Sunday's New York Times had a long article on the front page of the business section, asking whether law school is a losing game. Bill Henderson (who blogs at our arch-rival, LPB) was quoted as saying that "Enron-style accounting standards" are partially to blame for the depressing predicament of students who graduate with student loan debts well into the six figures, and jobs doing legal temp work at best, or working at Home Depot at worst. There is a lot to comment on in the article (see, e.g., Leiter's dismissive reaction and an interesting economic analysis by Kenneth Anderson on Volokh Conspiracy), but I was struck by this line, which in fairness is the reporter's language, not Bill's, although the gist of the statement is attributed to him: "[L]aw schools — which, let’s not forget, require students to take courses on disclosure and ethics — have a special moral obligation to tell the truth about themselves."
Okay, so what is the truth here? What are applicants to law schools not understanding, which is causing them to feel duped when they graduate with $200,000 in debt? Leave aside the Thomas Jefferson student profiled in the article, who sounds like a nitwit. (The article reports: "He borrowed so much that before the start of his first semester he nearly put a down payment on a $350,000 two-bedroom, two-bath condo, figuring that the investment would earn a profit by the time he graduated.") The article suggests that even careful students who do their due diligence are being swindled. Bill Henderson is quoted as saying to applicants, “You’re beginning your legal education at an institution that is engaging in the kind of disreputable practices that we would be incredibly disappointed to discover our graduates engaging in.” His suggestion is that law schools are creating or at least exploiting an information asymmetry. Applicants don't realize that their job prospects are dismal and thus make irrational investment decisions, from which we in legal academia benefit.
I'm not sure there's some kind of vast cover-up going on here, but I do think applicants may be tempted to fudge their own numbers when calculating their potential return on investment. Suppose someone is trying to figure out whether it is worth investing $45,000/yr. for tuition, some additional amount, say, $10,000 for living expenses, and the opportunity costs of three years' worth of foregone earnings. That investment might make sense for someone who expects to earn upwards of $100,000 per year in their starting salary. At most law schools, however, that's not the potential upside. A lot of students get jobs that are very good ones, in terms of the level of challenge, interest, legal experience, etc., but which pay quite a bit less. The mythical Top 15 law schools may be different, so let's use an example of a school where I used to work, which is a top regional schools with some national presence. Some percentage at the top of the class could expect to be competitive for big-firm jobs in New York, D.C., or Atlanta. The middle of the class -- let's say just for the sake of argument those +/- 1 standard deviation from the mean -- had a very different likely job outcome. They could expect jobs at employers such as:
-- One of the largest law firms in Charleston, West Virginia, with a general business and litigation practice.
-- An insurance-defense firm in Richmond.
-- A plaintiffs' PI firm in D.C.
-- The U.S. Attorney's office in Roanoke.
-- A public defender's office in Atlanta.
-- Staff counsel with a state enviromental agency.
-- A federal agency like the NLRB or EEOC.
What strikes me about this list is that these are very good jobs. I would want graduates to be able to accept them and, moreover, if I were one of these graduates, I would want to be able to do jobs like these. I'm a former big-firm lawyer, and was fortunate enough to be in a regional legal market where the billable hour pressure wasn't as bad as in a city like New York or L.A. I don't think I would have lasted very long if I had to bill 2,400 hours a year. But these are the only jobs that make it possible to repay the debt with which many students graduate. It's incredibly difficult to service one's $150,000 student-loan debt on a salary of $55,000 at a state government agency or an insurance-defense firm. Yet these are the kinds of jobs that one could make a career out of, as opposed to washing out after a couple of years because it is extremely difficult to have a balanced life, let alone a family, while working the hours required at a firm that pays $150,000/yr. to start.
For me the article boils down to this question: Is the funding model of law schools sustainable, given the inability of many law school graduates to repay their loans while working at the kinds of employers that characterize the vast majority of the providers of legal services? We've all accustomed ourselves to a pricing model that assumes Wall Street starting salaries. It's unlikely that this sector of the market will recover soon and start hiring at pre-2007 levels, but even if it does, should law schools be pricing legal education as if graduates will be taking these jobs? To put it another way, on the assumption of perfect information, would a rational applicant choose to pay the tuition of most law schools given the likelihood that he or she will end up working for an employer paying less than half of these astronomical starting salaries?
It's true that there are mechanisms for mitigating this problem, like scholarships and loan-repayment assistance programs (LRAP) for graduates who work in the public interest. These help, but there are still many, many students who pay full freight and do not qualify for sufficient LRAP funding to cover the cost of servicing their debt. If applicants to law school were fully informed and rational, a large number would realize that they are likely to end up in this category. Would they then choose to go to law school? If they choose not to, what happens to law schools that depend on a seemingly endless supply of new applicants? Observers of legal education have been predicting a shakeout, with many law schools closing. Even if this occurs, however, surviving law schools may have a hard time persuading college graduates to invest in three years of tuition, given the likely outcome of their job search (and again, I'm not talking about working at Home Depot, but taking a legal job with an employer that offers challenging, satisfying work and a moderate salary). Kenneth Anderson's fear is that human capital will be misdeployed. We should have bright, hard-working young people becoming lawyers, but not only for huge NYC or D.C. firms. Rather, we should have graduates going into prosecutors' and public defender offices, small and medium-sized law firms, and government agencies. That is the career path that is the most threatened by the structural forces that are lurking in the background of the NYT article.