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When the levee breaks

[ 59 ] October 27, 2015 |

baltimore law building

A terrible week of publicity for law schools continues apace, as today the New York Times published a story on the new Law School Transparency study that I highlighted in last week’s Atlantic piece. The gist of the study is that cratering applicant numbers have increased the number of schools who are admitting large numbers of matriculants who are in serious danger of never passing a bar exam from a handful to more than one third of all ABA schools.

This practice is in blatant violation of ABA accreditation standards, specifically Standard 501(b), which states that

A law school shall not admit an applicant who does not appear capable of satisfactorily completing its program of legal education and being admitted to the bar.

Of course this rule can be finessed, through the employment of those heightened analytical skills that a legal education is said to produce:

“Our experience has been that someone with a 147 score could pass the bar and someone else with 160 could fail, so we don’t think that there is necessarily a relationship between the test and people’s ability to pass the bar,” said Christopher Behan, [Southern Illinois’s] associate dean.

Anyway the LST report is something everybody in the law school world should read.

On a related note, Indiana University law professor Bill Henderson, best known as the chronicler of the bimodal salary distribution among new law school graduates who are employed as lawyers and report their salaries, has a good take on Sunday’s Times editorial regarding law graduate debt. Henderson’s basic point is that when the levee of unlimited federal loans to law schools breaks, crying won’t help you and praying won’t do you no good:

It is hard to argue that a cap on federal funding of legal education would be bad policy for students, the legal profession, taxpayers, or broader society. Such a change would:

Reduce the number of law grads going into a saturated labor market;
Reduce the number of low credentialed students admitted to law school who will one day struggle to pass the bar;
Reduce the risk of nonpayment of students loans currently borne by US taxpayers;
Put in place serious cost-containment on legal education.

Now there are complications to capping federal loans: As Unemployed Northeastern notes, without further reforms private lenders may simply fill the gap, although in my view they’re unlikely to do much gap filling under these circumstances if such loans are made dischargeable in bankruptcy, as they ought to be. But the current system is both indefensible and unsustainable. And, as Henderson also notes, the dysfunctions of how law school is financed are symptomatic of the increasingly dysfunctional economics of higher education in America as a whole.

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  1. John F says:

    “Our experience has been that someone with a 147 score could pass the bar and someone else with 160 could fail, so we don’t think that there is necessarily a relationship between the test and people’s ability to pass the bar,”

    I love reasoning like this (well no I don’t actually)- It’s called the “hey I found this one exception that totally disproves the rule”- you know that when you run into someone who argues like that- the argument is pointless- the other guy is NEVER gonna concede a rhetorical inch.

    • Hogan says:

      This year we admitted 500 more black swans.

    • yet_another_lawyer says:

      Woah, woah, woah, let’s go back to the actual standard here.

      A law school shall not admit an applicant who does not appear capable of satisfactorily completing its program of legal education and being admitted to the bar.

      1) Doesn’t the ‘and’ mean that we can admit anybody who can either complete the program OR pass the bar? If our students had to do both, the standard should read ‘or.’
      2) Just because someone is CAPABLE of something doesn’t mean that they’ll actually do it. Obama is capable of resigning, doesn’t mean he will. If the ABA contemplated a certain bar passage rate, they would have said so.
      3) You’ll note that there’s not even a mention of the bar exam, just of being admitted to the bar. The bar exam is under increasing scrutiny, so we believe it will be gone or substantially changed by the time our applicants graduate– hence, they can be admitted even if they wouldn’t necessarily pass the bar exam. We would be doing the market a disservice if we didn’t anticipate the needs three years out, because it takes that long to think like a lawyer.
      4) Anybody is “capable” of passing the bar exam– given enough attempts, anybody could pass! If the standard contemplated applicants being able to pass within x number of times, it would have said so. We’ve met the standard even if our 25 year old graduate would only pass after the eighth time. If they quit after the seventh, that’s hardly on us.

      So, in conclusion, please send student loan dollars. Daddy needs a new constitutional law center.

      • toberdog says:

        I think the standard means that law school admittees have to be capable of both completing the program of legal education and being admitted to the bar.

        Of course, being capable of those two things isn’t necessarily predictive of whether they can actually practice law and earn a decent living.

  2. Bruce Vail says:

    Why the photo of the University of Baltimore law school’s brand new building?

    It was my understanding that alum Peter Angelos paid for the whole thing.

    • Paul Campos says:

      This is the free money fallacy.

      First, even if Angelos paid for the construction of the building, he isn’t going to be paying for the increased operational costs that almost inevitably flow from filling up a fancy new building with fancy new programs, more personnel, higher maintenance and depreciation costs etc.

      For example, the Pritzkers just gave $100 million to Northwestern’s law school, which will now be named after them. Odds that this money lowers the actual cost of attendance for students are low to non-existent. 17 years ago a telecom magnate gave $100 million to the University of Arizona’s law school, and tuition there has since gone through the roof in real terms. And so on.

      Second, when Richie Rich gives a giant pile of money to School A, School B, C, D . . . are going to hike their operating budgets to try to keep up with the Angelos.

      And of course all of this is subsidized by the tax code. In short, it’s hard to think of a worse way for a rich person to make a “charitable contribution” than to use it to build a new law school building. Simply handing it out randomly on the streets of Baltimore would be far better for everyone except people working in law schools.

      • Grumpy says:

        Simply handing it out randomly on the streets of Baltimore would be far better for everyone except people working in law schools.

        The fact that Marlo Stanfield failed to build a new law school building in West Baltimore is enough to keep him out of the pantheon of great villains.

      • Bruce Vail says:

        Yeah, I agree with most of that. Of all the things that Baltimore needs right now, a fancier law school building is pretty low on the list.

        Angelos wanted to give something back to UB, since it was his education there that made his vast wealth possible. I had occasion to do a little reading up on him recently and was impressed to learn that his firm does not take corporate clients. For those not familiar with the guy, he became a zillionaire representing workers sickened by asbestos in the workplace.

      • Unemployed_Northeastern says:

        Did you know that the daughter in the great 1990’s Harrison Ford movie “Air Force One” was a Pritzker? And that she later sued her dad for $6 billion?

    • rea says:

      That is certainly a hideous-looking building . . .

      • Unemployed_Northeastern says:

        It looks like virtually every new biotech or life sciences facility around Kendall Square in Cambridge, MA.

      • NewishLawyer says:

        I like it.*

        I don’t understand why people dislike modern architecture so much.

        *This is independent of whether the building should have been built or not.

        • sparks says:

          The design looks like something I could have made out of blocks when I was 3.

        • LeeEsq says:

          If you increase the amount of glass it would look better but it’s a rather nice looking building.

        • Richard Hershberger says:

          I like some modern architecture. For example, the Liberty Place towers in Philadelphia do a terrific job of being both modern and fitting in with the existing architecture. Or, moving west about a mile, there is the Cira Centre. It inevitably looms far above the surrounding architecture, so it is made to stand on its own. It manages very well. I find it endlessly fascinating to see from different angles, including the ones where it looks like a Jawa sand cruiser. This Baltimore thing? It looks like the architect was trying too hard, like a little kid calling out “Look at me!”

          • AcademicLurker says:

            If I’m ever rich enough to donate a building to my alma mater, I’m going insist that it be a scaled up replica of a Jawa sand cruiser.

            I suppose I might need George Lucas’ permission.

        • MacK says:

          The example I like to give is of the Institute of University of Londons Advanced Legal Studies building, Charles Clore House. Designed in the Brutalist style by Sir Denys Lasdun (1914-2001) who is unfortunately dead, so not one can tell him, brutally, what a ****ing monstrosity it is and ugly concrete monstrosity, freezing cold in winter, sweltering on even cold summer days, listed (good grief), with mechanical systems that barely work (the elevators threaten to trap anyone who uses them.) It is probably the concrete carbuncle that Prince Charles was referring to in his infamous speech on modern architecture.

          It was very fashionable architecturally when built in 1974-6 – everyone I know who has ever used it hates the place. It also is wholly out of place with the surrounding buildings.

          Look on it and gasp:

          https://upload.wikimedia.org/wikipedia/commons/a/a1/Institute_of_Advanced_Legal_Studies,_University_of_London,_Charles_Clore_House,_London,_UK_-_20130625-03.JPG

      • Bruce Vail says:

        It certainly is hideous as a sculptural ornament. But I’ve stomped around that part of town quite a bit, and the building seems to work pretty well from the street level. I’ve never been inside and don’t know how the everyday users feel about it.

  3. PaulB says:

    Whether or not law school loans can be discharged in bankruptcy will not have a significant impact on the willingness of private lenders to participate in this market. Does anyone here think that repayment of a six figure loan from a Cooley grad will occur if only the bankruptcy option is not available? The one way that private sector lenders will jump in is if universities are willing to cosign the loans.

    • CSI says:

      I know little about finance I admit, but can’t lenders securitize and sell off the debt? This would tend to make them a bit reckless when it comes to lending.

      • PaulB says:

        CSI, you must have missed 2008. Securitizing debt does not solve the problem that somebody has to lose money when a loan defaults. Likewise, there’s no difference between the federal government making a loan or guaranteeing a student loan or home mortgage made by a private lender. Over at Leiter, all sorts of progressive law school professors are framing this latest round as a plot by private lenders to take over the business from a wildly successful public program. Which of course is completely true if you’re totally indifferent to multi-billion dollar losses incurred by the federal government.

        • Unemployed_Northeastern says:

          Funny, because in 2009 Senator Sherrod Brown tried to introduce an act wherein the government would have bought all FFEL loans (the old private loan with government guarantees program) at 100% of current principal and outstanding interest so those loans could be eligible for IBR plans and whatnot. It never got out of committee, killed under heavy pressure from the American Securitization Forum, a securities lobbying group. You see, about 85% of FFEL loans were eventually bundled into SLABS, and ASF argued that the investors and bundling lenders would lose extraordinary sums of money by only receiving 100% of principal and outstanding interest. See Malcom Harris’s recounting in the Boston Review.

          And of course, when a FFEL loan defaults, the government pays the balance, so there isn’t any loss to the investor. (the government then tacks on default and collections fees that can amount to 50% of the balance, ups the interest rate, and sends collection firms after the debtor, so the government eventually comes out ahead in the long run, too).

          • CSI says:

            So all these incentives to issue private student loans recklessly are still there, if the government were to limit Plus loans and graduate students (incl. law students) felt it necessary to take out more private loans.

            Look at the property and other investment bubbles, all of which occurred in lending areas with far more consumer protections, including bankruptcy.

            Federal loans should still be limited, but private loans need to be looked at too.

    • Morse Code for J says:

      Any model which puts the risk on the school or lender is DOA.

      • mutt guy says:

        Aren’t lenders supposed to take risks? That’s one of the reasons they charge interest on their loans.

        The non-dischargability of student loans almost completely removes risk for the lender, which of course should not ever be the case … but because it benefits law schools etc. and lenders is the case for student loans – with a generation or two of debt serfs as the end result.

        • Morse Code for J says:

          Student loans are comparatively huge and unsecured by collateral. The reason why the government offers undergraduate student loans at 3.5% is that they can wait forever to collect and need not worry about the loans being discharged in bankruptcy.

          I can’t imagine students being offered discharge protections without having to pay something for it up front, be it collateral or higher interest rates or both. And that gets us back to the fundamental problem of getting people without means through a program of higher education without somebody getting screwed with the debt.

  4. matt w says:

    OT but it bugs me: The levee analogy seems off to me. It’s not as though the loans are holding back some force that’s waiting to crash over the law schools. It’s more like a drought, or turning off a spigot; when the loans stop flowing things will dry up and blow away.

    Here’s some blues songs about droughts for your perusal.

  5. Morse Code for J says:

    Henderson should be listened to, particularly the part about joining with other higher education associations to make a unified ask for Congress on GradPLUS. You don’t want to be standing alone answering the question why a no-cap grad school loan at 6%+ is a good idea for any participant in the transaction besides the school getting paid up front in 100-cent dollars.

    • Unemployed_Northeastern says:

      IIRC, Senator Lamar Alexander, who is now kinda in charge of the Higher Education Act reauthorization, floated a plan last spring or so wherein he would have tossed all federal student loans – Stafford, Perkins (which was just eliminated by Congress), GradPLUS – in favor of one federal loan. Undergrad limit would be right about where the undergrad limit for independent students is for Staffords right now ($57k or so), the grad school limit would be $150k. He did not make this clear whether this a per-degree limit or a lifetime ceiling. If it is the former, law schools will mostly be alone (with maybe biz and pharmacy schools in the mix). If it is a lifetime ceiling, though, expect EVERY graduate program to be up in arms about it.

  6. Cassiodorus says:

    As much as I hate to say, I think the “positives” from the quoted editorial are not as possible as one wants to believe. Placing caps on federal funding of legal education would exclude a lot of students from working class backgrounds and have a disproportionate impact on minorities in the profession.

    • Marc says:

      A switch to a model where loans are a percentage of income has a lot to recommend it. Law schools have a real incentive to admit people who can pass the bar and get legal jobs, for example.

      I think that a lot of the commentary ignores the implications for class mobility of letting the market price working and middle class people out of tuition at the schools with good employment track records.

      • Cassiodorus says:

        Totally agree about payments as a percentage of income. I certainly agree we need some reforms in how the system works.

        Most of the proposals I’ve seen would effectively price working class students out of law school. A 150k lifetime cap? With the average undergraduate debt load, you’re going to hit that even if you’re paying in-state tuition.

        • Morse Code for J says:

          Which will hopefully in turn trigger another conversation about how crazy it is to have the graduates of public universities owing $75k+ for a goddamn bachelor’s degree.

          • Unemployed_Northeastern says:

            We hear those stories a fair amount, don’t we? Guess what? The undergraduate federal student lending ceiling is $31,500 for dependent students and $57,500 for independent students, and it hasn’t been raised since 2008 or 2009. All of those stories you hear about $75k or $100k or $200k student loan balances for undergrad are private student loans. It’s yet more evidence informing my belief that private lenders would step in the second GradPLUS goes away, and in fact they are more or less advocating for the repeal of GradPLUS loans.

            And no, the private lenders aren’t all that choosy about who they lend to. For example, a woman graduated from Northeastern undergrad in 2010 or so with a sociology degree, about ten grand in federal student loans, and $190k owed to Sallie Mae (she set up a crowdfunding page to help make payments, which got her all sorts of mostly negative press, so I’m not writing her name; it’s found easily enough on the Google machine). Most Northeastern undergrads take five years to graduate because of the co-op program, so she would have matriculated in 2005 or 2006. I’m not sure Northeastern was even in the Top 100 national universities in USNWR at that time – so it’s not like private lenders will only lend to Wharton or Williams students.

            • Morse Code for J says:

              Like that wouldn’t change in a minute if for whatever reason private student loans were partially or wholly exempted from the BAPCPA provision that protects student loan debts from discharge in bankruptcy.

              • Crusty says:

                From the bank’s point of view, what’s the difference between a borrower who can discharge the loan in bankruptcy and a borrower who will never be able to repay it?

                • Lee Rudolph says:

                  From the bank’s point of view, what’s the difference between a borrower who can discharge the loan in bankruptcy and a borrower who will never be able to repay it?

                  Once the loan is discharged in bankruptcy, the game is really over. A borrower who will “never” be able to repay it might win a lottery!!!

                • Crusty says:

                  Is it that, or are the banks selling the loans to others, who are securitizing them and then selling them to pension funds, hedge funds and whatnot?

              • Unemployed_Northeastern says:

                Private student loans were covering the lion’s share of law school tabs for years before the 2005 bankruptcy changes. You could borrow about $20k/year in graduate Staffords and a year at any number of private law schools cost $30k to $40k per year, plus living expenses in NYC/SF/DC/Boston/Chicago/etc. Seriously, check any old “What do you owe” type comment threads on like JD Underground. The answers are pretty uniformly “$60k federal, $80k to $120k private” – regardless of the quality of school. There was no due diligence conducted – just lend the money, bundle the loans, sell them to institutional investors, and take a cut servicing them for said investors.

                And then there’s the matter of actually making private student loans dischargeable in bankruptcy again, which pretty much no one in Congress or running for president is calling for. Even if they were, you gotta fight the lobbying power of Sallie and her ilk. As a matter of fact, Senator Sherrod Brown of Ohio tried to introduce the Student Loan Debt Swap Act back in ’09 – it would have effectively had the government buy out all FFEL loans made between 1994 and 2010 at 100% of current principal and interest so as to turn them into federal loans that would be eligible for IBR plans. Guess what? It died in committee under heavy pressure from the American Securitization Forum. There are a lot of powerful interests that want to keep private student loans just the way they are, while on the other side of the ledger, we have broke Millennials, Senator Warren, and that’s about it.

    • Crusty says:

      Dear lord, you are so wrong. Many of the people at the fringes, taking out federal loans, these working class and minorities “in the profession” are not actually able to earn a living as lawyers. They are not in the profession. The profession exists to serve the public, not to give people, be they working class, minorities, or rich white kids of middling talent the chance to work in a job that their grandmother will be impressed with.

      Is there any evidence that working class or minority students with lsat scores above, say, 157 aren’t able to find schools to admit them, and funding sources?

      • Cassiodorus says:

        Is there any evidence for your assertion that banks would be willing to lend money to law students in this proposed world where student loans are dischargeable in bankruptcy and starting salaries are low compared to the cost of attendance? It’s the out-of-control cost growth that’s the issue.

        A world where law school costs 200k to attend, but graduates come out making 40k is not sustainable. We all agree on that. The question is about how to address the problem, and I’m not convinced that making the legal profession a system for only the elites is the best option.

        • Crusty says:

          The “cost” isn’t rising. The sticker price is rising. If the loan spigot is tightened up a bit, the sticker price will stop rising.

          Law school is still accessible to non-elites. That doesn’t mean it has to, or should be accessible to anyone.

          • Cassiodorus says:

            Considering how much student debt has grown over the decades, it seems rather bizarre to say the cost of attendance hasn’t risen. Yes, some of the sticker price increase is offset by scholarships and grants, but the real cost of attendance has been rising. Indeed, why would we care about the issue at all if the sticker price increases consisted of schools increasing prices and then giving discounts of equal amounts?

            The idea that “doesn’t have to be accessible to anyone” is glossing over what some of the proposals being discussed would do. Setting a lifetime cap at 150k wouldn’t just shut down the Cooleys of the world. It would also shut down access to a lot of perfectly respectable institutions. Florida, Georgia, North Carolina at in-state rates would still place students over the cap, to name ones I know off the top of my head (and limiting myself to states where the in and out of state differences are meaningful).

            • Crusty says:

              Schools are not rising prices and then giving a discount. Schools are raising prices and the federal government/students are paying for those raises.

              • Cassiodorus says:

                And yet you were arguing just a few moments ago that cost isn’t rising…

                • Crusty says:

                  Dear lord, the basic things you don’t understand.

                  The cost, to the student, because of what the schools charge, is increasing.

                  The cost to actually provide that education (classrooms, professors and a library) is not increasing.

                  The price is rising independent of the cost because the federal government is giving people money to give to the schools.

                • Cassiodorus says:

                  Except that you said cost isn’t increasing in reply to a comment I made about cost of attendance. I never said the cost of actually providing instruction is increasing.

                • Crusty says:

                  You’re a moron and well suited for law school.

          • UserGoogol says:

            All education should be accessible to everyone. Education is a human right and people should be able to get as much of it as they want. Law school should be structured so that you don’t need to get scarce high-paying jobs in order for it to be affordable.

            • Cassiodorus says:

              Exactly. The whole idea that private lenders will pick up the slack depends on assuming most graduates will get high paying jobs/that all other lawyers are useless.

              • Unemployed_Northeastern says:

                I’m not sure when you were born, but before GradPLUS and before private student loans were made nondischargeable in bankruptcy, private lenders had no hesitation whatsoever lending anywhere between $30k and $40k per year for any student to attend any law school. You could borrow $20k/year in graduate Stafford loans, and plenty of law schools stickered in the $50k to $60k per year range at that time – and same as now, some of the most expensive law schools a decade ago were also among the least reputable. That was also during the time of the old “preferred lender” scandal that originated out of NYU.

                Anyways, it has never been cheaper for banks to borrow money than it is these days, the loans are not dischargeable in bankruptcy, and they can bundle them into asset-backed securities, sell them, and in doing so take the risk off their books. What, pray tell, would stop private lenders from filling the void that a repeal or curtailment of GradPLUS would create?

            • Morse Code for J says:

              Perhaps it should be, but absent some kind of external pressure like limiting or altering the circumstances under which federal student loans are awarded, its cost structure will remain unchanged. If shame or altruism were enough, something would have changed by now.

    • mutt guy says:

      ‘Excluding’ students from working class backgrounds and minorities would actually mean saving the great majority of them from a lifetime of debt servitude and misery.

  7. MacK says:

    One of the canard’s the anti-reformers like to trot out is that, somehow, using accreditation standards to shutter prior performing law schools would violate antitrust law. It is BS and leads on to wonder where the law professors in question got their law degrees. Nonetheless, along with the “free market” shibboleth, we will hear it in the next few weeks. When we do, it will cite the ABA consent decree and the fact that the ABA did get into trouble for accreditation misconduct – BUT – and it is a big but, there problems were a result of rules that effectively coordinated costs and thus tuition. It was by the way, basically setting faculty salary standards, inflating faculty benefits, teaching time, time off, etc. (big surprise)) and excluding schools that did not offer these benefits to their faculty.

    The ABA Section of Legal Education & Admissions to the Bar gets its authority under 20 U.S.C. §1099b and 34 CFR 602.

    20 U.S.C. §1099(b)(a)(5)(A) specifically provides that:

    (5) the standards for accreditation of the agency or association assess the institution’s—

    (A) success with respect to student achievement in relation to the institution’s mission, which may include different standards for different institutions or programs, as established by the institution, including, as appropriate, consideration of State licensing examinations, consideration of course completion, and job placement rates.

    That is in fact the first of several criteria listed, which suggests that considerable importance is placed on it. Similar provisions are copied over in to the CFR regs.

    As long as the ABA Section is in fact enforcing the actual provisions – that is to say, obeying the mandate of federal law, and doing so in a uniform and transparent way, it is not subject to antitrust liability. It has an automatic defence – we are doing what the Federal Government requires.

  8. The Pale Scot says:

    What scam?

    Part-time Contract Attorney

    Found this right under a misspelled ad for a printing press operator.

    Ahh.. Florida

  9. Fortunado says:

    Well, I hope you are satisfied. You and the bloggers demonized these schools so much that they were forced to reach deep into the bottom of the barrel to find enough students to stabilize their budgets. And now those same students are failing in droves and are financially ruined.

    (I guarantee that there are people actually saying this right now.)

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