Two arguments in favor of law school debt

Lawrence E. Mitchell, dean of Case Western Reserves's law school, wrote this NYT op-ed to counter what he sees as inaccurate accounts of the economics of going to law school. I found Mitchell's piece to be superficial and somewhat misleading, but perhaps that's inevitable to some degree for a short op-ed in the popular press.

For example, Mitchell suggests that the recent downturn in legal hiring outcomes is just another downturn like earlier ones, without acknowledging how porous the boundaries of the profession have become. When he discusses employment outcomes, Mitchell doesn't acknowledge the hard data. Mitchell doesn't acknowledge the divergence in interest between the needs of debt-burdened students and the desires of the tenured faculty who are for the most part professional writers with an audience of other tenured professors. MItchell uses overwrought language to make it seem like the critics of law school economics have no substantive arguments -- when we all know that it was the critics who finally got the hard data out in the open for everyone to discuss despite recalcitrance and dissembling from the law schools. And so on.

Philip Schrag's new article, available on SSRN and soon to be published in the Georgetown Journal of Legal Ethics, is a substantive counter argument to Brian Tamanaha's book Failing Law Schools. I think we can expect more of these counter arguments, especially from professors at schools that are preceived as offering a bad economic deal for students.  UPDATE: Brian Tamanaha responds to Schrag's article at Balkinization. Abstract for Schrag's article:

Professor Brian Tamanaha’s book, Failing Law Schools, usefully collects in one place the recent critiques of law schools for reacting excessively to U.S. News rankings, manipulating admissions data, spending excessive amounts of money to hire “star” professors and to circulate glossy brochures and magazines, and in some cases, falsifying graduates’ employment statistics. But Tamanaha’s main argument is that law school has become unaffordable for most applicants, because it will saddle them with debt that they cannot afford to repay on the incomes that they can reasonably expect. His thesis is based on a misunderstanding of student loan repayment methods. In particular, he erroneously assumes that the only proper way to repay student loans is through so-called “standard” repayment (over a ten year period). Actually, many law graduates will find typically law school debt manageable if they repay federal student loans through income-based repayment plans, particularly the new Pay As You Earn (PAYE) plan. Tamanaha disparages income-based repayment, however, because he incorrectly believes that total debt, rather than the ratio of current repayment obligations to current income, primarily determines a borrower’s credit-worthiness for mortgages and other large loans.

Based on his belief that law school is no longer affordable for most students, Tamanaha offers several radical proposals, such as amending accreditation standards to permit a two-tier system, in which only a few expensive law schools would continue as research institutions offering three-year degrees, while most would offer law degrees after two years of classroom study and a year of some sort of lightly-supervised apprenticeship. He would also do away with the standard that requires schools to put most faculty members on tenure tracks and to support faculty research. This review essay questions the need for those far-reaching changes in legal education and concludes with the suggestion that Tamanaha focus his considerable critical skills on the problems not of law students, but of lower-income clients who are unable to obtain the legal services that they need.

Here are two fact-intensive, brutal take-downs of Dean Mitchell's article, by Matt Leichter and Paul Campos. The title of Leichter's article is, "If Law School Is Worth the Money, Why Subsidize It?"

Comments

[Doug Richmond]

Tamanaha has a post on the Balkinization blog responding briefly to the Schrag paper.

[John Steele]

@ Doug: thanks, I've updated the post. I, too, wonder if IBR and similar scheme will be seen as unalloyed positive developments or as methods by which the legal profession continues to extract a toll for many years after the degree is earned.

[Milan Markovic]

John,

I had a slightly different reaction to the Op-ed. In terms of the tone, it seemed to be that Dean Mitchell was clearly frustrated at the disproportionate focus on law schools by the NY Times and other publications given that many of the challenges facing law school graduates are also faced by graduates in other fields. It may well be that law schools have behaved far more shamefully than business schools and colleges (for example) and therefore deserve more criticism. But high indebtedness is hardly unique to law school graduates and the economy has been cruel to young people generally, not just young lawyers.

More importantly, while it is a good thing that young people are likely no longer using law school as a way to "wait out" the difficult economy, isn't Mitchell right to worry that the profession might be losing some potentially excellent future attorneys because of the media backlash against law schools?

For example, while excessive student loan debt is a serious problem facing many law students, the Obama administration has made some very student-friendly changes to the loan program. The Schrag article includes an excellent discussion of these changes, and I think Schrag's criticism of Tamanaha and others for not fully understanding the mechanics of student loan repayment is extremely persuasive. Even if others are less persuaded by Schrag's article than I am, prospective and current law students need to be aware of their repayment options when determining the costs and benefits of completing a law degree. But, for whatever reason, the media continues to focus on debt-strapped graduates without reporting on actual regulations that can ease their plight.

[Unemployed Northeastern]

"the Obama administration has made some very student-friendly changes to the loan program. "

Which Barclays has estimated will cost $225B over just the next eight years, and frankly has no chance of existing long enough to benefit anybody. Remember that Mitt Romney said he would repeal IBR back during the Republican primaries. Remember that Democrats capitulate on everything.

And remember that under IBR, interest keeps accruing! All IBR does is prevent default* by allowing people to pay 15% of their after tax salary over 150% of the poverty line for 25 years, soon to be 10% for 20 years. But if those 15/10% payments are not enough to cover the principalizing interest, the underlying balance keeps growing. If a graduate is lucky enough to get a high-paying job five years down the line, they may find that their balance is several, possibly tens of thousands of dollars higher than when they graduated. And yes, after 25/20 years, the remaining balance is forgiven, so you might naturally say "Who cares if the principal was increasing for all that time?" The answer is because the IRS considers the forgiven balance realized income, and those hapless souls who spent 25/20 years living hand to mouth will receive a tax bill for what might plausibly several hundred thousand dollars. A tax bill they won't be able to pay. Out of the frying pan, into the fire. And this is in the best-case scenario where the government actually lets IBR stick around for 25 years, which is unlikely given the estimate that it will cost $225 BILLION in just the next EIGHT years.

*In point of fact, the government has kept the default rate skewing very low for many years, as they only measure defaults for two years after graduation while offering three years of forbearance and deferral options on their student loans. I'm sure this is just a coincidence. Oh, and private student loans, which generally offer no deferrals or forbearances for unemployed graduates, aren't counted at all.

[John Steele]

Milan,

Thanks for commenting. The second article, by Philip Schrag, is indeed substantive, as I noted in my post and as Brian Tamanaha acknowledges in his response at Balkinization. The income-based repayment plans that Schrag discusses are more generous than they were when Tamanaha wrote his book. Tamanaha and I both consider Schrag's article to be a useful advance in the the public discussion of law school costs. I share, however, Tamanaha's concern that in some circles the “new normal” is considered to be 10 to 20 years of debt based on your income.

I think we will have to disagree on the article by Mitchell. It is just way too late in the day to throw out vague, optimistic phrases about what a terrific investment law school is. I can guarantee you that my students would read that article and immediately demand to know where the backup data is. Even worse, Mitchell carefully evades the hard issues. And, if he is frustrated, perhaps he should walk a mile in the shoes of the students who for so many years has been given bad data or no data at all concerning the investments they've been making in their education. That's real frustration.

[Milan]

Dear John,

I certainly agree that law schools are very much reaping the consequences for years of disseminating misleading employment statistics. And Dean Mitchell's hand-waving about the future of the profession was unconvincing to say the least.

Northeastern,

I highly recommend reading the Schrag article if you haven't already. It points out, for example, that even if IBR were cancelled under a future Republican administration, that it would still apply to graduates who obtained student loans previously.

My admittedly very rough understanding of the tax consequences of IBR is that a graduate would only be taxed on the forgiven balance to the extent it exceeds his solvency. In other words, if 100k is forgiven, the individual would have to be worth at least 100k to be taxed on the entire 100k in the year in which the loan was forgiven. But that is a conversation better suited for a tax law blog.

[John Steele]

Milan,

I acknowledged that the article by Philip Schrag more accurately reflects the current economics of attending law school. But there is a larger question. If the clients, the law firms, the judges, the students, and the graduates are saying that the law schools are not providing the right kind of value, why should the solution be that we devise complicated financing schemes that extend the students' years in debt and that ultimate ultimately pass costs to the taxpayers? Why wouldn't we instead institute real reform at the law schools -- rather than just raise the price and tweak the financing so that we can just do more of the same thing? Put another way, is there any stakeholder (clients, firms, judges, alums, students, professors) who would choose this "solution" other than the professors?

[John Steele]

Finally, what will this extended burden of higher prices and repayment over long times do to the applicant pool? Suppose you went to law school right after undergrad days or within a year of that. Suppose you want to spend considerable time from the age of 34-44 on your family. Do you apply to law school? (This is a concern I've posted about a few times.) Or suppose you aren't upper middle class. Does the new normal make law school less attractive to you?

[cas127]

"who would choose this "solution" other than the professors?"

No one.

IBR has evolved into a truly nauseating scam (are law schools capable of *nothing* else?) to ensure that law professors can continue to make six figure salaries (and then some - ask Dean/Bagman Larry Sager at UT Austin) working 6 classroom "hours" per week for 40 weeks per year.

While transferring (quietly, oh so quietly) the vast majority of the costs to taxpayers who make nowhere near as much money, under nowhere near as laughably luxurious work conditions.

Just because law school personnel don't don the garb of sleazy third world dictators and their oleaginous class of enforcers, murderers and frauds - does not make them any less kleptocrats.

Law schools are rapidly becoming a true locus of shameless evil.

[Milan]

John,

Your questions are excellent ones. But I think the various constituencies you list all have different reasons for believing that law schools do not provide sufficient "value." They also have very different views of what kinds of reforms should be undertaken. Some of the reforms sought by employers (more skills training, for example) might actually increase the cost of law school because of the smaller class sizes associated with skills classes and clinics. The outcry when the Chief Judge of the Court of Appeals in NY first proposed the pro bono requirement illustrates quite clearly, I think, the disconnect between the priorities of judges and law school graduates.

I certainly do not mean to defend the status quo. Tuition is much too high. There is too much separation between the academy and the practicing bar (less so in the field of professional responsibility, fortunately, as you often point out). But I think we have to separate out the following two questions: 1) Is a law degree a good financial investment? and 2) How can we make legal education better?

These questions are obviously related but even a dramatic restructuring of legal education might not materially improve graduates' employment prospects. IBR, in my view, helps make law school affordable to a significant number of prospective students, including those who are middle class. Obviously if we can figure out a way to dramatically reduce law school tuition and improve education at the same time, that would be preferable to a system where we need IBR. I'm certainly in agreement with you that law schools needs to radically experiment in this regard, and I expect many to do so (whether IBR survives or not).