You are currently browsing archives for the Student Costs category.
Unconscionable Debt
April 18th, 2013 / By Deborah J. Merritt
Third-year students with federal loans are completing their mandatory exit counseling. That online program shows students how much they have borrowed to finance their education, their current debt (with interest), estimated monthly payments, and other information designed to help them manage their loans. Some students have shown me their print-outs, and the numbers are shocking.
Here is just one example: A single, unmarried student attended a flagship public law school with the median scholarship offered by that school. He had no family support or other assets, so he borrowed to finance his discounted tuition and living expenses. He worked throughout his second and third years of law school, but was only able to obtain low-paid faculty research positions and unpaid internships. Over his three years of law school, he borrowed $123,865.
That amount, I predict, will be common among students graduating from public law schools this spring. It may not yet represent the average at public schools, but I estimate that at least a third of current 3Ls at public schools have borrowed $120,000 or more to finance law school. The average amount borrowed by private school graduates, of course, is already over $124,000. If you doubt these figures and you teach at a law school, you can ask your financial aid office how many of your graduating students have borrowed more than $120,000 to attend law school. The figure will be less than a third at some state schools with very low tuition, but it will be higher than a third at other public schools and most private ones.
But the amount borrowed is just the beginning. What does it mean to borrow $123,865 to finance law school? First, according to the federal counseling program, it means that you currently owe $133,869. About $10,000 of interest has accumulated just during law school. That debt level also means that you are continuing to accrue about $21 of interest a day. Since you’re unlikely to pay down any of your debt before completing the bar exam, another $2,184 of interest will accrue between now and then.
Exit counseling also advises that, if you attempt to repay this loan on the standard ten-year plan, you will owe $1,579 per month. And here’s the kicker: The government program counsels that, using guidelines published by the Consumer Financial Protection Bureau, this student should find a job with a minimum gross income of $236,850 to support those loan repayments! Even the students who obtain those BigLaw jobs won’t gross that amount.
I know (and this student knows) that you can get by on less money than the consumer guidelines suggest. He also knows that there are repayment plans like Income Based Repayment and Pay As You Earn that will tie his loan repayments to his salary. But the numbers generated by this debt counseling program illustrate how outlandish law school debt has become.
Remember that we’re talking here about a scholarship student at a public law school, one who paid about $22,750 per year for tuition and $18,250 (a bit over 150% of the federal poverty level) a year for living expenses. If a student like that needs $236,850 in gross income–or even $100,000 in gross income–to pay off his debt, then law schools are enrolling students in a clear financial trap. We know that incomes like that aren’t available for the vast majority of our graduates. The median pay for all lawyers, including those who have worked 40 or more years, is $112,760 per year. How many lawyers reach that pay level within their first ten or twenty years after graduation, when they are repaying student loans?
How can we possibly maintain access to the legal profession at these prices? How can we provide justice for clients? How can we in good faith enroll students in programs that will leave them financially strapped for years–or dependent upon taxpayer goodwill for reduced payment programs? How can we, as scholars who value public policy, impose those costs on the public?
We can’t. There are four steps that we, as law schools, should pursue aggressively to address this unconscionable situation: (1) Dramatically lower tuition, whatever that takes. (2) Restructure law school so that students can work close to full-time while completing their studies; there’s no other way to cover post-college living expenses for adults who choose not to live with their parents (or don’t have that option). (3) Publicize very clearly how much graduates will earn from average jobs after making average loan payments. (4) Lobby Congress to guarantee reduced payment plans like IBR and PAYE for loans that have already been disbursed, but to repeal those programs for professional students going forward. Those programs were never designed for professional students, and they are coninuing to inflate the cost of professional education. As a policy matter, the money would be better spent on almost any other line in the federal budget.
Meanwhile, the students I’ve talked to can’t spend too much time worrying about their debt: they’re still looking for jobs.
Obama’s Budget and Student Loans
April 17th, 2013 / By Deborah J. Merritt
President Obama’s 2014 budget has two proposals that could affect law students who rely on federal loans. First, the President has proposed eliminating taxes on loan debts that are forgiven. Second, the proposed budget would change interest rates on student loans. Here’s more detail about both proposals, as well as an important caveat about the politics of educational loans and professional students.
Taxation of Forgiven Debt
The Department of Education offers several programs that allow law graduates to reduce their monthly debt payments. Both Income Based Repayment (IBR) and Pay as You Earn (PAYE) link repayment amounts to salary, capping payments to a percentage of the graduate’s discretionary income. The programs also forgive any remaining debt after 10 years (for graduates working in public service), 20 years (under PAYE), or 25 years (under IBR). For graduates falling in the first category, those working in public service, the value of the forgiven debt is not taxable. But for graduates in either of the other two categories, that value is taxable.
Taxation of the forgiven debt makes IBR and PAYE less attractive to graduates–especially those, like law students, who may still owe substantial amounts when their debt is forgiven. These graduates face the grim prospect of concluding one series of loan repayments only to begin a second series of structured payments to the IRS.
Obama’s proposed budget would eliminate that burdensome prospect, insulating all forgiven student debt from taxation. If adopted, the change could relieve some anxiety about student loan payments, although twenty years of repayment is still a daunting prospect.
Interest Rates
Law students qualify for two types of federal loans. First, they may borrow up to $20,500 per year in unsubsidized Stafford loans; those loans currently carry a 6.8% interest rate. Second, law students may borrow additional sums as Grad PLUS loans; the latter loans carry a 7.9% interest rate.
Both rates are quite high compared to other interest rates. The interest rate on 10-year Treasury bills has been depressed for years; it was just 1.75% earlier this week. Fifteen-year fixed-rate mortgages currently impose just 2.55% interest.
Higher rates for student loans partly reflect their increased risk; there is no collateral for an educational loan. The rates, however, also reflect the fact that Congress fixes these rates by statute rather than allowing them to shift with changes in the T-bill rate.
The President’s proposed budget would adjust interest rates on student loans by pegging them to the T-bill rate. Unsubsidized Stafford loans would charge the T-bill interest rate plus 2.93 percentage points. Grad PLUS loans would charge the T-bill rate plus 3.93 percentage points.
At current T-bill rates, this proposal would lower interest rates for law students. Interest on the unsubsidized Stafford loan would fall from 6.8% to 4.68%; interest on the Grad PLUS loan would decline from 7.9% to 5.68%. Those are both significant cuts.
As T-bill rates rise, however, so will interest rates for students. The long-term average interest rate on 10-year Treasury bills is 6.61%. At those rates, law students would pay 9.54% interest on the first $20,500 they borrowed and 10.54% on additional amounts. And that’s just the average T-bill rate; rates could move even higher.
Note that, under the Obama proposal, the interest rate for any loan would be fixed at the time of disbursal; these would not be adjustable rate loans. So, if the proposal passes, students currently enrolled in school will obtain lower-interest loans than the ones currently available; so will future students as long as T-bill rates remain low. Interest rates will rise only for students who enroll and borrow in the future, assuming that T-bill rates return to historical averages.
Politics and Professional Students
The changes outlined above are just proposals; Congress may not accept them. Both changes will cost the federal government money, at least in the short term, and there’s not a lot of money lying around on Capitol Hill. It’s too early to celebrate possible relief for students who depend on educational loans.
Professional students, in fact, face a special risk in the political debate over these proposals. Congress may decide that the President’s proposals are necessary changes for college students, but not for professional students. Professional school graduates, after all, are supposed to earn high enough salaries to repay their loans and profit handily from their educational investment; that’s what law schools and other professional schools have been telling prospective students. Why, then, should Congress spend limited funds to assist professional school graduates?
Congress, in fact, might decide to do what it has done in the past: Help college students by cutting benefits for professional ones. In the 2011 Budget Control Act, Congress eliminated subsidized loans for graduate/professional students and used that savings to improve funding for undergraduates. The upcoming debate raises the same risk: Will Congress accept the President’s proposal, which would offer benefits to current law students? Or will it worsen conditions for graduate and professional students in order to ease debt loads for undergraduates?
Hat tip to TaxProf Blog for noting these important proposals.
Decelerated Degrees
April 16th, 2013 / By Deborah J. Merritt
Accelerated degree programs, which allow students to obtain a JD in two calendar years, are starting to spread. Law schools offering these programs include Northwestern, Vermont, Arizona State, and Regent. Students generally pay as much tuition as they would for a three-year JD, but they join the workforce a year earlier and save a year of living expenses. For some students, two-year programs offer a way to reduce the cost of a JD.
What about the opposite approach? What if students could spread their classwork over four or five years, while paying no more than they would for a three-year program? Students in a “decelerated degree program” could work year-round, defraying at least some living expenses and perhaps securing more meaningful work. Law schools could create these programs with relative ease; deceleration doesn’t require establishing a formal night program, making major curricular changes, or obtaining ABA approval. Deceleration just requires thinking about the JD from a different perspective.
Outdated Assumptions
Most law schools assume that it’s best for students to complete the JD in three full-time academic years. The standard three-year track promotes camaraderie; supports conventional moot court and law review programs; and moves students relatively quickly into the workplace. In the late twentieth century, the three-year model also gave students adequate opportunities to gain workplace experience and offset their expenses: they could work full-time over two summers, plus part-time in the second and third year.
Changes in the legal market, however, have sharply curtailed job opportunities for law students. The shifts haven’t just undercut post-graduate employment; they’ve affected summer and part-time work as well. Fewer paid jobs are available and, when they exist, employers have little interest in accommodating student schedules. Employees who work only 10-15 hours a week offer little value to most employers. The headaches of training, supervising, and scheduling such “low-time” workers quickly outweigh the benefits. As a result, students tell me that their employers press them to work 20 or more hours per week.
The ABA caps employment at 20 hours per week for students enrolled in more than twelve class hours. Even 20 hours, though, is challenging for students to juggle if they are taking a full load of classes and participating in co-curricular activities such as a journal or moot court. Some students have asked me why they can’t stretch their legal education out for an extra year–or take summer courses–without paying extra tuition for the degree.
The answer is that they can–if we let them.
Deceleration
Decelerating the JD is simple: we allow students to spread their degree work over as much as six years, paying for their classes by the credit. We also remove the obstacles (petitions to the academic affairs committee, special permission from the associate dean) that discourage students from extending their work in this manner. Students can choose the best way to integrate their classes with workplace opportunities.
One student might complete the first year full-time, then stretch the remaining two years over three part-time years while working 30-40 hours a week year round. Another might complete her degree in the standard three years by taking summer classes and a reduced academic-year load, while working 25 hours a week. Another might take a semester’s leave to work full-time for an employer, then continue working 30-40 hours a week with a reduced load.
We can even extend deceleration to the first year. Although we think of first-year courses as an integrated block of learning, the courses are less integrated than we assume. My school regularly accepts transfer students who have completed a different first-year curriculum; they make up the missing courses as 2Ls sitting in our first-year classes. We also allow academically challenged students to lightload during the first year; again, they make up the missing classes during the second year. We could offer this kind of schedule to more students, allowing them to split the first year into two halves–or into a 3/4 chunk followed by a few remaining classes integrated with upper-level offerings.
Deceleration Versus Night Programs
How does deceleration differ from traditional part-time or night programs? There are three major differences: (1) Deceleration does not require creation of a separate schedule or set of classes. Students who choose to decelerate enroll in the same curriculum as students who remain on the full-time track. (2) There is no separate admissions process. Deceleration is an option for all students in the JD program. (3) Students may change their course over time. A student might attend school full-time for a year, decelerate for a year and a half, and return to full-time study. The program adjusts to the student’s needs.
Deceleration depends upon a key assumption about today’s workplace: Employers want employees who can work more than 15 hours a week, but they are increasingly flexible about when and where those employees work. Students who decelerate to work may need some early morning, late afternoon, or evening classes, but they will not depend upon them to the same extent that part-time students have in the past.
Advantages
What’s the point of a program like this? As explained above, deceleration would give more students an opportunity to work during law school. Some students might keep the jobs they held before applying to law school; others might find new work while in school. Either way, students who can work 20 or more hours a week are likely to find better opportunities than those with less flexibility.
Those jobs could pay off in at least three ways. First, students will be able to pay some of their expenses, reducing the amount they borrow for law school. Second, serious jobs (those that require 20 or more hours per week) are more likely to lead to post-graduate employment. Finally, those jobs can complement classroom work by giving students the hands-on experience we used to expect from summer clerkships.
Based on my reading of ABA rules, deceleration raises no accreditation issues. ABA Standard 304 requires students to complete a minimum number of instructional hours in residence, but deceleration simply spreads those hours over more time. The same standard requires students to complete their degree within 84 months (7 calendar years); the deceleration I have proposed fits well within that time frame. ABA Interpretation 301-5, finally, requires schools “providing more than one enrollment or scheduling option” to give all students “reasonably comparable” educational and co-curricular opportunities. Deceleration programs would satisfy that requirement because all students could choose from any classes or activities.
Deceleration, finally, should not affect most students’ elibility for federal loans. The Direct Loan program requires students to register at least half- time, but the definition of half-time is very liberal for professional and graduate students. Students, however, would need special counseling if they dropped below half-time status; under those circumstances, they would lose both loan eligibility and deferment.
Negatives
What are the drawbacks? First and most important, deceleration doesn’t solve the major issues confronting law students today. It won’t create more jobs, and it won’t lower tuition below the cost of a standard six-semester program. Deceleration might give some students an advantage in finding available jobs, and it might help some students cope with the high cost of law school, but it doesn’t solve either of those serious systemic problems.
Second, the approach might help only a small number of students. There may be relatively few employers who are interested in hiring law students, even if those students can devote substantial time to the job. Students themselves may not be interested in prolonging the agony of law school. Three years and out may be better than four years and more.
Third, deceleration might raise the cost of law school for some students. Although students would pay by the credit, rather than the year, tuition has been rising faster than inflation. If that trend continues, students will pay more for credits earned later in their law school careers. Delaying entry into the full-time workplace can also be costly. A student who is confident of securing a high-paying job after bar admission has a financial incentive to secure that job as quickly as possible.
Finally, deceleration will work best if schools are willing to change some of their course offerings. The concept doesn’t require night courses, but some evening and night courses would help students pursuing this option. Schools might also need to beef up their summer programs to meet the needs of students spreading work and classes more evenly over the full calendar year. Those changes take administrative time–and may not appeal to some faculty.
Conclusion
Deceleration is a small change, but it’s an option that might appeal to some students, reduce their debt, and improve their job prospects. The approach also complements the growth of externships, distance learning, and other new modes of legal education. The contemporary workplace is in flux, but it seems to be moving toward an era in which individuals integrate education and work more flexibly than in the past. Decelerated JDs might be part of that evolution.
Lowering Tuition
April 6th, 2013 / By Deborah J. Merritt
The University of Arizona James E. Rogers College of Law is reducing tuition for in-state residents by eleven percent. Non-residents are receiving an eight percent decrease. The Board of Trustees unanimously approved both reductions on Thursday. What does the reduction mean for Arizona and other law schools?
I welcome the tuition reduction, as I’m sure current and prospective students do. Arizona’s cost-cutting is just a small step in rolling back the steep rise in law school tuition, but it’s a worthwhile one. Arizona residents will pay $3,000 less per year for their legal education, while non-residents will pay $3,500 less. If students are borrowing that money, as most do, they will also save interest that accumulates at high rates. A non-resident who is borrowing money to attend the University of Arizona’s law school will save about $12,350 in tuition and interest over three years.
On the other hand, even a savings of $12,500 is relatively small given the overall cost of legal education. The University of Arizona estimates its current cost of attendance as $50,295 a year for residents and $65,306 for nonresidents. That’s a hefty $150,885 to $195,918 for three years. Cutting out $9,000 to $12,500 helps, but it’s a minor assist. As Brian Tamanaha commented, the reduction is not nearly enough to “align cost and economic return for the majority of students.”
The reduction, however, does have two other effects. First, it will help other schools gauge reactions to tuition cuts. Will prospective students respect Arizona’s move as one that, in addition to conveying modest financial benefit, signals a commitment to student interests? Will Arizona attract more and better students through its tuition reduction? Will alumni, employers, and the public similarly applaud Arizona’s attempt to rein in costs?
Or will these audiences see the reduction as a fire sale, suggesting desperation and cheapening Arizona’s reputation? Legal educators have speculated about the latter attitude during the last few years. Arizona’s decision will help test whether this is a realistic fear–or simply one of self interest in resisting tuition reductions.
Second, Arizona’s action represents a small step away from merit scholarships. The school has announced that it will pay for its tuition cuts partly by reducing scholarship awards. Some prospective students (those who would have received high scholarships) thus may pay more with the tuition “cut” than they would have under the status quo. Students who would not have received scholarships, however, will pay less. Overall, the program will ease the “reverse robin hood” effect that many have criticized in today’s law school admissions process. Students with lower LSAT scores may still subsidize higher scoring classmates at the University of Arizona, but the subsidy won’t be quite as large as it was before–or as it may be at other schools.
How will other schools respond to this step toward tuition equity? Many law faculty dislike the current scholarship system, which encourages the purchase of LSAT scores and GPAs to bolster US News rankings. Yet schools have resisted change, worrying that individual action would lead to a lower rank.
With this tuition reduction, Arizona seems willing to risk that step. Will Arizona’s bravery demonstrate that lower tuition, combined with lower scholarships, is possible without losing rank? If Arizona does suffer in the rankings game, will the school adhere to its policy–showing other schools that pedagogic mission sometimes must trump rank? Surely we would all be better off choosing students and awarding financial aid with less obsessive attention to LSAT scores. Either way, I await further reactions to Arizona’s move.
The Third Year
April 1st, 2013 / By Deborah J. Merritt
Paul D. Carrington, Professor and former Dean of Duke Law School, has given us permission to post this thoughtful essay about the third year of law school. As a long-time member of the Texas bar, he responds to a recent “President’s Opinion” in the Texas Bar Journal:
In the March issue of the Texas Bar Journal, President Files expressed opposition to the proposal presently being advanced in New York to allow students to take that state’s bar exam and enter practice after two years in law school. President Files mistakenly supposes that the third year is indispensable to professional competence.
Making law study a three-year deal was not an idea advanced as a means of improving the quality of legal services delivered to prospective clients. The three-year degree was fashioned at Harvard in 1870 to impress other citizens with the social status of those holding Harvard Law degrees. Many of the students at Harvard at that time looked at the curriculum and left without a degree. Who needs a year-long, six-credit course on Bills and Notes?
Harvard itself understood that great lawyering does not require prolonged formal education. It awarded an honorary Ph.D. to Thomas Cooley to celebrate his great career in the law. Cooley never took a single class in law school, or even in college. He had a year of elementary school and a year in a law office before he moved to Michigan at the age of nineteen and hung out his shingle. He soon moved on to be the clerk to the Michigan Supreme Court, then to be its Chief Justice, then the founding dean of the University of Michigan Law School, then the author of the leading works in the nation on constitutional law and on torts, the president of the American Bar Association, and the designer and founding chair of the Interstate Commerce Commission regulating the nation’s railroads. It was possible for young Cooley to “read the law” and become perhaps the best lawyer in America.
It was still an option to read the law when I entered the profession in Texas in 1955. The applicant who scored the highest grade on the bar exam that I took that year had never attended law school. He had spent some years in a law office. And in three days he wrote coherent legal opinions on twenty-seven diverse problem cases. But he had not paid law school tuition. Had he chosen to attend the University of Texas Law School in 1952-1955, it would have cost him fifty dollars a year for tuition. I went to Harvard and paid six hundred dollars a year. That was enough to pay the modest salaries of the small band of law professors numerous enough to conduct big classes for three years.
In the 20th century, the organized bar first took up the cause of requiring three years of study. The motivating concern was not the competence of the lawyers providing legal services. The aim was to elevate, or at least protect, the status of the legal profession: if medical students were all required to stay for four years, lawyers seeking elevated status needed to stay for three. Benjamin Cardozo and Henry Stimson, two of the wisest and best 20th century lawyers, looked at what their third year schoolmates were doing, sneered at the waste of time, and went on to take the New York Bar Examination and become famous for their good professional judgment. Many and perhaps a majority of other early 20th century American lawyers attended two-year programs of law study in the numerous night schools.
The requirement of three years of formal study became common among the fifty states in the second half of the 20th century. But it is not universal. Thus, many California lawyers are graduates of two-year programs provided by the many night schools still functioning in that state. Reliance is placed on a very rigorous licensing examination to assure a reasonable measure of professional competence. There is no evidence that California lawyers are less competent or provide poorer professional service than Texas lawyers.
Requiring three years of formal study made more sense in 1963 than it does in 2013. The difference is the drastically elevated price of higher education and the resulting indebtedness borne by many students who aspire to be good lawyers. The price of all higher education in the United States increased mightily as a secondary consequence of the 1965 federal law guaranteeing the repayment of loans to students. In real dollars, taking account of inflation, the price of higher education is now about five times what it was when that law was enacted. The money is spent on elevated academic salaries, extended administrative services, and reduced ratios of students to teachers at all levels. “Higher” education keeps getting higher and higher in price.
As a result of this elevation of the real price of legal education, the requirement of three years is increasingly discriminatory. It is the offspring of working class families who often leave law school with substantial debts that they cannot repay from their earnings as rookie lawyers. For many, their prospective careers are ruined.
If the Texas Bar Association wishes to remain open to members who come from impecunious families, it, too, must face the reality that the third year of law school is unnecessary to assure the professional competence of its members. And also, if the Association wishes to assure impecunious clients of access to competent legal services, it needs to relax the requirement of prolonged formal education. I urge the Bar and the Supreme Court to address the issues promptly.
Accrued Interest
March 22nd, 2013 / By Deborah J. Merritt
Earlier this week, a student forwarded an email that he received from his federal loan servicer. After a perky “Hi,” the email reminded the student that interest accrues every day on unsubsidized educational loans. The email then spelled out his personal liability: He’s accruing $21.79 per day in interest. As he studies for his final law school exams, celebrates on graduation day, studies for the bar, and searches for a job, interest will accrue seven days a week. By November 1, when he hopes to have received good news of bar admission and obtained a job, he’ll owe another $4,881 for his law school education–just from interest accrued after today.
This student’s experience is not unusual. In fact, the interest gathering daily on his loan is lower than the interest accrued by many students. This student is an in-state resident at a public law school, and he received a three-year partial scholarship. During his first two years of law school, Congress subsidized some of his loans (meaning that interest did not accrue). Congress revoked that benefit for professional students last July, so 1Ls and 2Ls are gathering more interest than this 3L did. The interest does not compound until six months after graduation, but it accrues every day.
Paying jobs have declined during law school, and many students feel pressure to complete unpaid internships during the summer and academic term. Those factors, combined with rising tuition and living expenses, push law school loans ever higher. The interest rates on those loans, furthermore, are steep: 6.8% for the first $20,500 borrowed each academic year and 7.9% on anything above that amount. At those rates, daily interest charges mount quickly.
ABA and media reports about “average law school debt” don’t include this accrued interest. Law schools report only the amounts that their students borrow, not the full debt at graduation. The accruing interest falls through the gap because schools process only the initial loans, they do not handle interest charges or debt collection. This unfortunate circumstance means that both the borrowers and the schools may overlook the interest gathering daily.
Concern about that neglect seems to have motivated the email my correspondent received. The loan servicer wanted him to remember that interest was accruing daily on his loan, and that he could save money by paying the interest now. But how is a borrower supposed to pay interest while still collecting the loan? Should he borrow additional funds to service the interest? If funds were available at a lower interest rate, he would have tapped them before the student loan. The message suggests that students are partying with their money rather than studying for finals, worrying about the bar exam, and searching for jobs. For a law student, this type of message just ratchets up the anxiety.
I think it would be better to send these messages to law faculty. Imagine opening an email that read: “Hi! 185 of the third-year students in your law school have loans supporting their education. We want to remind you that these loans accrue interest daily. At your school, the average amount of daily interest is $21.79 per student. That’s $4,031 in interest accruing daily in your third-year classrooms. Accrued interest between now and graduation will exceed $200,000 for your class. Between now and August 1, when these students finish the bar, the collective total will be just over $536,000. That doesn’t include principal or interest accrued earlier in law school. Have a nice day.”
The messages, of course, could be customized by school. Average accrued interest and number of indebted students would vary. For some schools, the numbers would be lower. For many, especially large private schools, they would be much higher.
None of that accrued interest will come to law schools. Nor will it benefit the clients our graduates hope to serve. Interest payments support the work of loan servicers, including the profits they realize. They also compensate the government for the lost use of the loan money, forgiven loans, and defaulted loans. What a waste of our graduates’ assets. Our costly education programs require our students, not only to pay our hefty fees, but to shoulder high-rate interest that accrues daily.
It’s sobering to think how much interest accrues on student loans during each day that we teach, hand out exams, grade, or watch our students claim their diplomas.
Summer Research Grants
March 20th, 2013 / By Deborah J. Merritt
A survey of law faculty salaries, conducted by the Society of American Law Teachers, suggests that the overwhelming majority of law schools offer summer stipends to at least some faculty. The reported stipends range from a low of $5,000 to a high of $25,000. Notably, those reports do not include any of the schools with the most highly compensated faculty; you won’t find the summer salaries for schools like Harvard, Yale, Columbia, NYU, the University of Chicago, or Stanford on this list.
These summer stipends supplement salaries that already rank among the highest in the academy. They are also quite unusual in the academy; other university faculty do not receive summer research grants with the ease or regularity that law faculty do. Professors in other disciplines usually apply for outside grants if they want summer support. More often, they do without: they devote their summers to research even though they technically are unpaid during that time.
Why do law faculty need so much financial encouragement to produce research? Why aren’t we encouraging our faculty to seek outside grants if they want that summer support? Summer research grants are wonderful bonuses, but they shouldn’t be necessary to encourage research. People join the academy to research and teach, so that’s what we should do.
A first step in reducing the cost of legal education would be to eliminate summer research grants for full professors. We could continue to award grants to junior faculty, who are seeking tenure and may bear their own student debts. For full professors, summer research grants seem like a luxury we can give up to help both our students and our institutions.
What’s the Financial Value of a Law Degree?
March 18th, 2013 / By Deborah J. Merritt
Last year, the columnist Shawn O’Connor offered some provocative calculations about the financial value of a law degree. Drawing upon a study from Georgetown University’s Center on Education and the Workforce, O’Connor claimed that a financial investment in a law degree “is likely to produce at least a 10x return” over the graduate’s career.
O’Connor has a personal interest in encouraging students to apply to law school; he is the founder and CEO of a company that offers test prep and admissions counseling to prospective law students. That fact alone should make readers wary of O’Connor’s claims. Several legal educators, however, have asked me to comment on O’Connor’s calculations, so let’s take a close look.
Bad Math
O’Connor gets off on the wrong foot by making a basic arithmetic error. He subtracts $2.3 million from $4.03 million to get $2 million–instead of the actual difference of $1.73 million. This is much more than a rounding error; it significantly affects O’Connor’s claim that investing in a law degree “is likely to produce at least a 10x return.” The sloppy math should further increase any reader’s skepticism.
Degrees and Occupations
A more fundamental problem with O’Connor’s analysis is that he compares the financial payoff for a degree (the BA) with the payoff for an occupation (lawyering). The Georgetown report repeatedly stresses the difference between those two categories: earnings vary by both occupation and educational level. A significant number of law graduates don’t practice law. Indeed, saturation of the legal market is pushing increasing numbers of graduates into other careers. Given that, one can’t estimate the value of a degree by looking at just one of the occupations pursued by degree holders.
The Georgetown study, in fact, suggests that a professional degree provides little financial return compared to a master’s degree in some job categories. Managers with a master’s degree average $3.76 million in lifetime earnings, grossing almost as much as managers with professional degrees (who average $3.87 million) Similarly, an accountant with a master’s degree averages $3.03 million in lifetime earnings, not far below the $3.20 million expected by an accountant with a professional degree. For an elementary or middle school teacher, a master’s degree offers average lifetime earnings of $2.16 million while a professional degree yields just $2.29 million.
These comparisons suggest that a JD does not pay off financially for many law graduates who fail to practice law. O’Connor computes the cost of a law degree as $285,000, which includes three years of foregone income. In each of the comparisons cited above, the lifetime earnings differential is considerably smaller than O’Connor’s cost of a law degree. The law degree, furthermore, must be purchased today–while any earnings bonus occurs over a lifetime.
A master’s degree, of course, also requires financial investment. But many professionals earn master’s degrees while working full-time, avoiding the heavy costs of foregone income. Most master’s degrees also cost considerably less than a JD, due to lower tuition and a shorter time frame. Using O’Connor’s own calculations, law school is a bad financial bet for graduates who go into business, accounting, primary school teaching–and, most likely, other fields outside of law. A master’s degree will lead to equal or better financial success in those occupations.
If Not Law, Then What?
O’Connor assumes that a student who eschews law school will not attend any other graduate program, settling for the average lifetime earnings of a college graduate. Students who can secure law school admission, however, are not average college graduates. If they opt against law school, they are likely to pursue other types of graduate education. Even if they leave higher education with just a BA, they are unlikely to be average wage earners in that group. The same talents that bought them admission to law school will pay off in the workplace.
The Georgetown report shows that 17.2% of workers with only a BA earn more than professional degree holders. The professional category in that comparison, moreover, includes doctors–who earn considerably more than lawyers. If we looked just at lawyers, closer to 25% of college graduates (with no further education) would earn more than the average lawyer over a lifetime. Similarly, 24.2% of master’s degree holders earn more than the average professional (again including both doctors and lawyers in the latter category).
The top quarter of PhD holders also earn considerably more than the average lawyer. According to the Georgetown report, those PhD’s average $4.7 million while the average lawyer earns just $4.03 million. With lower tuition and fellowship support, doctoral students usually pay less than JD students–further enhancing their financial advantage.
The Value of Money
Even the middle-of-the-pack college graduate, who obtains no further education, can obtain better financial returns than the average lawyer. All she has to do is invest the money she would have spent on law school in a conservative mutual fund, such as a stock index fund. Then she can work at her BA job while watching her nest egg grow. O’Connor and the Georgetown report both use 40 years to calculate lifetime income, and 40 years is a long time for an investment to grow.
Even at just 6% interest, a college grad’s investment of $285,000 (the cost of law school as calculated by O’Connor) will grow over 40 years to more than $2.9 million. That’s considerably more than the $1.76 million lifetime bonus the lawyer will secure. Indeed, as long as the BA grad secures at least a 4.7% interest rate–easily achievable over 40 years–she’ll beat the lawyer’s return on the law degree.
What about lower priced law schools? A student might pay just $20,000 a year with a scholarship to a public school. Adding that $60,000 to three years of lost salary ($135,000 in O’Connor’s calculations) yields a cost of just $195,000 for a law degree. Again, however, the college graduate who invests that money in a mutual fund will easily beat the $1.76 million bonus earned by a lawyer. $195,000 invested for 40 years at just 6% interest will yield a little over $2 million as the college graduate’s bonus. (O’Connor omits any discussion of taxes in his calculations, so I do as well. Both salaries and investment income are taxed, at a variety of rates, so it is not clear how taxes would affect the comparisons.)
Most college graduates, of course, don’t have money sitting around to invest. They borrow money for law school, hoping that the financial return will pay off their debt plus more. This reality, however, doesn’t improve the financial comparison. Let’s assume that we have two college graduates, one who goes directly into the workforce and the other who borrows money for law school. To simplify the comparison, let’s eliminate living expenses; we’ll assume that they each have the same living expenses, paid for three years by their parents.
Again using O’Connor’s figures, the grad who enters the workforce will earn $135,000 over three years. Since her parents are paying her living expenses, she’ll invest all of that salary in a mutual fund. If she realizes a return of 6.5%, she’ll have $1.67 million after 40 years–plus, of course, her earnings during those 40 years as a college graduate.
The grad who attends law school, on the other hand, will borrow at least $60,000–the money needed for three years of discounted tuition at a state law school. She won’t need to borrow any money for living expenses in this comparison, because her parents are paying those. This hypothetical law student is borrowing less than $20,500 per year, so she’ll benefit from the lowest interest rate for graduate student loans (6.8%). If she’s able to repay her loan within 10 years of graduation, an optimistic scenario, she’ll pay about $32,500 in total interest (including the interest that accumulated during law school). Assuming this law school graduate works 40 full-time years as a lawyer, her financial bonus is $1.67 million (her $1.76 million premium for working as a lawyer minus her tuition and interest payments). Even with very favorable assumptions on tuition and repayment rates, the lawyer will fare no better financially than the college graduate.
Both graduates in this comparison face some risks. The college graduate, for example, might not obtain 6.5% interest on her investment. The law graduate, however, faces equal or greater risk. If she is unable to find work as a lawyer, takes time off to care for family, or suffers any months of unemployment, her earnings premium will fall. The college graduate’s mutual fund will grow regardless of her employment history.
Past, Present, and Future
No one knows what today’s law graduates will earn over their lifetimes. O’Connor, like the authors of the Georgetown report, can only try to predict the future from the past. To do that, the Georgetown authors looked at workers in different age cohorts. They collected data on the wages that lawyers (and other workers) of different ages earned between 2007 and 2009.
Each of those age cohorts started practicing at different times. The 25-year-old lawyers in the Georgetown study started practicing law after 2005. The 64-year-old ones started practicing as early as 1967. It is very unlikely that a legal career spanning the years 1967 through 2007, widely recognized as boom years for the American legal profession, will look the same as one reaching from 2005 through 2045–much less from 2016 through 2056 (the projected career span for students who will enter law school this fall). Projecting one generation’s financial success from a very different generation’s experience demands caution.
The Georgetown report, in fact, includes an ominous note on this point. The authors acknowledge that their data show salaries for professionals climbing steeply from age 25 through 40, then leveling off for the rest of the working lifespan. That pattern could suggest that professionals work hard early in their careers to build their earning potential, reaping their greatest financial returns after age 40. But it could also mean that the professionals who were over 40 in 2007-2009, those who began their careers before 1995, are riding a wave of high return on their professional degrees–while those who graduated later are doing less well. Without more longitudinal data, we can’t distinguish these explanations.
Conclusion
O’Connor’s calculations offer little reassurance that investing in law school promises high financial rewards. On the contrary, a closer look at the math suggests that law degrees are overpriced compared to their likely financial pay-off. If we want people to continue serving as lawyers, we need to reduce the cost of law school. Senior lawyers today undoubtedly benefited financially from their legal education; they averaged $1.76 million more in lifetime earnings than their college graduate peers, and they paid very low rates for law school.
The calculation for today’s law students is very different. High tuition, the need to withdraw for three years from the workplace, and uncertain job outcomes make law school a relatively poor financial investment. It’s time to shift that balance.
The Illinois State Bar Association Speaks
March 14th, 2013 / By Deborah J. Merritt
The Illinois State Bar Association’s Special Committee on the Impact of Law School Debt has issued a final Report with a striking set of recommendations. The Bar Association’s Board of Governors endorsed the Report and Recommendations on March 8; the Association’s full assembly will vote on them in June.
The full Report deserves study by all legal educators, as well as practitioners who care about the future of the profession and legal education. The committee compellingly describes the plight of graduates burdened with high debt, as well as the challenges that debt causes for employers and clients. The Report then explores the companion problem, that graduates are poorly prepared for the jobs available to them. Here are just a few of the committee’s many recommendation:
1. The federal government should cap loans available to law students.
2. The government should also impose outcome-based requirements for schools to maintain loan eligibility. A school, for example, would lose its loan eligibility if more than 35% of its graduates failed to reduce their loan principal by at least $1 during a given period.
3. Congress should make private educational loans dischargeable in bankruptcy, using the pre-2005 definition of “financial hardship.”
4. The ABA should modify accreditation standards to expand the credits that students may earn through distance education.
5. The ABA should require schools to gather and report more information about job outcomes, including outcomes over the course of their graduates’ legal careers. The latter requirement would not involve tracking all graduates, but could rely upon sampling.
6. Law schools should focus on practice-oriented courses and teach fewer “exotic” courses. They should also teach law office management.
7. Law schools should include judges and practitioners on faculty hiring and tenure committees. “Practicing judges and lawyers,” the Report suggests, “can provide unique insight into the candidate’s skills as a practitioner and will ensure that the law school hires faculty who are best able to educate law students for practice.”
8. State supreme courts should find ways to reduce the cost of gaining bar admission. Courts should consider allowing third-year law students to take the bar exam, as Arizona has done. They should also consider Wisconsin’s model of granting a “diploma privilege” to graduates of in-state schools who obtain a specified GPA and complete designated courses.
9. Bar Association members should assist pre-law advisers in giving debt and career counseling to students interested in attending law school.
10. Bar Associations should also work with law schools to develop apprenticeship programs that could start during the third year of law school.
The Report contains many other recommendations, as well as fuller discussion of the rationales for each proposal. John E. Thies, President of the Illinois State Bar Association, created the Special Committee that produced the Report.
How fortunate you are
March 13th, 2013 / By Kyle McEntee
Dean Dan Rodriguez has written to his students at Northwestern University Law School to announce a class size reduction, a tuition increase, and a commitment to increase scholarships and to cover LRAP costs. (Letter below.)
The letter is a mostly honest assessment of the challenges faced by Northwestern, its peers, and law schools generally. There are too few jobs; attending law school costs a lot of money; and the legal economy is undergoing (and has undergone) a significant shift. Rodriguez is not the first dean to go on the record about these issues and he will not be the last. Without a doubt, acknowledgement is an early step for reform.
The far bigger challenge is having legal education leaders provide solutions that actually combat the problems they rarely struggle to articulate. Here I find that sincere philosophical differences stand between the people who want to see a reimagination of legal education and the people who believe that the scope of necessary change is relatively narrow. Both groups acknowledge the need to reform, but disagree on what reform looks like. In my opinion, the differences largely stem from how far away one thinks legal education is from a reasonable price and from a reasonable balance between students and jobs.
In the rest of this post, I respond to three of the solutions adopted by Northwestern to combat the problems facing law students, recent graduates, and the legal profession. However, Dean Rodriguez’s letter could have been written by any number of law school deans, faculty members, or trustees. The applicant market has forced schools across the country to cut class sizes, increase tuition discounts, and stop unrestrained budget expansion. Credit is due when schools move in the right direction, like when a school cuts enrollment because there aren’t enough jobs or because the school refuses to admit students who are unlikely to ever pass the bar. However, the motivation is never solely noble; among other vanity measures, schools want to maintain their U.S. News ranking. It’s important that decisions like Northwestern’s receive in-depth analysis and be challenged beyond their glossy exterior.
Class Size
Legal education is in an interesting place when an elite law school like Northwestern reduces class size due to a weak entry-level hiring market that cannot absorb all of its graduates. Each school needs to do its part to reduce size, and it appears that Northwestern’s contribution will be about 12-15% over a three year period. Compared to the incoming class of 2013 (274 students, enrolled in 2010), Northwestern’s incoming class of 2016 (enrolling in 2013) will be roughly 235-240 students. Northwestern has publicly set a baseline for class size reductions for schools of its kind. I’d say it amounts to a challenge to schools that do not have job outcomes like Northwestern to justify why they do not follow suit. For schools like Northwestern and its peers, they need to continue to assess whether current cuts suffice.
Of course, if a school reduces the number of people it charges, it needs to cut expenses and/or increase revenue.
A “Moderate” Tuition Hike
Rodriguez takes a page out of the higher education administrator’s playbook when he talks passively about tuition increases, as if they just happen to schools. According to this play, schools simultaneously deserve credit for restraint and sympathy for having to raise tuition. One current Northwestern student sarcastically thanked Rodriguez for “tell[ing] us how lucky we are that the school is taking more money from us, but [] not as much as they could be taking.” That the increase is in line with expected inflation and better than peers is supposed to be a consolation. Students do not see it that way.
| Increase | |||||
|---|---|---|---|---|---|
| Tuition | $ | % | CPI | x inflation | |
| 2004 | $35,896 | ||||
| 2005 | $38,372 | $2,476 | 6.90% | 3.40% | 2.03 |
| 2006 | $40,680 | $2,308 | 6.00% | 2.50% | 2.41 |
| 2007 | $42,942 | $2,262 | 5.60% | 2.80% | 1.99 |
| 2008 | $45,332 | $2,390 | 5.60% | 3.80% | 1.46 |
| 2009 | $47,472 | $2,140 | 4.70% | -0.40% | -11.8 |
| 2010 | $49,714 | $2,242 | 4.70% | 1.60% | 2.95 |
| 2011 | $51,920 | $2,206 | 4.40% | 2.90% | 1.53 |
| 2012 | $53,168 | $1,248 | 2.40% | 2.10% | 1.14 |
| 2013 | $54,763 | $1,595 | 3.00% | 3% | 1 |
| Total | $18,867 | 52.56% | 20.80% | 2.53 | |
My criticism is not directed at Rodriguez alone. The law school dean has less responsibility than one might expect and a variety of factors go into the nominal tuition rate–how many factors and to what extent each factor impacts the final number depends on the school. Nevertheless, somebody or a group of somebodies at Northwestern is responsible for a price point that continues to trend in the wrong direction. The appropriate next step for Northwestern stakeholders is to wonder why a law school representative–at any school, law or otherwise–would find it distinctive to talk about an increase of “only” three percent. Rodriguez’s letter stipulates that Northwestern is part of the solution, but its supposedly-progressive policies showcase what’s truly wrong these days in higher education.
But fear not, to temper the tuition hike even more, the school can increase its financial aid awards.
Tuition Discounts
Financial aid sounds completely benevolent. After all, it’s “aid” that helps all but the very wealthy afford to attend school. The term refers to student loans (at exorbitant rates), as well as merit and need-based scholarships. The latter category is an expenditure like faculty salaries or janitorial services. While scholarship money sometimes comes from limited purpose endowments, they’re usually tuition cross subsidies. That is, a scholarship for one student comes from the tuition revenue of all others. Need-based scholarships are scarce, so a huge chunk of scholarship expenditures comes from the tuition revenue from the students least likely to succeed. These students subsidize the students with the best incoming LSAT scores and GPAs (i.e. those most likely to succeed).
This translates to something far less noble than a solution to the soaring cost of a Northwestern education. Like almost every other law school, the school has chosen to expand its budget to buy credentials to continue its participation in the U.S. News charade. Who pays for this? The incoming 1Ls who pay more than the average price paid, current 1Ls, current 2Ls, and the alumni that Northwestern plans to obtain “external funding” from to recoup lost (and apparently necessary) revenue from class size reductions. At a certain point, if it hasn’t already happened, alumni will simply refuse to cover the difference and wonder why the budget must grow to provide a sound legal education. As mentioned previously, students already wonder.
Digging into Northwestern’s three solutions, even if presented as non-exhaustive, takes some polish off of Rodriguez’s letter. These are conscious spending decisions dressed up as solutions to various aspects of the legal education crisis that’s hitting even students at elite law schools. Unfortunately, continuous boasting from law schools about how they’re ahead of the curve on reform, when their solutions can only hope to make tiny dents into the legal education crisis, proves how far we are from affordable legal education that provides entry into the legal profession.
Letter from Rodriguez (emphasis mine)
During the past year, we have met in various venues and with a multitude of stakeholders to discuss the challenges facing legal education today, all of which are receiving due attention in the media and blogosphere. Most notably, over the past few years a decline in hiring at firms and the outsourcing of certain types of legal jobs have led to fewer opportunities for law school graduates. Further, too many students graduate with student loan debt that seriously affects both their career choices and their quality of life. And fewer people are applying to law schools nationally (20% fewer this year and an estimated 38% decline since 2010). Northwestern has not faced the same level of decline as other schools, nor have we suffered as greatly from the decline in legal positions as most other law schools. We are not immune, however. And we are not going to ignore the ways in which the legal economy affects our alumni, current students, and prospective students.
This significant shift in the legal economy presents real challenges. It also presents real opportunities. Informed by our culture of innovation and with the creative work of our faculty, students, and staff we will craft strategies, big and small, to meet the challenges facing legal education so that we will continue to thrive in the years to come. The strategic planning process, which is actively underway, will help shape curricular and external relations strategies to help propel us to the next level of achievement and reputation. Meanwhile, we will carry out three important first steps with an eye toward addressing these challenges. These steps result from several months of deliberate analysis and are, quite properly, focused on protecting and enhancing our reputation and reducing financial burdens on our students.
First, we will implement a modest reduction in the size of our traditional JD program: approximately 10% or 20 to 25 fewer entering students in 2013. As we become leaner, this modification also provides an opportunity for us to further enrich the strong and close-knit sense of community and camaraderie for which we are known.
Underlying this decision is the match-or, if you will, the mismatch-between the number of JDs who graduate each year and the actual demand the legal economy is creating and can sustain. Earlier this year the Bureau of Labor Statistics predicted that the economy will generate approximately 75,000 new legal jobs in the next decade while ABA-approved law schools are graduating more than 40,000 students annually. The specifics are debatable but the big picture is credible, and law schools must take heed and act in strategically responsible ways.
Second, we will continue to moderate our tuition increases. JD program tuition for the 2013-2014 school year will once again rise by just 3%, matching last year’s increase which was our smallest in more than 40 years and a rate that coincides with historical measures of inflation. Last year, this modest increase was at the very low end of the spectrum for top law schools. We expect that this will be at the low end this year as well.
Third, we will increase our total investment in need- and merit-based financial aid for entering students and in our LRAP program for graduating students by at least 25% during the next two years. This commitment, along with other measures we will explore, and our conservative approach to tuition increases going forward, are manifest efforts to limit the rising cost of a Northwestern legal education and corresponding burdens of student indebtedness.
Finally, we will look closely at managing more conservatively the expenses within the Law School, investigating ways we can repurpose dollars toward more efficient and efficacious methods of instruction. No part of the Law School will be immune from this careful review. For years, we have been asking students to make sacrifices by the tuition we charge and the debt undertaken; as faculty and staff of the Law School, we need to be prepared to make these sacrifices ourselves. While we look at cost-saving measures, we will be guided by answers to this overriding question: “Does this request for additional expenditures further directly the goals and objectives of our academic program?” That all said, we are not going to shrink precipitously the size of the Law School budget so as to impair the quality of our academic program. Indeed, due to the prudent and forward-thinking budgetary and contingency planning by our administrative team, we will be able to carry out these adjustments without the need to implement any major cuts to our operating budget. In the long run, however, we will need to pursue ambitiously alternative sources of revenue and, in particular, we will need to secure significant external funding, at even higher levels than before, through the generous financial support of our alumni and friends. This, too, we will do.
These changes are no panacea and no doubt there will be further adjustments down the road. Yet, present times call for these actions which, when implemented collectively, tangibly begin to address the convergent challenges facing all law schools. At Northwestern Law School, we know that a first-class, innovative legal education need not be provided with insufficient regard to students’ economic circumstances. We can be great and efficient, elite and compassionate.
Our Law School provides an exemplary legal education. Our graduates have been remarkably successful at lucrative and influential jobs around the globe. Supported by our community and our culture of innovation, we are prepared to confront these issues, and we will emerge from this era well ahead of the curve.
Thank you for all you do for Northwestern Law School.
About Law School Cafe
Cafe Manager & Co-Moderator
Deborah J. Merritt
Cafe Designer & Co-Moderator
Kyle McEntee
Law School Cafe is a resource for anyone interested in changes in legal education and the legal profession.
Around the Cafe
Subscribe
Categories
Recent Comments
- on Scholarship Advice
- on ExamSoft: New Evidence from NCBE
- on COVID-19 and the Bar Exam
- on Women Law Students: Still Not Equal
- on Ranking Academic Impact
Recent Posts
- The Bot Takes a Bow
- Fundamental Legal Concepts and Principles
- Lay Down the Law
- The Bot Updates the Bar Exam
- GPT-4 Beats the Bar Exam
Monthly Archives
Participate
Have something you think our audience would like to hear about? Interested in writing one or more guest posts? Send an email to the cafe manager at merritt52@gmail.com. We are interested in publishing posts from practitioners, students, faculty, and industry professionals.