answered your own question I think. The established lawyers know their graduates pose no threat and there’s always the possibility of side money teaching a clinic or seminar. The local community will gain from having many well paid professors around, contributing to the local economy. Local construction firms were used to build the building. Everyone makes out like bandits except the poor souls who foolishly enroll in this glorified diploma mill.

      • Anonymous

        Everyone makes out like bandits except the students? What about the university itself? It will end up losing millions on this “project.” I am not shedding any tears for the university; if anything, it got its just desserts. However, I am wondering exactly how this was allowed to happen. This is an absurd case of mismanagement.

        • BoredJD

          I think the prospectus makes clear that the university expects the school to be in the black within a few years. Not an absurd assumption given how many universities (used to?) use JD programs to subsidize other programs.

        • redrob64

          With so many business schools and management programs these days, you’d expect much better mismanagement, wouldn’t you?

  • More off-topic than usual, but if anyone hasn’t read Sokol’s hoax, they should. It’s genius.

  • Lawlcat

    Surprisingly, Indiana Tech is a private school–so there was no state approval needed for the school to start taking applications. I know some states have a separate state-level accreditation that allows grads to at least sit for the bar in-state, but I haven’t heard of that in Indiana. Can these grads even sit for the bar in Indiana if the school fails to get ABA accreditation? And might this be a case where the ABA actually denies provisional accreditation? I know the ABA hasn’t historically been too tough, but if there were ever a case to deny accreditation, surely this would be it? The website doesn’t sound reassuring: “The Law School makes no representation to any applicant that it will be approved by the American Bar Association prior to the graduation of any matriculating student.”

  • Sooner

    To answer the question: because prospective ITULS students don’t have as good of a grasp on NPV as Prof. Diamond?

    • Lawlcat

      I think this is the right answer. Also, the optimistic financial predictions of IT’s prospectus remind me of the optimistic predictions of the “million dollar law degree” article. IT’s enrollment predictions don’t compare favorably with the current reality the school is facing.

      From the prospectus:

      Time: Though law schools have been established in temporary quarters within a year of decisions to move forward, Indiana Tech’s pro forma provides a two-year lead time. It is important for Indiana Tech’s positioning that it have in place or readily accessible attractive, functional, state-of-the-art facilities for its charter class and subsequently recruited classes. As discussed in the preceding section, it is also important that Indiana Tech’s faculty have time to, in Walter Gelhorn’s words, “plan a genuine team effort … (to create) nothing less than a new model of a legal education….” The Appendix I budget provides funds to bring the charter faculty together for this work as early as January 2013, eight months before the charter class commences class in August. They will be available that spring to talk with applicants about the law school and why Indiana Tech’s model of legal education will represent a good career choice for them, further enhancing the school’s resource of positioning. The time frame adopted for recruiting the talent and providing the facilities for this effort covers the 2011-12 and 2012-13 academic years.

      Capital: Capital has value only because it can be traded for other resources. Those resources can then be utilized to build the enterprise, which can in turn generate capital. The pro forma is conservative with respect to sources of capital for establishment of the law school. It does not rely on external fund-raising, though supporters of the university have implied that some will be available. Tuition for the charter class is estimated at $28,500 for only 100 students, with 5 percent annual increases thereafter. First-year enrollment is projected to increase to 120 for the third year in anticipation of the grant of ABA approval that summer. A line item for scholarships is funded by tuition discounts equal to 15 percent of tuition. Projected start-up costs total almost $600,000 for 2011-12 and around $2,000,000 for 2012-13. Expenditures in 2012-13 could change significantly depending upon decisions concerning the building for the law school. In its fifth year, the school is projected to start generating a surplus, which will be used for its enhancement and to begin repaying the university’s accumulated operating loss of $8,731,000 between 2011 and 2017, at which time the school will have achieved a break-even point. The cumulative operating loss includes amortized payments for capital expenditures.

      • BoredJD

        I assume the operating loss referred to is the law school’s operating loss between that timeframe? Or is it the university’s?

        • Lawlcat

          I think it’s the amount of law school operating loss that the university is willing to eat. But given the reduced class size this year, we can add on at least an additional $2 million this year–plus this year’s smaller class size will cut into future revenues during the next two years as well, as the small 1L class turns into a small 2L & 3L class. (And that holds true even if the law school has a better recruitment year next year, which seems unlikely given that the number of LSAT takers has declined yet again). Maybe the university was willing to eat a $9 million loss in the hopes of creating a cash cow by year 5, but can they afford to lose twice as much with little hope of turning around the losses?

      • Sooner

        Indeed, most business plans seem to be more marketing than proper analysis. Surely the thought behind the scenes was “As long as the federal student loan process remains the same, we can’t lose. Look at all the prospective students other schools are turning away”. Do these expenditures cover their construction costs, or was that prior to 2011-2012? Or are they leasing a building? I guess I could look that up myself. They must be panicking right now. I appreciate their expectation of 5% annual tuition increases. And I also can appreciate the fact that the “scholarships” are not actually real monies covered for by other sources, but are instead simply cost breaks.

        • SV Bob

          The Indiana newspapers say IT spent $16 million on the building, which is not all that much. Looking at the picture, I see that it is a reasonably nice building in an urban area, and you could imagine IT could sell it for, say, $8 million or rent it out or repurpose it for a different program. So IT may not stand to lose much more than $8 million if the project flops. (IT’s endowment is a meagre $41 million, so that’s a fair hit.)
          I suspect that this was a vanity project by the otherwise successful IT president, who didn’t know what he was doing and reached for one bridge too far. Some of these midwestern cities are disconnected from reality and view their own city or county as the whole world. I don’t think IT’s aims were nefarious, like Infilaw’s.

  • dybbuk

    I thought the Seton Hall Law econometrics wizard departed from reality as we know it with this line: “The economic value of a law degree turns not on whether law graduates practice law, but rather on how much more readily they find work with the law degree than they would have without, and how much more they earn with the law degree than they would have without.”

    He may yet write an econometrics paper proving that today is a bright sunny day, but from where I sit, with a clear view out my window, the sky is leaden-grey and there is pouring rain.

    I want to know how a JD who does not practice law actually obtains his or her average $53,300 annual earnings premium above-and-beyond what he or she could have got with a BA.

    Where are the private sector nonlaw employers who say: “Wow, you have a law degree? Please take a $53,000 raise.” What are the identifiable supercerebral skills that allow a law grad to stride confidently into the marketplace and earn that extra $53,000 annually without even practicing law?

    • L2P

      I’ve been trying to figure that one out. Anyone who actually is in the market for work knows that having a law degree DOES NOT help to get a job, let alone get a better paying job.

      The best I can come up with is that a LOT of politicians and lobbyists have law degrees. Politics can pay pretty well. I guess if there are enough non-practicing lawyers in politics it could look like having a law degree increases income compared to non-lawyers.

      But even here there’s problems. The percentage of local politicians with law degrees has been tumbling because so many insiders are now taking over for termed-out office holders. So, really, I don’t know what to make of that going forward.

  • Lawlcat

    I may be seriously obsessed with the Indiana Tech prospectus, which seems largely insane. But there is an interesting nugget of information about the effect of law school indebtedness (and the likelihood of getting out of it).

    After noting (correctly) that “The key question is whether, given the large indebtedness law students assume by the time they graduate, they will be able to repay their loans on the relatively small incomes most will receive in their first legal jobs,” the prospectus goes on to cite the “After the JD” study to point out that, for law school graduates of the class of 2000, the class’s “median debt had fallen by $20,000.” The prospectus seemed to think this was a sign that law school debt was manageable.

    But… I was in law school in 2000 with loans taken out at a 4% interest rate. So, if students can pay of $20,000 at 4% over 7 years, what does that say about their ability to pay now that both tuition and interest rates on students loans are significantly higher? The cost structure in 2000 was a world away from the cost structure in 2013. If students are now taking out ~$175,000 on average at a significant number of school and might be able to pay $10,000 over the first 7 years of practice, something is not working right.

    • ADHDJ

      Wow, that’s fascinating. The writing style sort of reminds me of Jehovah’s Witness pamphlets.

      “However, absent dramatic change in the way law is currently practiced and given the dynamics of the national demand for legal education, the United States may need to import foreign lawyers or increase the outsourcing of legal work to foreign lawyers in their home countries to meet this country’s projected demand for legal services.”

      “If Indiana’s non-urban counties are to realize their fair share of future opportunities, they will need more lawyers.”

      “The national prominence of Indiana’s existing law schools constrains them in meeting the broad demand for legal education in Indiana.”

      “Law schools are among the very best institutions for teaching “critical thinking” — the first and (arguably) the most important mission of education, no matter what employment path the student pursues.”

      “Law schools attract a faculty and student body that make their campuses centers for fresh and creative “out of the box” ideas, compared to a community’s traditional ways of organizing itself and doing things.”

      • Sooner

        “Studies show people want a $1,000,000 earning premium.”

  • Anonymous

    If I were a cutthroat administrator at a nearby law school, which I am not, I would find the names and contact info of these 22 students, and offer them admission and equal or greater financial aid at my institution, thereby smothering a potential competing institution in its crib.

  • Funny Money

    I don’t see what the big deal is. Indian Tech should just charge Uncle Sam (via the 22 matriculants) $1mm per student per year, you know, the full “Cost of Attendance” for GradPLUS purposes. That was an easy fix.

    What? You think the students will care? They’ll all be on PAYE, so it still only costs them 10% of their AGI for 20 years, or approximately $2,000 per year (on average). It’s funny money!

  • OhioDocReviewer

    Indiana Tech Law students would be better off attending the Lionel Hutz School of Law Talking and Shoe Repair.

    http://www.simpsoncrazy.com/content/gallery/ads-fake/hutzcollege.jpg

  • L2P

    Can anyone make any sense out of ?

    Near as I can tell, the poster thinks hat law isn’t in trouble bc schools (and lawyers) will adapt to a new playing field. I can’t figure it out.

  • Unemployed Northeastern

    Hey, I’ve been cited!! As opposed to, say, half of law review articles…

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