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Haggling over price

[ 32 ] April 1, 2015 |

borat

One of the disappointments of my professional life is that no one has yet tried to bribe me. Around the time The Obesity Myth came out I did dozens of interviews, and to the best of my recollection I was only asked once if I had accepted money from any interested parties in the course of researching and publishing my views. I had to report regretfully that no one had thought it worthwhile to attempt to purchase my good opinion.

Happily, it appears that Michael Simkovic, a young and energetic Seton Hall law professor, has already avoided at least this species of disappointment. Simkovic co-published a study last year, purporting to show that the average present value of a generic “law degree” is just shy of one million dollars, and he and his co-author have just published a draft of another paper, claiming that this impressive figure is hardly affected by business cycle fluctuations, and that therefore “the best time to go to law school is the earliest point possible after which you make the decision that you’d eventually like to go. By waiting, you’re spending more of your limited working life working for lower wages.”

It goes without saying that these conclusions are exactly what the legal academic establishment would like to hear. So great is their enthusiasm for these findings that they are, as the intrepid scamblogger Dybbuk reveals, generously funding their further propagation:

Simkovic is a junior law professor at a second-tier law school, and therefore a finding that a law degree is an extremely risky proposition would be adverse to his employer’s interests, and his own — it doesn’t take an econometrics study to deduce a causal connection between the decline in tuition-paying lemmings and the decline in cushy lawprof jobs. But perhaps even more saliently, Simkovic has received grants totaling $220,000 from the Access Group and Law School Admissions Council (LSAC) to fund his ongoing studies of the great value of a law degree. Simkovic collected $120,000 from the Access Group and $100,000 from the LSAC. . .

The Access Group is a nonprofit membership organization comprised of 196 ABA-approved law schools. It touts itself, on its website, as a “leading provider” of student loans for aspiring professionals. As such, it has served as a national originator, holder and servicer of federally guaranteed and private, credit-based loans, funding more than $18 billion of education loans since 2001. On its IRS Form 990, Access Group lists its “primary activity” as being to “support. . . the organization’s student loan borrowers in facilitating timely repayment.” It also seeks to “promote access to higher education through lending programs offered.” . . .

The Law School Admissions Council is the nonprofit that administers the LSAT and facilitates the law school application process on behalf of its 200+ member law schools. According to its Form 990, LSAC exists to “provide services” to member law schools. These services include staging “national forums” to acquaint students with their “legal education alternatives” and holding training and educational programs for law school admissions professionals. LSAC’s gross receipts in fiscal 2013 totaled about 49 million dollars.

One of the many complaints made about legal academic scholarship is that, unlike most research in the social sciences, nobody is interested in paying for it via grants. It’s nice to see Prof. Simkovic demolishing this myth as well.

Unemployed Northeastern, indefatigable chronicler of the griftier aspects of contemporary higher ed, has some choice words about a particularly grotesque aspect of all this:

Michael Simkovic himself has gone on the warpath multiple times about how funding from the Lumina Foundation, which Sallie Mae cofounded and gave $700 million in funding, drives think tanks like Brookings and New America Foundation to create neoliberal studies that recommend federal lending be curtailed, PSLF be repealed, and PAYE be jettisoned in favor of old IBR. See, for instance:

1. ““It’s hard to make sense of a lot of what Lumina is advocating on student loans unless you think of how it would benefit Sallie Mae,” says Michael Simkovic, an associate professor at Seton Hall.” http://www.buzzfeed.com/mollyhensleyclancy/how-a-private-foundation-with-deep-ties-to-the-student-loan#.oqnVbMa1nn [the linked article relates how Lumina, which was cofounded and solely funded by Sallie Mae, gave New America $3 million and now NA rails against PSLF and federal student lending]

2. “Michael Simkovic, a visiting associate professor of law at the University of North Carolina at Chapel Hill and an expert on lending issues, said that if Brookings’s reports on student debt were to dictate policy, they would “boost the profits of the student lenders like Sallie Mae.”” http://www.washingtonpost.com/politics/at-fast-growing-brookings-donors-help-set-agenda/2014/10/30/a4ba4e8e-48ef-11e4-891d-713f052086a0_story.html [article relates how Lumina gave Brookings $1.9 million and now Brookings claims there is no student loan crisis]

And here he is, taking in hundreds of thousands of dollars from entities with direct stakes in the law school revenue game and writing studies that claim that law school graduates are immune to the laws of supply and demand, wage suppression, bear markets, elitism, etc. As if. To spell it out really clearly for anyone still confused about Access Group, it was a student lender. Back in the dark ages before GradPLUS (2006, I think), a law student could only borrow about $60,000 in federal loans for law school. Access Group competed with Sallie Mae, Nelnet, Citibank, etc. for the ability to extend $80,000 or $100,000 in private student loans to make up the difference. They would bundle those loans into Student Loan Asset-Backed Securities and sell them on Wall Street, of course. Yes, the law schools jointly own a student lending company, albeit a non-profit one (that sits on about $300 million in cash, if I am reading their 990s correctly). As far as I can tell, they haven’t lent money in years, have outsourced their loan administration to third parties, and seem to exist only to provide salaries for their executives.

April Fools!

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  • I have to fill out a conflict of interest form approximately every week, and I’m always bummed out that I don’t have any. If anybody has any advice for how I can get some CoIs, please let me know.

    • Snarki, child of Loki

      Tell them that you have this WONDERFUL product, that would be just PERFECT for their operation, but because of COI you absolutely refuse to sell it to them or let them use it or even give them details.

  • Unemployed_Northeastern

    “[Simkovic] and his co-author have just published a draft of another paper, claiming that this impressive figure is hardly affected by business cycle fluctuations, and that therefore “the best time to go to law school is the earliest point possible after which you make the decision that you’d eventually like to go. By waiting, you’re spending more of your limited working life working for lower wages”.”

    It bears mentioning that this conclusion runs contrary to literally every other study I have seen on the long-term salary consequences of graduating into a recession.

    – Paul Oyer, Stanford Business School, The Making of an Investment Banker: Stock Market Shocks, Career Choice, and Lifetime Earnings. (surprise! Even MBAs from SBS, one of the three best business schools in the country, which any rational reader will agree is both more versatile and stalwart than the normative JD, has a $6 million lifetime earnings difference between graduates of bear markets and graduates of bull markets).

    – Lisa Kahn, Yale, The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy.

    – Philip Oreopoulos, University of Toronto and NBER, The Short and Long-Term Career Effects of Graduating into a Recession: Hysteresis and Heterogeneity in the Market for College Graduates.

    – Brian Clark, Duke University, The Career Prospects of Overeducated Americans.

    – Till von Wachter, Columbia University, Long-Term Earnings Losses due to Mass Layoffs During the 1982 Recession: An Analysis Using U.S. Administrative Data from 1974 to 2004.

    – Joseph G. Altonji, Lisa B. Kahn, Jamin D. Speer, “Cashier or Consultant? Entry Labor Market Conditions, Field of Study, and Career Success.

    – Joni Hersch, Vanderbilt Law School, Catching Up is Hard to Do: Undergraduate Prestige, Elite Graduate Programs, and the Earnings Premium (even among graduates of the same elite law schools, people with elite undergrad credentials earn considerably more than their law school classmates).

    I do believe that all of these studies were written by professors with actual graduate degrees in the social sciences and teach at more prestigious institutions to boot.

    • Crusty

      “I do believe that all of these studies were written by professors with actual graduate degrees in the social sciences and teach at more prestigious institutions to boot.”

      Snob.

      Just kidding.

  • rea

    Maybe I’m misunderstanding what he is claiming, but assume you graduate at age 25, and work until you’re 65. Over that period you’re making a million bucks, which comes to a whopping $25,000 per year.

    • Paul Campos

      The claim is that Average Law Student graduating from Average Law School will earn a million dollars more (discounted to present value at the time the degree is earned, so a lot more than a million dollars in income stream over time) than ALS would have earned in ALS’s working career if ALS hadn’t gone to law school.

      This terrific result is achieved even though 40% of the graduates in the study cohort aren’t even employed as lawyers.

      • Is this the trick where Bill Gates walks into a bar and says “Hey, I just doubled your average net worth in here!”?

        • Hogan

          Only doubled it? I can’t afford to drink in that bar.

  • Andrew

    I’m willing to bet that funding from Access has, by academic standards, very little restrictions on what can be done with it (particularly, how much can be spent on the researchers salary).

  • ichininosan

    Of course, an Access Group / LSAC – funded study would just be a waste of $220,000 if you couldn’t use it as an authoritative source to entice a few people to take out $60K in annual tuition loans to go to law school….

    You’ll need space in the New York Times for that. Anybody up for that task?

    http://mobile.nytimes.com/2015/04/01/business/dealbook/despite-forecasts-of-doom-signs-of-life-in-the-legal-industry.html?referrer=

    • Unemployed_Northeastern

      Let’s not forget that Richard Matasar, long-time dean of New York Law School, was the unpaid chair of Access’s board for many years. Who can forget the NYT profile on Matasar and NYLS? It was titled “Law School Economics: Ka-Ching!” http://www.nytimes.com/2011/07/17/business/law-school-economics-job-market-weakens-tuition-rises.html

      Money quote:

      “N.Y.L.S. is ranked in the bottom third of all law schools in the country, but with tuition and fees now set at $47,800 a year, it charges more than Harvard. It increased the size of the class that arrived in the fall of 2009 by an astounding 30 percent, even as hiring in the legal profession imploded. It reported in the most recent US News & World Report rankings that the median starting salary of its graduates was the same as for those of the best schools in the nation — even though most of its graduates, in fact, find work at less than half that amount. Mr. Matasar declined to be interviewed for this article, though he agreed to answer questions e-mailed through a public relations representative.”

      Anyways, I just wrote a comment on the ABA Journal’s coverage of that NYT piece and the latest M.S. study, but evidently I am still banned from posting there (it’s at least my second ABA Journal banishment; good luck proselytizing me to join anytime, fellas). I’ll try to recap it, as I was not bright enough to copy/paste it before posting:

      Contrary to the sunny stats re: GULC in the NYT piece:

      – Once we take away Georgetown-funded jobs, only 467 of 645 Co2013 GULC grads, or 72%, found LT, FT, license-required jobs at any salary.

      – That *median starting salary* of $160k for GULC grads – and only 245 of 645 GULC grads landed FT/LT/license-required jobs at law firms of more than 250 lawyers – is the same salary as it was in 2006. $160,000 in 2006 is just shy of $190,000 in 2015 dollars. Meanwhile, GULC tuition was $34,500* in 2005-06 and $53,120** for this academic year . So even before we get into the burgeoning cost of living anywhere in or near DC, the cost of attending GULC has increased 53% while the very best starting salaries have not budged.

      Oh yeah, and the LSAT splits at GULC have dropped from a 168/170/172 in 2010 to a 163/167/168 this past fall.

      *https://lawschooltuitionbubble.wordpress.com/2011/01/22/the-law-school-tuition-bubble-data-tuition-increases-law-school-by-law-school-from-2005-to-2011/#DC

      **http://www.lstscorereports.com/schools/gulc/costs/2013/

  • Just_Dropping_By

    While there is a lot wrong with this paper, and at this point I would actively discourage anyone from going to law school unless they are going to a top 10 rated school, if you must go to law school then “go sooner rather than later” actually does makes sense given 30-year loan repayment terms and the strong likelihood that interest rates will be higher in the future than they are today.

    • Unemployed_Northeastern

      And the likelihood that a future Congress will repeal PSLF, GradPLUS Loans, and PAYE before you graduate. All three ideas have been floated by Republicans in Congress as part of the Higher Education Act reauthorization.

      • PaulB

        Why is the repeal of GradPLUS loans bad? In an ideal world, I would ban federal guarantees on loans for PhD programs and limit such loans for law and business schools to $15K tuition and fees charged (not the amount of loan). But if that weren’t possible, I’d eliminate GradPLUS all together.

        • Unemployed_Northeastern

          The repeal of GradPLUS loans is bad because there are a half-dozen private lenders just waiting to take over the business of lending to graduate students. Among that half-dozen is, of course, the lender Access Group, which is owned by the law schools themselves. Tuition won’t go down an inch; you’ll just have graduate Staffords and a bunch of private loans, as it was a decade ago. Private loans that are not dischargeable in bankruptcy nor eligible for IBR, PAYE, or PSLF. Nope, you get six or nine months after graduation in grace period, then you have to start coughing up four-figure student loan payments. For a quite rough picture, divide the student loan balance by one hundred and add a bit more. If you owe $150k, your payment will be like $1600/month. If you owe $200k, your payment will be $2300 or $2400/month. Obviously, the only way one can make those payments is to get hired by Biglaw or as an entry-level in-house attorney at a major corporation. As much as I don’t like the market distortions caused by GradPLUS, repealing them will only make graduates’ lives worse.

  • BoredJD

    Here is why this particular study is so pernicious.

    Million-Dollar Law Degree generated a lot of academic debate, but even accepting its premise, as a practical matter it was of little help to law schools trying to convince students to attend without having to give them large [scholarships/tuition discounts] (of course this did not stop them from touting it). That’s because even if a law degree from Cooley gives a million-dollar lifetime earnings premium, nobody wants to spend the bulk of their mid-twenties and early thirties paying off the 200K in federal student loan debt it now takes to fund tuition at one of these schools if they can avoid it. There are not enough rich kids in America who want to go to law school to support all 200 law schools.

    Thus, because law school admissions is so numbers driven and schools take only the highest LSAT score (because USNWR only counts the highest), it is almost always in the short-term interest of students to sit out the year or two, study, and retake the LSAT. Even the average score increase of 2-3 points is worth a ton of money, which has been amply demonstrated by sites like LawSchoolNumbers. If you are in a position to advise a student who is dead set on law school but doesn’t have good offers, then you tell them to wait. When enough people wait, it causes a serious short-term revenue problem for the law schools.

    What law schools require to fund their bloated structures is a lot of people who feel like they are going to lose out if they wait that extra year or two. In other words, they need people who feel “trapped” into going to law school, since the person at the negotiating table who cannot walk away is always going to lose out on the best deal. Before recently, this was accomplished because law school provided an easy answer to the middle-class question of what [respectable white-collar career] you are going to do with your life. Now that we’ve seemed to have reached a tipping point, we have an economic study that says you lose by not going at “the earliest point possible after which you’d make the decision that you’d eventually like to go.”

    The comparison between used car lots or the real estate salesmen portrayed in Glengarry Glen Ross writes itself.

    • StuckinOz

      I’m in a position to advise students heading to law school (philosophy majors), despite my woeful ignorance of the current situation. My school has a pre-law advisor, but she’s only one person for a largish school and her knowledge is a good 20 years out of date.

      My students will surely see that atrocious NY Times article Unemployed_Northeastern linked to above and draw the obvious conclusion, especially since it matches their own desires. They’ve already got heavy student loans from undergrad and would prefer to jump straight into law school.

      Can you recommend something I can give them to read that would persuade them to hold off a couple of years and study for the LSAT? I’d really appreciate it.

      • Crusty

        The writings of one Paul Campos, for starters.

        At this point, the information is out there on the google machine.

        • StuckinOz

          Fair enough. I’ll go do my homework.

      • BoredJD

        1) Law School Transparency will provide the actual COA breakdown. This is important because prospective law students are shockingly illiterate re: things like COL, tuition increases, accrued interest, or origination fees. Seeing the actual figure at repayment may shock them out of it.

        2) Law School Numbers puts in very vivid context just how much even a few points on the LSAT can get you in scholly money. It puts paid to the notion that schools are interested in holistic applications. Hopefully seeing what an extra 2-3 points really can get you significant money and no law schools do not average will give them a better perspective on things.

        3) Would also recommend they search for their prospective schools on the top-law-schools forums and consult that forum for evidence of what a good study regimen looks like. IME, students tend to underestimate how learnable the LSAT is. The test is very learnable, but it requires sustained prep, not a few practice tests over 2-3 months. When you work out how much money retaking can get you on a per hourly basis it can be in the $1000s of dollars (it was in my case). Often students gravitate towards the path of least resistance which is going to law school at “the earliest point possible after which you’d make the decision that you’d eventually like to go.”

  • MacK

    No one should forget that noted laughing stock (and casual slanderer) Steve Diamond really loves the Simkovic studies, saying such brilliant comments as “New research by Simkovic and McIntyre delivers another blow to law school critics’ case.”

    Lets see how Diamond addresses this little problem.

    • Barry_D

      “Lets see how Diamond addresses this little problem.”

      With his usual inexhaustible stream of BS.

      • Stan1

        There is no way Diamond says a single word about this. The only thing guys like Diamond and Tokyo Rose have in greater quantities than bad faith is cowardice.

        They dont even allow comments on their blogs. It’s truly shocking how little criticism these people can face despite the protections of tenure.

        Then again, his infuriating antics do more for our cause than anything else, so in that respect, keep it up Heavy D.

  • MacK

    Inter alia, someone should look at the Wikipedia page Law school in the United States where much is made of Simkovic and McIntyre – in a very Leiter-esque way. It was until recently treated as gospel truth, but some assassin has dared to mention a few things.

    http://en.wikipedia.org/wiki/Law_school_in_the_United_States#Post-law_school_employment

    • FOARP

      Unfortunately someone with a Fordham University IP address has been all over the article in the last few hours.

  • toberdog

    That is an absolute gem of an opening sentence.

  • MacK

    Interestingly Leiter has ;went his weblog to Simkovic this week – and Simkovic is up there propagandising his cause. Curiously he has posts today, yesterday, the day before – in none does he address the controversy over the funding of his papers – while attacking his critics.

    Anyone willing to mine through the data and see where he can be hoist on his ethical petards?

  • Eli Rabett

    How would this compare say with Randy Barnett renting out to Big Tobacco in his IIT days? Just askin.

  • Tracy Lightcap

    A lot of this is confounding two very different questions.

    1. Are law schools clawing in far higher tuitions to support an over-extended infrastructure that is badly out of line with existing opportunities for legal employment? Sure. As Paul has pointed out at length, the economics of legal education are royally screwed up, if what you are looking for is legal employment. Further, that the law schools – and the universities and colleges who egg them on – haven’t gotten this through their thick skulls and done something about it is disgraceful. But …

    2. That’s different from the allegations in this post. Those concern the Simkovic and McIntyre paper and subsequent funding for Simkovic’s research. I’ve actually read the original paper and the replies the authors made to their critics. Their research is sound, so far as I can see, and their replies to their various critics are pretty devastating. Further, their conclusions make sense, as far as they go: people who go to law school and finish get skills that serve them well in a variety of possible careers and they tend to make more money over time, just like people who get advanced degrees in general. The obvious caveat applies, however, as S & M (no pun intended) admit: this is retrospective data and there is no guarantee that what they found about the past will be the case in the future. Further, while folks like Leiter have used this to argue for not doing anything about the tuition structure in law schools, the original paper offers very little support for that. The one thing they say that could be so construed is their assertion that the Great Recession is simply a larger blip then usual and that legal business will recover soon. I think subsequent experience has put paid to that conclusion, though how much of the rest of their analysis is questionable is something we can’t really answer yet.

    Sooooo … people who can use his research for their own purposes have given Simkovic grants!?! Hold the presses!! Bring out the 64 pitch fonts!! Whoever heard of such a thing? And Simkovic, who, of course, stands behind his conclusions, actually took the grants and has talked up his research? I’m shocked, shocked, I tell you!

    Does this constitute taking bribes, as friend Paul is asserting here? Of course not. Indeed, this is fairly standard practice. That the research he’s doing makes Paul’s case marginally – and only that – harder to make doesn’t change the ethical aspects of the transaction one whit. Now, of course, if you think the original study was tendentious, then the whole thing takes on a different cast. But, like I said, I read the original paper and the answers S & M made to their critics and they had the better of the empirical argument, imho. We’ll just have to see if their subsequent products look like research done for tobacco companies, but there doesn’t seem to be much but speculation behind that. If it does, then it could well be that Paul is right, but that isn’t something that’ll be settled until we see what they do and how it stands up.

    • BoredJD

      Million Dollar law degree was unexceptional because it just confirmed something that most people on both sides of the debate knew, which is that if you made it as a lawyer, then overall you’d have a significant earnings premium over a 40 year career. Whether this would continue to be true in the future, whether it is true at any individual law school, etc. etc., are questions the study could not hope to answer.

      The second paper, imo, goes from being a relatively neutral critique of the numbers to much closer to propaganda. “The best time to go to law school is the earliest point possible after which you make the decision that you’d eventually like to go” (i.e. what are you thinking about you 21-24 year old, just sign the loan papers!) not only sounds like something shady real estate broker would say, it’s just wrong as a matter of practical advice to a law student trying to maximize their opportunities. Simkovic knows that his research is going to be cited by law school deans at admitted students weekends over the next two months.

      Also, aren’t researchers typically required to disclose the source of any research funding in other disciplines? I know law professors like to keep up the pretense of being real academics, so this seems like a rather serious omission.

  • Tracy Lightcap

    Yeah, in general I agree. I haven’t had the time to read the second paper thoroughly – and I doubt I’ll ever find it – but on a quick read the conclusions concerning discounting are the most speculative in the piece. They do limit this by saying, as you point out, that when you go depends on when you decide; my best friend went to law school when he was 36. Still, there’s no doubt that law school recruiters won’t portray the conclusion as being that nuanced. And, as you say, I don’t doubt that S & M know how the research will be used. But you could say the same about the way all empirical research is used and I also don’t doubt that S & M believe that their results are well supported and valid, so far as they go.

    One thing that bothers me about the second and first paper is that both talk a lot about opportunity costs, but base that on a comparison of a general BA to an LLB. Since we know that advanced degrees mean higher lifetime earnings, I’d be more convinced if the comparison was between the LLB and, say, a social science MA. (I don’t think you couldn’t make it more general without bringing in the engineering and physical science degrees and running into an apples/oranges problem.) If the premium still showed up then the case for opportunity costs leading to an early decision to go for the LLB would be a lot more solid.

    And, yes, when you get something published you should reveal the funding sources. This is just a draft, however; it doesn’t even have a reference list (indeed, it is hard to see how they will ultimately handle their refs). At that stage, I’m not sure that anybody should care. If they get it pass the SSRN, then they had better reveal sources pronto.

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