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Council Declines to Act
June 7th, 2013 / By Deborah J. Merritt
The ABA Section of Legal Education’s Council voted unanimously today to defer any action on the Data Committee’s proposal to push back the date on which the ABA measures JD employment outcomes. We expressed our disapproval of this proposal over the last two days. Now others will have a chance to express their views to the Council before its August meeting. Measuring employment outcomes is important for schools, students, prospective students, graduates, and scholars who study the legal market. Any change from the current date requires careful evaluation–and, given the value of comparing outcomes over time, should have to overcome a strong presumption against change.
Data on the Proposed Date Change
June 6th, 2013 / By Deborah J. Merritt
Kyle wrote yesterday about a proposal to push back the date on which law schools calculate their employment outcomes. Schools currently measure those outcomes on February 15 of each year, nine months after graduation. The proposal would nudge that date to March 15, ten months after graduation. The proposal comes from the Data Policy and Collection Committee of the ABA’s Section of Legal Education and Admissions to the Bar. The Section’s Council will consider the recommendation tomorrow.
Kyle explained how the committee’s report overlooks the needs of prospective law students, focusing instead on accommodating the interests of law schools. I agree with that critique and return to it below. First, however, I want to focus on some mistakes in the committee’s interpretation of the data provided to them by committee member Jerry Organ. Professor Organ was kind enough to share his spreadsheets with me, so I did not have to duplicate his work. He did an excellent job generating raw data for the committee but, as I explain here, the numbers cited by the committee do not support its recommendation. Indeed, they provide some evidence to the contrary.
The Committee’s Rationale and Data
The committee bases its recommendation on the facts that New York and California report bar results later than many other states, and that this hampers students seeking legal jobs in those markets. New York and California law schools, in turn, may have unduly depressed employment outcomes because their newly licensed graduates have less time to find jobs before February 15.
To substantiate this theory, the committee notes that “for graduates in the years 2011 and 2012, 18 of the bottom 37 schools in reported employment rates for the ‘Bar Passage Required, JD Advantage and Other Professional’ categories were located in New York and California.” This statistic is true for 2011, but not quite true for 2012: In 2012, the number is 15 out of 37 schools. But that’s a minor quibble. The bigger problem is that separating the results for California and New York creates a different picture.
California law schools are, in fact, disproportionately represented among the schools that perform worst on the employment metric cited by the committee. The committee examined 2011 employment statistics for 196 law schools and 2012 statistics for 198 schools. California accounted for twenty of the schools in 2011 (10.2%) and twenty-one of them in 2012 (10.6%). In contrast, the bottom 37 schools included 14 California schools in 2011 (37.8%) and 13 California schools in 2012 (35.1%). That’s a pretty large difference.
The New York law schools, on the other hand, are not disproportionately represented among the schools that performed worst on the committee’s reported metric. Fifteen of the examined schools (7.7% in 2011, 7.6% in 2012) are in New York state. The 37 schools that scored lowest on the employment metric, however, include only four New York schools in 2011 (10.8%) and two in 2012 (5.4%). One year is a little higher than we might predict based on the total number of NY schools; the other is a little lower.
Using the committee’s rudimentary analysis, in other words, the data show that one late-reporting state (California) is disproportionately represented among the bottom 37 schools, but another late-reporting state (New York) is not. That evidence actually cuts against the committee’s conclusion. If the timing of bar results accounts for the poor showing among California schools, then we should see a similar effect for New York schools. To compound this NY error, the committee mistakenly names Cardozo and Brooklyn as law schools that fall among the 37 lowest performing schools on the employment metric. Neither of those schools falls in that 37-school category in either year.
It’s possible that a different measure would show a disproportionate impact in New York. I haven’t had time to conduct other analyses; I simply repeated the one that the committee cites. Even if other analyses could show a discrepancy in New York, the committee’s reported data don’t line up with its conclusion. That’s a sloppy basis to support any action by the Section’s Council.
Better Analyses
If the committee (or Council) wants to explore the relationship between bar-result timing and employment outcomes, there are better ways to analyze the data provided by Professor Organ. This issue calls out for regression analysis: that technique could examine more closely the relationship between bar-result timing and employment outcomes, while controlling for factors like each school’s median LSAT, a measure of each school’s reputation, and the state’s bar passage rate. Regression is a routine tool used by many legal educators; it would be easy for the committee to supplement the dataset and conduct the analysis. That would be the best way to discern any relationship between the timing of bar results and employment outcomes.
But I have good news for the committee: There’s no need to improve the data analysis, because we already know enough to reject the proposed timing change.
What Really Matters?
Although the committee’s analysis is weak, I personally have no doubt that the timing of bar admission has some quantifiable relationship with employment outcomes. As the months roll on, more graduates find full-time, long-term professional employment (the outcome examined by the committee). In addition to the simple passage of time, we can all postulate that bar passage helps applicants secure jobs that require bar admission! The question isn’t whether there is some relationship between the timing of bar admission and employment outcomes. Even if that’s true, the questions for a policy-making committee are:
(a) How big is that effect compared to other effects?
(b) How much would a shift from February 15 to March 15 alter that effect?
(c) What negative impacts would that shift have?
(d) Do the costs outweigh the benefits?
Let’s take a look at each question.
How Big Is the Timing Effect?
We could answer this first question pretty precisely by doing the regression analysis outlined above. Without doing the additional data collection or math, I predict the following outcomes: First, median LSAT or law school reputation will show the greatest correlation with employment outcomes. In other words, each of those variables will correlate significantly with employment outcomes after controlling for other variables, and each of them will account for more variance in employment outcomes than any other variable in the equation. Second, bar passage rates will also have a significant impact on employment outcomes (again while controlling for other factors). Third, other factors (like measures of the strength of the entry-level legal market in each state) will also play a role in predicting employment outcomes. After controlling for factors like these, I predict that the timing of bar admission would show a statistically significant relationship with employment outcomes–but that it would be far from the weightiest factor.
I mentioned an important factor in that last paragraph, one that the committee report does not mention: bar passage rates. States have very different bar passage rates, ranging from 68.23% in Louisiana to 93.08% in South Dakota. (Both of those links will take you to Robert Anderson’s excellent analysis of bar exam difficulty. For purposes of this discussion, look at the far right-hand column, which gives actual pass rates.) When talking about employment outcomes, I suspect that differences in bar passage rates are far more important than differences in the timing of bar results. Waiting for bar results can slow down job offers, but flunking the bar hurts a lot more. People who fail the bar, in fact, may lose jobs they had already lined up.
California has the second lowest pass rate in the nation, second only to Louisiana (a state that is distinctive in many ways). Even graduates of ABA-accredited schools in California have a relatively low pass rate (76.9% for first-timers in July 2012) compared to exam-takers in other states. I suspect that much of the “California effect” detected by the ABA committee stems from the state’s high bar failure rate rather than its late reporting of bar results. Bar passage rates alone won’t fully explain differences in employment outcomes; I would perform a full regression analysis if I wanted to explore the factors related to those outcomes. But consider the relative impact of late results and poor results: Graduates who find out in November that they passed the bar may be a few weeks behind graduates in other states when seeking jobs. But graduates who find out in November that they failed the July bar have a whole different problem. Those graduates won’t be working on February 15, because they’ll be studying for the February bar.
California schools and graduates may face a bar timing problem, but they face a much larger bar passage problem. If we’re concerned with leveling the playing field for law schools, that’s a pretty rough terrain to tackle. As I suggest further below, moreover, the Data Committee shouldn’t worry about leveling the field for inter-school competition; after all, the ABA and its Section of Legal Education explicitly repudiate rankings. The committee should focus on the important task of gathering thoughtful data that informs accreditation and protects the public (including potential law students).
How Much Would the Date Shift Help?
Even if California (and maybe NY) schools have a problem related to the timing of bar results, how much would the proposed remedy help? Not very much. As Kyle pointed out yesterday, the date shift will give every school’s graduates an extra month to obtain full-time, long-term employment. Employment rates will go up for all schools, but will any difference between NY/California schools and other schools diminish? The committee actually could address that question with existing data, because there are several states that release bar results considerably earlier than other states. Do schools in those “early release” states have an employment advantage over other schools during October and November? If so, when does the advantage dissipate? A more refined regression analysis could suggest how much difference the proposed change would actually make.
I am relatively confident, meanwhile, that shifting the employment measurement date to March 15 would not address the bar-passage discrepancy I discuss above. The February bar exam occurs during the last week of the month. If low employment rates for California schools stem partly from a disproportionate number of graduates taking the February exam, a March 15 employment date doesn’t help much. Two weeks, give or take a day or two, isn’t much time to recover from the exam, apply for jobs, persuade an employer that you probably passed the exam you just took, and start work.
Negatives
What about downsides to the committee’s proposal? Kyle ably articulated four substantial ones yesterday. First, prospective students will receive employment information a month later, and this is a month that matters. Many law schools require seat deposits by May 1, and admitted students are actively weighing offers throughout April. Providing employment data in late April, rather than by March 31 (the current standard), leaves students waiting too long for important information. We should be striving to give prospective students information earlier in the spring, not later.
In fact, the committee’s report contains a helpful suggestion on this score: It indicates that law schools could submit March 15 employment data by April 7. If that’s true, then schools should be able to submit February 15 data by March 7–allowing the ABA to publish employment information a full week earlier than it currently does. Again, that’s a key week for students considering law school acceptances.
Second, the nine-month measurement day is already three months later than the day that would make most sense to prospective students and graduates. The grace period for repayment of direct unsubsidized loans ends six months after graduation; deferral of repayment for PLUS loans ends at the same time. For prospective students, a very important question is: What are the chances that I’ll have a full-time job when I have to start repaying my loans? We don’t currently answer that question for students. Instead, we tell them how many graduates of each law school have full-time jobs (and other types of jobs) three months after they’ve had to start repaying loans. If we’re going to change the reporting date for employment outcomes, we should move to six months–not ten. Schools could complement the six-month information with nine-month, ten-month, one-year, two-year, or any other measures. Employment rates at six months, however, would be most meaningful to prospective law students.
Third, changing the measurement day impedes comparisons over time. Partly for that reason, I haven’t advocated for a change to the six-month measure–although if change is on the table, I will definitely advocate for the six-month frame. The employment rates collected by the ABA allow comparison over time, as well as among schools. If schools begin reporting 10-month employment rates for the class of 2013, that class’s employment rate almost certainly will be higher than the class of 2012’s nine-month rate. But will the increase be due to improvements in the job market or to the shift in measurement date? If we want to comprehend changes in the job market, and that understanding is as important for schools as it is for students and graduates, there’s a strong reason to keep the measurement constant.
Finally, changing to a ten-month measurement date will make law schools–and their accrediting body–look bad. The committee’s report shows a great concern for “the particular hardship on law schools located in late bar results states,” the “current penalty on law schools who suffer from late bar results,” and the need for “a more level playing field” among those schools. There’s scant mention of the graduates who actually take these exams, wait for the results, search for jobs, remain unemployed nine months after graduation, and begin repaying loans before that date.
Prospective students, current students, graduates, and other law school critics will notice that focus–they really will. Why do law schools suddenly need to report employment outcomes after 10 months rather than nine? Is it because the information will be more timely for prospective students? Or because the information will be more accurate? No, it’s because some schools are suffering a hardship.
The Data Committee and Council need to pay more attention to the needs of students. From the student perspective, the “hardship” or “penalty” that some schools suffer is actually one that their graduates endure. If it takes longer to get a full-time lawyering job in NY or California than in North Carolina or New Mexico, that’s a distinction that matters to the graduates, not just the schools. It’s the graduates that will be carrying very large loans, with ever accumulating interest, for that extra month or two.
Similarly, if the real “penalty” stems from bar passage rates, that’s a difference that matters a lot to prospective students. It’s harder to pass the bar exam in California than in forty-eight other states and the District of Columbia. If you can’t pass the bar on your first try, your chances of working as a lawyer nine months after graduation fall significantly. Those are facts that affect graduates in the first instance, not law schools. They’re facts that prospective students need to know, not ones that we should in any way smooth over by creating a “level playing field” in which all graduates eventually obtain jobs.
Striking the Balance
The committee’s case for the proposed change is weak: the cited data don’t support the recommendation, the method of analyzing the data is simplistic, and the report doesn’t discuss costs of the proposal. Worse, law students and graduates will read the report’s reasoning as focused on the reputation of law schools, rather than as concerned about providing helpful, timely information to the people who we hope will work in our legal system. The committee could improve its analyses and reasoning, but the better move would be to reject the proposal and focus on more important matters.
The Bleak House of Loan Repayment
May 26th, 2013 / By Deborah J. Merritt
Kyle wrote last week about the billions of dollars that the federal government invests in legal education. On the same day his post appeared, the Court of Appeals for the Ninth Circuit issued an opinion that illustrates the long shadow cast by these loans. Here’s what happened to one law school graduate, Michael Hedlund.
Michael grew up in Klamath Falls, Oregon, a small town in the scenic Northwest. He earned a BS in business administration from the University of Oregon, but had trouble finding a job when he graduated into the 1992 recession. Michael decided to obtain a law degree, hoping he might join the practice his father and brother had established in Klamath Falls. He enrolled in Willamette University’s College of Law and graduated in 1997, ranked in the middle of his class. Michael took a bar review course, sat for the July 1997 exam, and obtained work as a legal intern in the Klamath County District Attorney’s office. The DA promised him a full-time position once he obtained his law license.
Unfortunately, Michael failed his first two attempts to pass the bar. On his third try, he suffered the type of mishap usually reserved for television scripts: Mike stopped for coffee on his way to the July 1998 bar exam, locked his keys inside the car, and was unable to get to the exam on time. The DA’s office hired a different attorney, and Michael decided to end his legal career.
Despite these setbacks, Michael Hedlund obtained a good “JD Advantage” job. He became a counselor for the Klamath County Juvenile Department. In that position, Michael “reviews police records, meets with accused juveniles and their parents, recommends whether or not they need to be on probation, appears in court, at least in preliminary matters in juvenile cases, and supervises juveniles to ensure compliance with any probation order (p. 11).” Michael started working full-time for the Department in 1998 and still works there today.
Michael married in 2000 and became a father in 2001. According to his facebook page, his third child was born in 2009. Michael’s facebook profile shows him proudly posing with one of his daughters. The young family lives in the town where Michael grew up; grandparents and other relatives live nearby.
The only dark clouds in this sunny small-town sky were Michael Hedlund’s law school loans.
The Loans
When Michael Hedlund started law school in 1994, Willamette’s annual cost of attendance was $24,500. By his third year, the cost was $27,170. (Those figures appear on the original loan agreements.) Michael financed most of this cost through federally guaranteed loans.
Interest started to accumulate on some of the loans during law school; more interest accrued when Michael obtained deferrals while trying to pass the bar. Even after landing his full-time counseling job, Michael had trouble making payments. By 2003, Michael owed $85,246 to one loan servicing company (the Pennsylvania Higher Education Assistance Authority or “PHEAA”) and $18,755 to a second servicer (The Educational Resources Institute or “TERI”). When both servicers garnished his wages simultaneously, leaving Michael’s family unable to pay for necessities, he petitioned for bankruptcy.
TERI quickly settled with Michael, agreeing to accept $50 per month to pay down the loan. PHEAA offered to amortize its loan over thirty years, requiring Michael to make monthly payments of $417.67. It also offered to reduce payments to $307.43 per month during the early years, with higher payments later in the repayment course. Michael refused both of these options, maintaining that he couldn’t afford either one.
Why couldn’t Michael Hedlund make monthly payments of just a few hundred dollars a month? Even with his full-time, JD advantage job, he was earning just $19.17 per hour at the time of the 2003 bankruptcy hearing. After taxes and other deductions, Michael netted $2,317 per month. His wife worked a few hours a week but, with no college degree and a baby at home, she didn’t contribute much. $28,000 per year of net income for a family of three isn’t much. In fact, if Michael qualified for the Department of Education’s new “Pay As You Earn” program, he would pay no more than $90 per month on both the PHEAA and TERI loans. Unfortunately for Michael, that program didn’t exist in 2003, when PHEAA was demanding repayment.
Court Decisions
Since Michael and PHEAA couldn’t work out a repayment plan, the bankruptcy court conducted a trial in December 2003. The court made an oral ruling a few days later, finding that Michael could not afford to pay more than $225 per month to PHEAA. After examining the loan balance, remaining life of the loan (15 years), and interest rate (4.22%), the judge discharged the portion of Michael’s debt over $30,000.
PHEAA appealed, and a bankruptcy appellate panel reversed. Michael, in turn, appealed to the Ninth Circuit. The case languished in the court of appeals for almost six years. The court devoted some of that time to finding a pro bono attorney for Hedlund (who had appealed pro se) and to encouraging mediation between the parties, but other years just passed. In 2010, the court finally ruled that the bankruptcy judge had not made sufficient findings; it vacated the lower court decisions and sent the case back to the original judge. 2010 WL 737641 (CA9 2010).
The parties elected to proceed with the original 2003 record on remand. Judge Radcliffe, who rendered the original decision, died before he could issue a new ruling. The substitute judge, Judge Brandt, delivered his decision in summer 2011. Brandt’s ruling was virtually identical to the one delivered by Judge Radcliffe eight years earlier: He concluded that Michael could afford to pay $240 per month to PHEAA for fifteen years. He accordingly discharged all but $32,080 of Michael’s debt to PHEAA.
PHEAA appealed to the district court, which reversed the bankruptcy judge and reinstated Michael’s full debt. Michael appealed once again to the Ninth Circuit, which ruled for him last week. Barring a successful appeal to the Supreme Court, Michael Hedlund’s debt to PHEAA has been reduced. Where does that leave him? And what does the outcome tell us about educational loans, repayment plans, and the financial status of law school graduates?
Michael Hedlund Today
Michael Hedlund won partial discharge of his debt to PHEAA, but his financial status remains modest. If his salary from the Klamath County Juvenile Department kept pace with inflation–a dubious assumption for many state and local government jobs–he’s earning about $50,390 today. He’ll pay $240 per month to PHEAA, plus $50 per month to TERI, for a total of $3,480 per year. That’s almost 7% of his gross income devoted to repayment of law school loans, even after a partial discharge.
And, although Michael’s county job appeared secure ten years ago, Klamath County now faces a serious budget crisis. The county recently cut the Juvenile Department’s budget by 10.8%, and the department is transitioning to a “new, revenue-generating rehabilitation program.” Either of those changes might affect Michael’s job or salary.
Is Michael an Outlier?
It’s tempting to view Michael Hedlund as an unusual law graduate, one of the few who failed the bar and was unable to secure high-paying employment. Michael, however, is far from alone in his struggles.
Graduates of low-ranking law schools frequently fail the bar. ABA statistics, available in hard copy, show that Willamette’s bar passage rate for first-time takers was just 65% for the July 1997 Oregon bar, when Michael Hedlund first took the exam. Michael was one of 34 Willamette graduates to fail the Oregon bar on their first try that summer. The school’s most recent statistics show that 27.4% of its first-time takers fail the Oregon bar. According to data collected by US News, bar passage rates are even lower for at least 22 other law schools. Going to law school doesn’t guarantee a law license, as numerous graduates discover each year.
Nor is Michael Hedlund’s salary unusually low. Even if his wife cares full-time for their children, generating no outside income, Michael’s estimated salary almost exactly matches our country’s median household income of $50,502 in 2011. An occupational expert testified at Michael’s trial that “he was well-placed for his skills, that his wages and benefits were excellent for the Klamath Falls area, there were no higher paying jobs available to him, and that the area’s employment situation was unlikely to change in the near future (p. 16).” Even if Michael relocated, which he was willing to do, the expert concluded that increased living costs would outweigh any higher salary. This was true, not only because of the low cost of living in Klamath Falls, but because Michael benefited from free child care and subsidized housing provided by family members in that town.
What if Michael had persevered in his quest to become a lawyer? If he had passed the bar and found a lawyering job, both significant hurdles, he probably would be earning more today than in his JD advantage job as a juvenile counselor. But not that much more. A 2012 Economic Survey by the Oregon State Bar found that 25% of attorneys in Southern Oregon (where Michael lives) earn $63,000 a year or less (p. 15). It would be hard to stretch even $63,000 to pay back Michael’s loans while supporting his family.
The Klamath County District Attorney’s office, meanwhile, is facing the same budget crisis that is hurting the Juvenile Department. Attorneys in the DA’s office will take pay cuts of 5-14% during the coming year, just the first step in addressing an ongoing fiscal crisis.
The sobering fact is that some JD advantage jobs–and even some attorney positions–pay only $50,000 to $60,000 per year for experienced workers. For graduates who land in those jobs, law school loans are financially devastating.
What About IBR or PAYE?
Income Based Repayment and Pay As You Earn, two current programs for managing student loans, did not exist when Michael petitioned for bankruptcy in 2003. The government did, however, offer the Income Contingent Repayment Plan (ICRP). Both of the bankruptcy judges who reviewed Michael’s case concluded that ICRP would not give him sufficient relief. That plan would have demanded payments of more than $300 per month, more than the judges believed Michael could afford.
Judge Brandt, furthermore, suggested that no debtor should have to accept a program like ICRP. That program, Brandt declared, “simply is going to substitute a nondischargeable tax debt based on loan forgiveness for the student loan debt. And that tax debt is going to hit as much as 25 years further out, even when young debtors are likely to be dealing with their own children needing help with college or as they’re getting ready for retirement or hoping to get ready for retirement or potentially both (p. 31).” The ICRP solution, therefore, was no solution at all.
The government’s most recent loan restructuring program, Pay As You Earn, would have treated Michael much more favorably. As indicated above, he would have paid no more than $90 per month with a $40,000 salary and 3-person family. With a 5-person family and $50,000 salary–Michael’s likely situation today–he would pay no more than $72 per month. Of course, as Judge Brandt noted, Michael would owe taxes on the forgiven portion of his loan–a liability that would hit just as Michael and his wife prepared to send their daughters to college. More important, PAYE simply isn’t available to Michael: Congress limited access to graduates who obtained their first educational loans after October 1, 2007.
If Michael hadn’t defaulted on his loans, he would qualify for today’s Income-Based Repayment Plan and Public Service Loan Forgiveness Program. For the latter program, Michael wouldn’t be able to count any of the thirteen years he has already spent counseling juvenile offenders. He could, however, make reduced payments (currently about $108 per month, based on his income and family size) while working for another ten years in public service, then obtain full loan forgiveness. Those benefits, however, aren’t available to debtors who defaulted or settled with creditors under earlier, harsher loan programs.
Bleak House
This is Michael Hedlund’s Bleak House: Loan repayment plans that stretched more than thirty years past his law school graduation, ten years of bankruptcy-related litigation, and a partial discharge that will likely require payments until at least 2028–thirty-one years after Michael received his JD.
It is a bleak outcome for taxpayers and the economy as well. Here is a healthy, well educated father of three who lives modestly and has no addictions (p. 32). He is providing his family with the country’s median household income, while living in a low-cost town with other family nearby. Yet he is swimming in student debt, even after a partial discharge from the bankruptcy court. He won’t repay all of his federally guaranteed loans. Nor will he and his family buy the cars, dishwashers, ipods, and other goods that keep our economy healthy.
What can we learn from this story? First, large law school loans and unmanageable debt are not new phenomena. Michael Hedlund graduated from law school in 1997, more than a decade before the current downturn in legal employment. Law school was expensive even then; Michael’s total cost of attendance for three years at Willamette was $77,140. Given the school’s low bar passage rate, together with the salaries available for attorneys and JD advantage workers in Oregon, the price was simply too high.
Second, the changing tides of loan repayment programs have left some graduates–like Michael Hedlund–stranded on the beach. When Michael petitioned for bankruptcy, the government offered a repayment plan (ICRP) with payments that were too high for Michael to meet. Today, he would qualify for plans that would allow payments well below what he is paying under his partial discharge. Michael graduated at a bad time: law school tuition was already high, but loan repayment plans were still stringent. Politics, however, rarely looks backward to help those who are already in trouble.
Third, the very different repayment plans demonstrate the aimlessness of our loan repayment policies. After reviewing Michael Hedlund’s individual circumstances, two bankruptcy judges concluded that Michael could afford to pay no more than $290 per month (including the $50 owed to TERI) on his student loans. ICRP, the government program in effect in 2003, would have required payments of about $340 per month. Those payments would have paid off Michael’s loan, plus interest, in just over twenty years–but the payments were more than Michael could afford.
The repayment terms offered today, in contrast, would have allowed Michael to pay $92 (PAYE) or $134 (IBR) per month in 2003, based on his income and family size at that time. With his larger family and current salary he would pay only $72 (PAYE) or $108 (IBR) per month. These amounts are all less than half the amount that the bankruptcy court calculated Michael could afford–although they carry the prospect of significant tax liability at the end of the repayment period. A public servant like Michael, though, could avoid even that burden through today’s Public Service Loan Forgiveness program.
Where does the truth lie? Can Michael afford to pay $72 per month, $134 per month, $290 per month, or $340 per month? Do the lower amounts, offered by today’s repayment plans, represent thoughtful subsidies, political manna, bets that the economy will improve, or reckless accounting? Was ICRP too harsh or was the bankruptcy court too generous? What policies are driving these government programs and where are they taking us?
Finally, it is clear that law school was too expensive in 1997 for students like Michael Hedlund, and it is even more costly today. When law schools set tuition and admissions policies, they need to focus on the bottom quarter of their future graduates–not just the top quarter or even the median. Before classes start, of course, we don’t know who will fall into that bottom quarter. Class rank, furthermore, doesn’t correlate precisely with outcome; Mike Hedlund graduated in the middle of his class but may have obtained less than the median outcome.
Still, we know there will be law graduates who fail the bar, graduates who choose (or resign themselves to) JD advantage jobs, and graduates who earn less than $60,000 after years of experience. Law schools owe a duty to these graduates as well as to the more financially successful ones.
That reminder is especially important today, with law school applications significantly depressed. As schools struggle to maintain enrollments and budgets, will they admit more students at risk of failing the bar? How much will those students pay? Even with tuition discounts, many students pay more today than Michael Hedlund did. And with tighter job markets and inflation, entry-level salaries are lower–even for licensed lawyers. IBR, PAYE, and Public Service Loan Forgiveness offer tempting lifelines, but how long will those programs endure? Too many of our law graduates are living in bleak houses of bankruptcy, loan repayment, and underemployment.
Early, Early Decision
May 17th, 2013 / By Deborah J. Merritt
Harvard Law School has announced a new, extra early decision program. The school will consider Harvard College juniors for admission, delivering decisions during the summer after junior year. The students, however, will not matriculate immediately after college graduation. Instead, this program defers admission for two years after college, requiring students to work or pursue a fellowship during that time. Depending on the results of the pilot program, Harvard may extend it to juniors at other colleges. The Boston Globe, Harvard Crimson, and Above the Law all have stories about the new program.
From a student’s point of view, the program seems very appealing. Successful students will lock in a seat at Harvard Law, with freedom to develop other workplace connections and skills before they enroll. Their two years in the workplace may focus their legal studies and make them even more attractive to employers. I’ve noticed anecdotally that law graduates with scientific, business, foreign language, or other pre-law experience seem to fare better in the job market than K-JD graduates with similar law school records. The Harvard program capitalizes on that trend.
From the school’s perspective, the program is also promising. Harvard Law has a chance to choose the most talented Harvard undergraduates, then send them into the world for useful experience. Once Harvard has said “yes,” those graduates may be less likely to apply to other law schools.
What are the downsides of the program? The Harvard program requires LSAT scores, pushing test preparation and test taking back a year. That may discourage some applicants or require a shuffling of other academic priorities. The program may also prevent admittees from negotiating with other law schools for a better financial deal–although Harvard’s need-based aid and generous low-income protection plan diminish those concerns.
On the innovation spectrum, Harvard’s admissions program is a small change. It doesn’t alter the cost of law school, the curriculum, or the forces reshaping the legal job market. The program is worth noting, however, for three reasons. First, shifts in the legal market have pushed even high-ranking Harvard Law School to respond. That should send a signal to other schools that are still hoping for a return to the old market. Second, I wonder whether other schools will follow Harvard’s lead. Does this program have legs? Finally, if the approach does spread, is this a program that will move us toward greater integration of the workplace and academy? Is it one of several steps toward a future in which future lawyers will move more fluidly between work and study? Or is this just a move in the competitive admissions market?
Tenure
May 15th, 2013 / By Deborah J. Merritt
In my comments to the ABA Task Force, I endorse an accreditation standard that embraces academic freedom but does not require tenure. Brian Tamanaha made the same proposal in his book Failing Law Schools, but most academics vigorously defend an accreditation standard requiring tenure. Why do I favor the looser standard? Here are my top five reasons:
1. Tenure is not the same as academic freedom.
Tenure is an excellent way to assure academic freedom; in fact, it may be the best method of attaining that end. But tenure is a means to an end, rather than an end in itself. Tenure is like the absolute immunity that prosecutors enjoy when acting in their role as advocates. Just as absolute immunity promotes prosecutorial independence, tenure promotes academic freedom.
The distinction between means and ends is important, because means carry costs as well as benefits. Absolute immunity is a great way to protect prosecutorial independence, but a number of scholars and judges have questioned the wisdom of that immunity. Given the costs of absolute immunity (which include dishonest, retaliatory prosectuors), and the availability of other means to protect honest prosecutors (such as qualified immunity and insurance schemes), is absolute immunity the only acceptable means for protecting prosecutorial independence?
We need to ask the same question about tenure. Accreditation standards set a floor. Tenure is an excellent way of securing academic freedom, but is it the only acceptable means to achieve that end?
The answer to that question, I think, is clearly “no.” Long-term contracts, review processes, and other mechanisms can shield academic freedom. Those means may not be as effective as tenure, but they also lack the costs of tenure. An accreditation standard should require adoption of policies and procedures to protect academic freedom, but we need not mandate a single means to that end.
2. Lawyers take unpopular positions, without benefit of tenure.
In law school, we tell students that some of them will represent unpopular clients. The client may have murdered a child, contaminated seas with spilled oil, or distributed Nazi propaganda. All of these clients, we declare, have a right to legal counsel. We urge our students to represent those clients, regardless of the economic or social costs to themselves.
We also teach students that lawyers have ethical obligations to the court, the law, and third parties; those duties often require them to give clients advice that the clients don’t want to hear. Again, the lawyer must adhere to those ethical obligations, even at the risk of losing a valuable client.
For practicing lawyers, these costs are real. Suppose an associate agrees to pro bono representation of a human trafficking victim who is attempting to expunge a series of prostitution convictions and start a new life. If a paying business client objects to the former prostitute’s presence in the firm’s reception area, should the associate drop the case? What if a conservative partner suggests that the associate would be “prudent” to refer the prostitute to a “less business oriented firm”?
Or suppose that a junior partner attracts a promising start-up company as a client. The new company’s legal work poses no conflict with existing clients, but an existing client perceives the start-up as a business competitor. If the managing partner asks the junior partner to send the start-up to another firm, should the junior partner comply?
Finally, consider the lawyer defending her firm’s major client in high-stakes civil litigation. The client’s CEO tells the lawyer he “has things under control” because a vice president will lie about a key point at trial. Does the lawyer tell the client that, contrary to what he may have seen on television, lawyers are not allowed to call perjuring witnesses to the stand? Clients can, and do, fire their lawyers for this type of advice.
Many practicing lawyers, in other words, face challenging situations in which they must weigh truth, ethics, or client interest against their own economic and social interests. Given the hardiness that our profession demands from practitioners, why should our academics receive extraordinary levels of protection for their freedom of expression? Or, to phrase the question from the perspective of accreditation standards, why should we require law schools to provide that extraordinary protection as the only possible means of securing academic freedom? We call on other lawyers to speak the truth to their clients, partners, and supervisors, at considerable risk to their own livelihood.
3. Tenure confers unwarranted economic value on professors.
Universities adopt tenure as a way of promoting academic freedom, but the protection also gives professors economic security beyond that enjoyed by their peers in other occupations. Decades ago, when businesses showed more loyalty to their workers, and when law firms rarely dismissed partners, tenured professors held an economic position analogous to that of senior corporate managers or law firm partners. Short of gross malfeasance or the organization’s bankruptcy, all of those workers could count on secure employment until retirement.
Today the picture is quite different. Very few organizations offer their workers the type of economic security that tenured professors enjoy. Some of my peers at law firms or corporations lost their jobs after the Great Recession. They were at least as talented as me, brought great value to their organizations, and demonstrated integrity in their dealings with clients and others. But when times got tough, they were laid off. Professors are protected unless their schools close; even then, the university may have to find them a roost in another department.
As other industries have become more volatile, the economic value of tenure has grown–completely apart from its connection to academic freedom. I value my tenure, not only because it grants extraordinary protection for my academic freedom, but because it gives me a virtually impenetrable shield against economic downturns. Universities don’t grant tenure for the latter reason; the end is academic freedom rather than job security during bad economic times. But I get the latter along with the former.
Some tenure defenders claim that tenure purposely confers this economic benefit. They argue that professors are underpaid compared to other professionals, and that universities use tenure to make up that economic difference. Under this argument, it is cheaper for universities to grant tenure than to pay professors the amounts they would demand absent tenure.
I doubt that this argument is true, at least for law professors. Law faculty salaries have climbed over the last generation, at the same time that the economic value of tenure has increased. These increases don’t seem related to a diminishing supply of potential law professors; if anything, the supply has grown significantly. The lifestyle attractions of law teaching have also grown compared to high-stakes law practice, making the academy even more attractive. Law professors have used their gatekeeping power to raise salaries at the same time that other benefits have risen, producing a financial windfall.
For the purpose of setting accreditation standards, however, we don’t need to know whether tenure substitutes for higher salaries; we should simply leave that choice to law schools. If law schools find it cheaper to grant tenure than to pay higher salaries, they may follow that path. If they find it cheaper to grant higher salaries in place of tenure, or find that high compensation is not necessary, they should have that choice. The point here is that tenure confers a substantial economic advantage that is not part of its avowed purpose. Law schools should have the choice whether to grant that advantage, along with the premium protection that tenure provides for academic freedom, or to provide other forms of economic benefit along with alternative protections for academic freedom.
4. Tenure discourages organizational innovation.
Observers frequently note the academy’s resistance to change. Why are professors, who try to push the boundaries of knowledge, so reluctant to alter the ways they teach, admit students, or perform other institutional functions? I think tenure plays a significant role. Professors run little risk of losing their jobs, whatever students, the public, or others think of their institutional norms. The lack of usual market pressures reduces incentives to change.
Consider how law schools might have responded to changes in the legal market if professors lacked tenure. When Bill Henderson and other scholars started noting structural changes in the legal job market, untenured faculties might have taken more notice. “Gee,” they might have thought, “if our graduates can’t get as many jobs, we may not get as many applicants. If that happens, the school might downsize and I could lose my job. Maybe we better look into this and do something about the situation!” Instead, tenured law faculties largely ignored the trends until this year, when the effects became too glaring to overlook.
The same is true of rising tuition and mounting student loans. In any other industry, insiders would have realized years ago that their economic model was broken and that a crash was inevitable. Worried about losing their own jobs, they would have moderated tuition or found other ways to avoid disaster. Tenured professors have little incentive to worry about these challenges. Even an industry tsunami–like the current plunge in law school applicants–will result in relatively few tenured professors losing their jobs. A few schools may close, with those professors losing their tenured positions, but most schools will lay off staff, trim other expenses, and hold off replacing retired professors. Tenure means that relatively few professors place their own livelihood at risk by ignoring market forces.
Tenure shields professors from market effects, but students and graduates aren’t as lucky. While professors pooh-poohed talk of structural changes in law practice, and ignored cracks in our economic model, law schools kept admitting students and raising tuition. If we’d faced facts earlier, would we really have raised tuition in 2009, 2010, 2011, and 2012? Would we have reduced class sizes earlier? Would we have moved more aggressively to find better ways to prepare students for available jobs? Quicker, market-based reaction could have helped our students and graduates.
5. We’ve lost the pension-plan hedge.
Until recently, pension plans gave universities a hedge against some of tenure’s worst financial effects. Many pension plans provided defined benefits that lured professors into retirement at age 65. If a university faced rocky economic times, it could sweeten the deal to tempt even earlier retirements. Some of these deals were literally too good to refuse. If working more years won’t increase your pension, and if the promised pension is close to your current salary, it makes economic sense to retire. At public universities, these deals shifted costs to state pension plans–with the calamitous effects some state plans now face. But that’s a different story. From the law school’s perspective, defined-benefit plans provided a way to move senior (and highly paid) professors off the payroll.
At the turn of the century, defined-contribution plans became popular and more professors opted for them. These plans offer very little incentive to retire. On the contrary, as long as a professor can satisfy the minimum job demands, defined-contribution plans encourage senior professors to stay in the workplace. As a University of California website explains, traditional defined-benefit plans “can be designed to encourage early retirement” and “may financially penalize workers for working additional years beyond the normal retirement age.” Defined-contribution plans, in contrast, “cannot be designed to encourage early retirement but instead rewards employees for working additional years.”
I’m part of the rising wave of potential retirees with defined-contribution plans. As I look ahead to age sixty-five, I see no reason why I would retire. By that time, I will have been a law professor for more than thirty-five years. Even if I’m burned out, fatigued by age, or suffer a partial disability, I’ll probably be able to handle a few hours of teaching a week, plus a few committee meetings and office hours. After decades of experience, those things come pretty easily to me. And with tenure protecting me against pressure to publish or volunteer for extra duties, I could spend the rest of the week gardening, playing poker, or resting up for my campus appearances. Teaching is a nine-month gig, so I could also forego the summer research grants and spend my summers traveling the world in flat-out retirement mode. I may even persuade myself that my elder wisdom compensates for any other shortcomings in teaching or research. Surely the students and younger faculty will want to know what law practice was like in 1980!
With the benefits of modern medicine, tenure, and the supportive academic lifestyle, many of us will be able to follow that game plan well into our eighties–twenty years or more after the traditional retirement age. We’ll keep earning our senior professorial salaries, most likely with at least annual inflation increases, while socking more money into our retirement accounts. Best of all, we can even use the money in those retirement accounts without actually retiring! Conversely, if bad investments or a poor market shrink those accounts, we’ll have even more reason to keep working.
Some of these senior professors, of course, will continue making valuable contributions to both teaching and research. Sixty-five, seventy, and eighty are still young for many people. The professors doing that today, however, often are drawing their pay from pension plans rather than the law school’s budget. The big switch, which will start over the next few years at many schools, is that these highly regarded, highly paid professors will continue drawing their salaries from school budgets long after age sixty-five. Whether they contribute mightily or meekly to the school’s mission, they will be very, very expensive.
Universities have started talking internally about the financial threat of defined-contribution retirement accounts, but I haven’t heard of solutions. The costs of tenured faculty are going to rise significantly–beyond what schools have been accustomed to paying–just at a time when tuition revenue will start falling. Tenure combined with defined-contribution retirement plans will create an unprecedented financial crisis in the academy–and that’s saying something given the extent of the current crisis.
Once again, there’s no reason for accreditation standards to force this crisis on law schools. If a law school believes that the benefits of tenure outweigh this financial threat, it is welcome to grant tenure. But if a school wants to protect academic freedom in less financially ominous ways, it should have the power to do so.
Conclusion
Tenure has other costs, which I’ve omitted here. It protects lazy professors, incompetent ones, and even the truly malicious. In theory, a university can de-tenure professors in the last two categories, but the process is difficult. Other means of protecting academic freedom would give universities greater latitude to weed out professors who harm the academic mission. The absence of tenure probably would deter some of that harmful behavior from occurring.
The absence of tenure, on the other hand, might well expose some professors to job loss for expressing unpopular views. Tenure is the premium plan for academic freedom; other plans won’t work quite as well. But other plans also cost less. Law schools–and their students–deserve the opportunity to balance these costs and benefits, choosing the plan they prefer to for protection of academic freedom. Potential professors will also be free to choose whether the proposed benefits suit their needs.
Advice to the ABA
May 13th, 2013 / By Deborah J. Merritt
Like many other lawyers and educators, I have submitted comments to the ABA’s Task Force on the Future of Legal Education. As I note in my letter, the challenges facing legal education will require responses from many quarters. I tried to focus my comments on issues where the ABA could play an effective role. My six recommendations are:
1. Limit the availability of federal loans by (a) advocating for Congress or the Department of Education to modify loan rules, and (b) adopting accreditation standards that would tie accreditation to graduates’ ability to repay loans.
2. Adopt an accreditation standard that would require law schools to divide scholarship dollars equally between need-based and merit-based awards.
3. Encourage “flex-time” degree programs that would allow students to integrate work and academic study in a greater variety of ways.
4. Allow law schools to apply some pre-matriculation credits toward the JD. This would change current Interpretation 304-5 in the accreditation standards.
5. Adopt proposed Alternative C to Accreditation Standard 405, which would allow schools to protect academic freedom through mechanisms other than tenure, and would require schools to afford the same job security and status to all full-time professors.
6. Repeal Rule 5.4 of the Model Rules of Professional Conduct, which prohibits lawyers from forming partnerships with non-lawyers or obtaining outside investment in their practices.
I’ll offer more detail on each of these proposals in separate posts. Meanwhile, if you’re interested in my letter to the Task Force, it appears here.
Wide World
May 11th, 2013 / By Deborah J. Merritt
QS, a British company that supports international study, has published a ranking of law schools worldwide. Like all other rankings, this one undoubtedly has flaws. The method, however, seems at least as plausible as the one used by U.S. News for our domestic rankings. The QS ranking for subjects like law focuses on academic reputation surveys, employer surveys, and measures of scholarly productivity and impact. Let’s see what the results of the survey tell us about the place of U.S. schools in the wide world of law.
First some good news for our home team: Harvard Law School tops the QS list, and four other U.S. schools (Yale, NYU, Columbia, and Stanford) appear among the top ten. These United States similarly dominate the top fifty, with fourteen American schools in that group. The United Kingdom is our closest competitor, with nine schools listed among the top fifty. Next comes plucky Australia, with six law schools in the top fifty. If this were the Olympics, we would win; we have the most medals and that’s that.
American students and professors, however, may be surprised to find the glory spread among schools from so many different nations. In addition to the U.K. and Australian schools, the top fifty includes law schools from France, New Zealand, Hong Kong, Canada, Singapore, Belgium, the Netherlands, Germany, Japan, China, Chile, and Italy. The top U.S. schools have a strong global reputation, but so do schools from many other nations.
Some of our dominance, furthermore, stems from our size. The United States has a population of 313.9 million residents. The United Kingdom is just one-fifth our size, with a population of 62.6 million. Australia is even smaller, with a population of just 22.6 million. A nation our size has many more educational institutions–and more opportunities to make a top-fifty list–than smaller countries do.
To adjust in a very rough way for size, we can compare the QS showing for California, with a population of 38 million residents, to both the United Kingdom and Australia. California’s population is about three-fifths as large as the population of the United Kingdom. Puny Australia, in turn, is about three-fifths the size of California.
California fares quite nicely on QS’s ranking of law schools: It has one school (Stanford) in the top ten and two others (Berkeley and UCLA) among the top fifty law schools worldwide. But the United Kingdom triples that showing, with three schools in the top ten and six others among the top fifty. The U.K. achieves that record with a population that is less than double California’s size. Tiny Australia, meanwhile, trounces California: It has two schools in the top ten and four others among the top fifty. That’s double California’s performance at just over half its size.
What does this mean for U.S. law schools and their graduates? The most lucrative forms of practice, serving corporate and financial clients, are now global practices. U.S. law matters, but so does the law of the European Union, China, and dozens of other nations. Large corporations obtain counsel from lawyers around the world, and many of those lawyers received their training outside of the United States.
To get a sense of this, scan the lawyers associated with Baker & McKenzie. For 2012, the latest year available, Baker grossed more money than any other law firm in the world. Baker is headquartered in the United States and it hires plenty of U.S. law school graduates. According to a search box on the firm’s site, it employed forty-six Harvard Law School graduates to help accomplish that end. The firm, however, also employed twenty-three lawyers educated at the University of Melbourne. Nor did those Melbourne lawyers stick to Baker’s Australian offices; they also practice in Chicago, Washington, DC, London, Hong Kong, Shanghai, Singapore, and Kuala Lumpur.
Examine the leading law firms headquartered outside of the United States, and you’ll find even more lawyers from all of those non-U.S. schools on the QS list. Clifford Chance, the U.K. mega-firm, has thirty lawyers in its Hong Kong office. Only two of those thirty have a law degree from a U.S. school, and one of those is an LLM earned to complement a Hong Kong degree. United Kingdom degrees predominate at Clifford Chance, but degrees from Hong Kong, Switzerland, Singapore, and Australia also appear among the Clifford Chance lawyers in Hong Kong.
Graduates of U.S. schools, in other words, are competing against a wide world of lawyers. That competition is one of the forces reducing the number of BigLaw positions for graduates of our schools. Corporate clients hire law firms located in many parts of the world. Those firms, in turn, hire lawyers from many countries–and often show little interest in U.S.-educated lawyers. As BigLaw positions contract, displaced U.S. lawyers move into positions more focused on the domestic market, placing pressure on those positions as well.
The United States enjoyed such global dominance during the last half of the twentieth century, that I fear many legal educators, law students, and prospective students don’t grasp the impact of global competition on jobs in our profession. BigLaw is no longer our playground; it’s a busy marketplace that we share with the rest of the world.
Colleges Cut Tuition Costs
May 9th, 2013 / By Deborah J. Merritt
As the Wall Street Journal reported earlier this week, four-year colleges have been increasing their tuition discounts. According to a survey conducted by the National Association of College and University Business Officers, the average discount rate rose to 45% for this year’s freshmen. On average, therefore, colleges collected a little less than half of their list-price tuition from first-year students. That steep discount caps seven straight years of deepening discounts.
This news provokes several thoughts. First, colleges are caught on the same tuition-scholarship merry-go-round that law schools ride. We raise tuition, then raise scholarships–although never quite as much as tuition. Students pay more, and everyone is confused about what tuition really is.
Second, this tuition-scholarship shuffle transfers money from some students to others. Colleges offer more need-based grants than law schools do, but they provide plenty of “merit” scholarships. Colleges purchase high SAT scores, just as law schools buy impressive LSATs. Some day, I hope, educators will look back at this era and shake their heads at the sordidness of buying scores from paper-and-pencil tests that are taught in high-priced prep courses.
Third, the steady rise in tuition discounts suggests that parents and students are reaching their limit. They either can’t pay any more for higher education or they won’t. Colleges are moderating tuition increases while offering more scholarships.
That leads to a final question: What does this portend for law schools? When these freshmen apply to law school, will they be willing to pay higher tuition because colleges gave them a bigger break? Will their families have some cash in reserve to help fund law school? Or will these price-sensitive students demand even more discounts from law schools?
Responses may differ. Some students may be willing to pay more, while others remain stingy. A lot can happen in both the economy and higher education before these freshmen apply to law school. My guess, however, is that the steadily increasing discount rate for college tuition means that students are more concerned about the value of their higher education. That means that they may examine law school more closely as an investment and that, if they decide to apply, they will expect more discounts.
Finnegan’s Way
May 1st, 2013 / By Deborah J. Merritt
Finnegan, one of the world’s largest IP firms, is willing to invest in future lawyers. The firm is paying 100% of law school tuition for staff members who want to earn a law degree. The staff members work as part-time “student associates” while in law school; the firm bills their time at lower rates.
A visit to Finnegan’s site reveals that the firm currently employs thirty-eight of these student associates. I didn’t check every bio, but most of the future lawyers have science degrees and currently work on patent applications. They are enrolled in every D.C. law school (where Finnegan is headquartered), as well as at a range of schools in other cities that host Finnegan offices. Those include Boston, Atlanta, and San Francisco.
Finnegan’s program has two important implications for law schools. First, of course, it’s welcome news that talented professionals are enrolling in law school; it’s even more striking that an employer is paying for their legal education. Finnegan’s investment lends support to the idea that legal training could have special value for professionals employed in related fields–especially if they are able to keep working while in law school.
I’ve suggested before that law schools should implement more flexible degree programs, ones that support concurrent professional employment. The Finnegan policy seems to support that idea. Even if other employers aren’t willing to pay for their employees’ law school tuition, they might be willing to adapt that employee’s work schedule to accommodate law school classes. Professionals in law-related fields may be a modestly growing source of students for law schools.
Second, however, Finnegan’s approach may place further pressure on the traditional college-to-law-school-to-firm route of entering corporate law practice. Finnegan has 38 of its talented scientists, who have already worked with the firm’s lawyers and clients, enrolled in law school. With that type of talent in the pipeline, will the firm continue hiring as many conventional associates?
Equally important, what if corporate clients adopt Finnegan’s way for themselves? Companies could send senior compliance managers, financial analysts, and others to law school, hoping that a cadre of law-trained managers will reduce their need for outside counsel. These managers would provide a new pool of promising law students, but might further reduce hiring at the companies’ outside law firms.
It’s hard to predict the math on this, but I would take Finnegan’s program as a useful signal for law schools. To keep up with the twenty-first century market, law schools may need to focus more heavily on educating professionals who work in related fields and who continue that work throughout law school. If we value those students and accommodate them, we might tap a new pool of applicants. And, if legal work continues to shift from law firms to corporations, we would at least keep up with that movement.
Is BigLaw Reviving?
April 29th, 2013 / By Deborah J. Merritt
The American Lawyer has published the Am Law 100, its annual list of America’s highest revenue generating law firms. The accompanying article, titled “Spring Awakening,” suggests that BigLaw may have turned the tide to better times. The subtitle, in fact, states: “The Am Law 100’s modest gains hint that a fundamental recovery is taking root.”
BigLaw may be stabilizing, but the numbers don’t suggest any recovery in hiring levels for new associates. Revenue increases are modest, and headcount rose a miserly 0.8% over the last year. A detailed analysis of firm billing, meanwhile, declares that “[t]he most endangered species in The Am Law 100 appears to be the junior associate.”
Revenues
Gross revenue among the Am Law 100 increased 3.4% in 2012. Inflation, however, was 1.7%, which accounts for half of the increase. Average revenue per lawyer, meanwhile, increased just 2.6%, not much faster than inflation.
Profits per partner, notably, rose more than any other indicator. Those profits increased an average of 4.2%. Those increases make partners happy but, when partners take more than their share of gross revenue, there’s less money for hiring or compensating new lawyers.
Junior Associates
The day after publishing its Am Law 100 list, The American Lawyer released details of a study underscoring the decline of junior lawyers at those firms. The study analyzed a sample of bills submitted to BigLaw clients over the last three years. In 2010, those bills included hours billed by 3,322 junior lawyers (those with less than three years of experience). In 2012, the number of timekeepers in that category was just 2,327–a thirty percent decline.
The report notes that BigLaw clients have resisted paying for junior lawyers’ time, but finds that fact an unlikely explanation for a decline of this size. An associate would appear in this study even if the firm billed just a single hour of her time. It’s unlikely that any firm wrote off an entire year of work by a junior associate. The junior associates who did appear in the billing records, moreover, billed more time than midlevel or senior associates.
Instead, the most likely explanation for the decline is that firms have not been replacing entry-level lawyers. They are shifting work to staff attorneys, contract attorneys, and outsourcing firms. Or, when they hire new associates, they may be seeking ones who already have three years of experience.
Client Demand
The analysis of billing records reveals another grim fact: The large clients represented in the study hired BigLaw firms for fewer hours in 2012 than in 2011. In 2011 these clients bought 4.4 million hours from the studied firms; in 2012, they purchased just 4.3 million. That’s still significantly higher than the 3.7 million hours billed in 2010, but a dip between 2011 and 2012 does not bode well–especially for law students seeking associate positions at these firms. BigLaw clients may be handling more work in-house, solving problems through other means, hiring smaller firms, and turning directly to legal process outsourcers.
Conclusion
Most BigLaw firms are still vibrant, handling large amounts of work, and increasing profits for their partners. Business may have stabilized somewhat since the worst days of the recession. For law schools and new lawyers, however, any BigLaw recovery seems modest at best. At worst, in the words of The American Lawyer‘s columnist, junior associates are an “endangered species” in BigLaw.
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