The invention of the $250,000 law degree

This is a followup to an earlier post about the exploding cost of legal education over the past few decades.

I’m employing the University of California Hastings law school to illustrate both how much that cost has gone up, and why. The latter question is the focus of this post.

Hastings’ total tuition revenue plus its state appropriation is a good rough proxy for the school’s annual operating budget over time. (Until the 1980s the school had essentially no other sources of revenue. Since then, it has gradually developed significant sources of auxiliary income, from endowment and annual gift income — the school didn’t even have a development program until the 1970s!– and from renting housing to students, which it began to do in the 1980s. The income from these sources largely offset lost revenue from tuition discounting, which essentially didn’t exist prior to the 1990s).

This graph thus illustrates, in constant dollars, the growth in the cost of operating the school:

The school is spending, in real dollars, about nine times more per year than it was in the early 1960s, three times more than in the mid-1970s, and twice as much as it was in the late 1980s.

What has happened to enrollment over this time?

For most of the past half century, the school’s enrollment has averaged around 1100-1200 students, with a spike up to 1500 in the late 1970s and early 1980s, and a recent decrease to just under 1000 (These figures include a few dozen LLM and MLS students. Three years ago, in response to sharply declining applications, the school decided to shrink its annual entering JD class from around 400 to about 320, which is why total enrollment is now lower than it has been at any time since the early 1960s.)

In other words, the school is spending, in constant dollars, a little more than nine times as much per student as it was in the 1960s, something more than three times as much per student since the 1970s, and more than twice as much per student as it was spending 25 years ago.

Where is all that money going? By far the biggest driver appears to be a vastly expanded faculty, both full-time and part-time:

How much has this expansion cost? Hastings, to its credit, discloses its tenure-track faculty salaries in the annual SALT survey. By using historical salary data gathered by the ABA regarding law professor compensation, we can ballpark that average direct compensation for individual tenure-track faculty has gone up by around 50% over the last four decades (this figure doesn’t include the cost of benefits, which has risen by quite a bit more):

Compensation for part-time (adjunct) faculty at law schools has always been minimal, and ABA rules have up until now greatly limited how much adjuncts could actually teach — almost all law school adjuncts teach no more than one class per academic year — so the tremendous increase in the use of adjuncts hasn’t in itself added much to Hastings’ operating costs. What it has done, of course, is help reduce full-time faculty teaching loads, and thereby increase indirect faculty compensation. Wen a law school of Hastings’ size is using more than 100 adjuncts per year, that means around a quarter of the curriculum is going to be taught by adjuncts, even when those adjuncts are teaching just one class each.

(Note that the ABA restrictions on the use of adjuncts have played a big role in not driving down average law school full-time faculty compensation. Faculty compensation in academia over the past 45 years has remained basically flat for full-time faculty and declined sharply for faculty as a whole. Another factor in increased law faculty compensation has been the very dubious argument about the need for that compensation to track increasing salaries at big law firms, which rose sharply between the 1970s and about ten years ago).

Anyway, if you do the math in regard to what changing student-faculty ratios and, to a lesser extent, tenure-track faculty compensation rates, have done to personnel costs, it’s clear that the relation between the two has been a major driver in pushing the school’s operating budget up by several-fold over the past few decades.

Another major factor in those increasing costs has been the school’s expansion of its non-teaching administrative personnel. Figures regarding that expansion are harder to come by, but here are a couple of suggestive nuggets. The AALS annual directory of law teachers includes. along with teaching faculty, high-ranking administrators who don’t teach (assistant deans for student affairs, OCS directors etc.):

Here is something from the 1965 Hastings Alumni Magazine (Marvin Anderson was the school’s dean from 1970-1980):

ANDERSON SPARKS PLACEMENT PROGRAM

One of the busiest places at Hastings this year is the Office of Law Placement headed by Professor Marvin J. Anderson, who finds jobs for undergraduates [meaning current law students], new graduates, and old-time alumni, and, in addition, finds time to be acting registrar, and professor of law.

I don’t want this post to turn into the law school version of Four Yorkshiremen, but damn.

I also don’t want to under-state the actual benefits students get from much larger faculties (although it’s also true that Hastings, like almost all law schools, continues to use large lecture courses for almost all its first-year curriculum and its upper level bar courses), or from the professionalization of non-teaching services, such as placement and registration.

On the other hand:

A law degree from Hastings now costs, conservatively, $250,000 in direct and opportunity costs. This staggering sum raises two important questions, which are often treated as if they were the same, although they are in fact quite distinct:

(1) Is that cost justified in regard to career outcomes?

(2) To what extent does that cost reflect necessary — that is to say efficient — operating expenses, and to what extent does it reflect successful rent-seeking on the part of the school?

As to the first question, even the most optimistic* estimate concludes that the median value of generic law degree — treating law degrees as generic is about as sensible as treating marriages as generic when considering whether one ought to get married to a particular person, but whatever as the kids say — is around $400,000. In other words, even on the basis of this extraordinarily sanguine estimate, the current cost of a school like Hastings )and in this regard Hastings is a typical school) eats up most of the expected economic value of the degree.

That seems like a problem, especially when one considers a question which analyses of the value of law degrees almost invariably ignore, which is the extent to which the costs of getting these degrees represent the cost of actually enhancing human capital, as opposed to representing a simple wealth transfer from students to the institutions that grant the degrees.

As far as I know, no one has even tried to measure this. It’s plausible that a legal education from Hastings provides more educational benefits to students today, when tuition is $50,000 per year, than it did 25 years ago, when tuition was $5,000 per year (in constant dollars). Again, larger, more highly-paid faculties, and professionalized non-instructional services surely provide some increased benefit to students. Do they provide a benefit in any way commensurate to the extraordinary increase in the cost of getting a law degree? That seems, to put it mildly, a questionable proposition.

*In my view, very unrealistically so: to name just two of the most obvious objections to the paper’s methods, it assumes that there have been no structural changes in the legal profession that would make law degrees granted in 2015 less valuable than those granted in 1980, and it treats having a law degree as the only relevant difference between college graduates who have and don’t have law degrees.