What Should Law Schools Maximize, and Who Decides?

Dave Hoffman

Dave Hoffman is the Murray Shusterman Professor of Transactional and Business Law at Temple Law School. He specializes in law and psychology, contracts, and quantitative analysis of civil procedure. He currently teaches contracts, civil procedure, corporations, and law and economics.

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8 Responses

  1. Bill Henderson says:

    Dave, thanks for posting this. Alas, I think I am being misunderstood because I failed to fully flesh out my thoughts. My fault.

    Right now, all of higher education is financed by the federal gov’t through loans — on terms the private banking sector, which has been muscled out of the market, would likely reject. They would reject it because the gov’t is retaining way too much risk. This is actually worse than socialism because it is government support with no cost containment.

    The only way this “system” works is higher productivity (and hence earnings) of college and professional school grads. So, the educational quality actually has to be very very good; better than in the past. As I said, “Our graduates will actually have to think, collaborate, communicate and problem-solve at a very high level.”

    I don’t know how this is done except by allocating loan financing dollars to institutions where the graduates actually repay their loans. So a higher education institution can, in theory, thrive, by making education its mission. Yes, the elite schools would benefit and be favored; so what. it would also enable a new model of higher ed tied to truly value add education — if you are not a elite school, that is the only method of survival. The current model is about maximizing prestige, largely presumed to be through research. Economic productivity is presumed to be a positive externality. It worked well for the 20th century; it is becoming unsustainable in the 21st century.

    My post does not pose any central planning recommendations. We are on a trajectory at least as bad a central planning because the current “system”, directed entirely by the federal government, indentures a whole generation of young people and will eventually bankrupt the country without getting in return higher quality human capital. Loan risk analysis on repayment and politics should never, ever be combined. But that is where we are at.

    Who decides what to maximize? Dave, this is the wrong question. This is about balancing a checkbook. It is unsustainable to pay huge sums of money, through debt on young people, for a education system that it not tied, through some sort of feedback loop, to productivity and innovation. Either education costs a lot and it produces productivity gains, or it costs less because it is a luxury good that we cannot afford in a globalizing world where we compete with China and India. I am writing descriptively here, not normatively.

    Law professors can help “decide” by looking at this matter seriously. If we treat it like an ivory tower debate — it surely is not — we will be its victims. Law schools are the bleeding end of this problem because our education is so expensive and so specialized. The government is holding our student’s debt. Eventually they will pull the plug if law school loans are, functionally, grants to students because the loans don’t get repaid.

    I really don’t think law professors understand how bad the trendlines are. Law office jobs peaked in 2004. LPOs and other legal vendors, financed by non-lawyer money, have exploded and are going at 30% a year. 2013 will be the all-time peak year for the number of law school graduates.

    This is train wreck in the making. Bill H.

  2. Dave Hoffman says:

    Bill,

    Thanks for the reply. So as I understand you, the federal government’s financing would depend on repayment. That’s quite different from what I though you were writing, which is that the federal government would make financing turn on a set of accreditation standards (a substantive vision of what the federal government thought was an appropriate legal education).

    I have to say I disagree with you that the “who decides” question is academic or not useful to ask. If the entity deciding is the Bar or the Federal Government, then we’re going to get a sterile, incumbent protecting, system. Given the mature to contracting market that you describe, it matters a great deal whether we’ll all be forced to follow one model, as I believe your initial post indicated would be appropriate.

  3. Milan says:

    Bill and Dave –

    Thank you for this exchange. There has been a great deal written about the “law school tuition bubble,” and Bill seems to suggest here that law school reform will come because federal financing of higher education cannot continue in its current form. However, it seems to me that a mere rise in default rates in and of itself will not necessarily bring the whole system crashing down. My understanding is that the federal government is able to generally recover the vast majority of monies paid out even on defaulted student loans. http://online.wsj.com/article/SB10001424052748704723104576061953842079760.html. And, as I believe Bill has noted in some of his previous work, while default rates have risen, they remain relatively low (particularly for the graduates of professional schools).

    None of this is to deny the human cost of massive loan debt on graduates, but many of the factors that make student loan debt so burdensome (e.g. that it cannot generally be discharged in bankruptcy) might make the system relatively sustainable financially.

    The bright side is that there is now widespread awareness that the cost of a law degree far outpaces its cost, and 0Ls seem to be far more cost-conscious. This will likely produce positive changes in the way law schools operate even in the absence of student loan reform and/or decisive action by the ABA.

  4. Anon says:

    Henderson asserts that things like income-based repayment “will eventually bankrupt the country without getting in return higher quality human capital.” Had we listened to voices like his in the 1980s, perhaps we’d have invested massively in closing down all the Chinese language departments in the US (who’d trade with that basket case) and open Japanese language ones.

    Moreover, I can think of about a dozen federal programs with ten times the budgetary impact, and ten times less value, than education subsidies, including legal education subsidies. Is Henderson familiar with DOD, DHS, or other budgets? How does the amount of money “lost” in IBR compare with the money lost in the estate tax repeal, or to shady contractors in Iraq? Would it be even a rounding error in a Pentagon audit?

    I don’t think alarmist commentary from Henderson stems from a sober consideration of government budget priorities (let alone a moment’s reflection on how low taxes have gotten for corporations & the very wealthy). Henderson wants more “productivity and innovation” from law schools, but also wants them to have far less money. (For example, as Hoffman has pointed out many times, clinics cost a great deal.) He also appears to have little to no understanding of the intrinsic value of scholarship that might help us understand our legal system, or re-interpret laws to do justice to groups slighted in the past. Can he quantify the value of such endeavors?

    Regardless of all that, Henderson reminds me of the person who sees a mob coming and then tries to be the drum major of the parade. Everybody knows all the schools are cutting class sizes and offering more scholarships, whatever the “sticker price.” A combination of market and ranking forces is doing that, not his curmudgeonly laments that a program that is a tiny fraction of the federal budget will “bankrupt the country.” That kind of rhetoric is laughable.

  5. mls says:

    Yeah, what good possibly go wrong with the federal government offering generous loan subsidies unrelated to the borrower’s ability to repay?

  6. Morse Code for J says:

    Re: the WSJ article, I think it’s worth pointing out the following: (a) the Department of Education expects to collect 85% of dollars lent to students, but does not say on what sort of timeline it expects to do so; (b) it does not say whether “default” extends beyond those few students who simply aren’t paying anything and haven’t signed up for IBR or forbearance or other programs that allow you to pay zero based on your income while remaining in good standing with the Department of Education; (c) the Obama Administration is likely to err on the side of optimism when it comes to estimating student loan programs’ solvency.

    Additionally, student loan defaults don’t need to pose an existential threat to the economy or the national credit in order for Congress and the White House to do something about them. If unhappy, IBR-enrolled, tenuously employed law graduates far outnumber (less un)happy, full-repayment, adequately employed law graduates, and Republicans use IBR and default numbers to beat up on the Department of Education’s loan programs, exactly who is the constituency who is going to stand up for you when the choice to modify federal student aid or cut something else comes?

  7. Milan says:

    Morse Code –

    Fair points. But the nonpartisan CBO is currently projecting the direct student loan program to be profitable well into the future (although profits are expected to fall). In light of this, I am skeptical that change in the program will come anytime soon. To the extent that there is change I expect it to be primarily addressed at for-profit colleges, which appear to have substantially higher default rates among their graduates. Of course, it is hard to predict the politics of these things.

    My personal view is that change will have to come from law schools themselves, and schools that are able to freeze tuition while offering the same (or better) education are going to have a competitive advantage in the new marketplace. And there is some evidence to suggest that prospective law students are becoming more cost conscious.

  8. A.J. Sutter says:

    A problem with “economic productivity” as a measure is that it’s content-neutral. It’s like the old saw about if you want to raise GDP, the government should smash everybody’s windows from time to time, so that people will have to go out and buy new ones.

    Suppose law school A produces a lot of students who become corporate defense lawyers specializing in preventing individuals from getting insurance benefits they might deserve, from getting recourse for unfair terminations of employment, etc. — or, if some historical license is allowed, suppose it were the 1980s and the school cranks out plaintiffs’ lawyers specializing in securities fraud claims. And suppose law school B cranks out Legal Aid lawyers and community organizers. Wouldn’t law school A win? And wouldn’t there be a lot of pressure on B to become more like A?