Balkinization: What Federal Loans Do for Law Students and Law Schools

What Federal Loans Do for Law Students and Law Schools

Brian Tamanaha

Federal loans for law students are justified as “providing access” to a legal career for the middle class and poor. That’s one side. When you examine how the funding operates, however, it becomes apparent that federal loans are an irresistible (and life-sustaining) drug for revenue addicted law schools.

When a student applies for a federal loan, the law school processes the application. Loans are granted by the government without any evaluation of the likelihood of repayment. Accordingly, a student at Thomas Jefferson Law School is treated exactly the same as a student at Harvard Law School, without regard to the fact that the former is far less likely to repay the loan.

Among the 221 graduates of the 2010 class of Thomas Jefferson, only 73 obtained jobs as lawyers. According to information provided by the school, the highest earners worked in private law firms, with a 75th percentile salary of $77,500 (only 12 of 55 graduates in private firms reported their salary). Based upon the numbers provided, and making a few reasonable assumptions, we can estimate that at least 80% to 90% of the class earned less than $77,500.

Now consider that the average debt of 2010 graduates of Thomas Jefferson was $137,000 (95% of the class had debt). The monthly payment for this debt is $1,600. Graduates must earn over $100,000 to manage this level of debt.

Thus, only about one third of graduates actually ended up as lawyers, and most of the graduates that landed lawyer jobs did not earn enough to manage the average debt of the class. It appears that a significant proportion of the class is likely to enroll in IBR, a federal program designed to help graduates in “financial hardship,” paying reduced monthly payments based upon a percentage of their income, with the loan forgiven after 25 years. That is what “access” to a legal career comes to for many unfortunate law graduates today.

Let’s now look at things from the law school end. From 2008 through 2011, Thomas Jefferson law graduates had a total combined debt over $100 million, nearly all of it federally guaranteed or directly borrowed from the government. How many students with positive outcomes did this money buy?

The combined debt of 2010 law graduates of Cooley was $91 million; at New York Law School it was $48 million; at Suffolk it was $46 million. Or take Florida Coastal. In 2008 the combined debt of law graduates was $28 million; in 2009 it was $33 million; in 2010 it was $45 million. Each year the enrollment went up, and the total debt with it. Four hundred students graduated in 2010—eight hundred new first years enrolled that August. One might guess what the combined debt of the class of 2013 will be.

We are talking about real money here—and nearly all of it goes directly from federal coffers to law school bank accounts. The students are conduits for the money. These student-conduits bear the burden of the loans in the first instance, and the federal government thereafter. The average debt of graduates at all of these schools was well above $100,000. Not all of this debt will be fully paid in the end. Law schools get their money up front.

This is not just about low-ranked law schools. In 2010, Georgetown graduates had a combined debt of $71 million, Harvard and American were over $50 million (G.W. just below that), with another half dozen law schools over $40 million. Remember, these amounts only cover a single year. High-tuition law schools with large enrollments collect a hundred million dollars of debt-based, government supplied money every two to three years. Law schools have been ramping up tuition and enrollment without restraint thanks to an obliging federal loan program.

Federal loans indeed provide access to a legal career for many, and that is important, although we must also be mindful of the poor results suffered by many individuals. Law schools, meanwhile, are engorging themselves on the federal loan program.

Also posted at National Law Journal's Law School Review

Posted 7:00 AM by Brian Tamanaha [link]

Comments:

Brian,
Do you have stats on the number of attorneys per capita in the U.S. from 2000 to date? How might such stats correlate with law school student loans over the same period of time?

When Congress was "debating" student loans, were questions raised that such might result in increasing college (and law school) tuitions? And what were the roles of higher education in limiting the bankruptcy remedy for student loans?

# posted by

Shag from Brookline : 7:39 AM

Shag,

You can find detailed statistics on this at Law School Tuition Bubble. The short answer is that a big jump in the number of attorneys per capita occurred in the 1960s and 1070s, and it continued to climb gradually through the 1980s. Then the per capita number held steady, and even slightly declined in the past decade, as the population increased faster than the number of new lawyers.

I recall a law review article (not at hand) written in the 1980s by John Kramer (dean of Tulane) that worried over whether the federal loan program would fuel tuition increases.

I do not know what role, if any, higher education played in limiting bankruptcy for student loans. The key element for the availability of private loans is the federal guarantee of the loans--which eliminates the risk of default for the lender.

For law students today, all of the loans are provided directly by the federal government (Stafford and GradPlus), cutting out private lenders.

# posted by

Brian Tamanaha : 9:27 AM

A basic supply and demand graph would suggest that that if you artificially increase the demand for a product by subsidizing it, the price of that product will rise.

We saw this with the government promotion and subsidy of Alt-A and subprime home mortgages starting in the late 90s, causing a spike in demand and a housing price bubble.

The fallout when the over-leveraged home owners defaulted and the government largely withdrew the subsidies for Alt-A and subprime home mortgages should be a warning to universities. The same thing will eventually happen with student loans.

# posted by

Bart DePalma : 10:12 AM

This comment has been removed by the author.

# posted by

jpk : 7:29 PM

A hallowed right-wing myth.

Reality of course has a well known liberal bias.

But please, do go on believing whatever you like. Don't let the facts get in your way. Freedom includes the freedom to believe nonsense.

# posted by

jpk : 7:30 PM

jpk:

The government's pressure on lenders to make Alt-A and subprime home mortgages and then its subsidy of Freddie and Fannie to purchase these toxic assets is well established. I recommend you read:

Peter Wallison's dissent from the Obama financial crisis whitewash. http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_wallison_dissent.pdf

Gretchen Morgenson and Joshua Rosner's Reckless Endangerment. http://www.amazon.com/Reckless-Endangerment-Outsized-Corruption-Armageddon/dp/0805091203

Liberal economist Raghuram Rajan's Fault Lines http://www.amazon.com/Fault-Lines-Fractures-Threaten-Economy/dp/0691146837

Both the Wallison report and the Mrogenson book are packed with primary sources you can also read.

Forget the myths you have been fed.

There has been no deregulation of home mortgage lending standards during our lifetimes. Indeed, there was no need for regulation because banks refused to accept the risk of making Alt-A and Subprime loans for decades until the regulators who are tasked with maintaining the viability of our financial system started pushing banks to make these loans in the 90s and provided them with a way to offload the risk onto the taxpayers by selling them to Fannie and Freddie.

Asset based instruments into which these high risk mortgages were bundled would never have failed absent the Alt-A and Subprime loan defaults starting in 2006.

# posted by

Bart DePalma : 10:34 PM

Paul Krugman has provided detailed responses debunking our yodeler's sources.

# posted by

Shag from Brookline : 7:43 AM

jpk:

Please do read Krugman's articles as well. When you compare the two, you will see just how thin is the defense of the government's role in creating the primary and secondary Alt-1 and subprime mortgage markets.

# posted by

Bart DePalma : 9:41 AM

A basic supply and demand graph would suggest that that if you artificially increase the demand for a product by subsidizing it, the price of that product will rise.

Bart's full of it about the subprime crisis, but he's right about this basic point. Basically, if you pour a lot of money into student loans and grants, accredited universities, which have an effective oligopoly, are going to pocket it by increasing tuition and fees. And that's what has happened.

# posted by

Dilan : 2:36 PM

Bart Bart Bart Bart Bart,

If you can read and follow this simple sentence, you'll be just fine:

"do go on believing whatever you like"

It is of zero interest to me whether you can.

# posted by

jpk : 5:15 PM

Dilan:

Your comment makes sense, but it is only part of the truth.

Let's set aside all the frills that prospective students/parents want and those demanded by the top-pick athletic recruits ("That other university has three Olympic sized pools!").

There is so much more to teach and so much more need (real in many disciplines) for technology, lab equipment, funds for student research, etc., than when I attended college that costs for universities ad colleges that want the best studets have gone up quite independently of loans and subsidies for loans.

We also face other costs that most institutions of higher ed did not face in the good/bad old days:

under-prepared students, students with a whole range of special needs (from physical accomodations to learnign accomodations), litigious parents, increasing numbers of students with psychological problems, demands that we 'prove' we are teaching students what we aim to teach them, and so on.

Faculty would, mostly, be happy to get rid of the high-cost athletics programs, to reduce the numbers of [well-paid] administrators, and to trim the 'frills.' But, I think, even many administrators feel caught up in a vortex of demands from various constituencies such that we must all always be doing more, improving, competing, whatever. THis drives up the price tag.

# posted by

CTS : 12:48 AM

CTS' point:

"But, I think, even many administrators feel caught up in a vortex of demands from various constituencies such that we must all always be doing more, improving, competing, whatever. THis drives up the price tag."

in the for-profit sector might result in creating competition at a lower price, perhaps leading to "creative destructionism." Should non-profit higher education institutions be sacrosanct?

I have heard that lobbyists employed by such non-profits pushing for student loans also pushed for making discharge in bankruptcy difficult in order to seal the deal. The institutions are clearly being subsidized. But in reality, are the students? At least homeowners with subprime mortgages may result in potential itemized income tax deductions serving as a form of subsidy, as well as a better chance at bankruptcy discharge.

Student loans made it easier for parents to push the expense of higher education onto their children. Some parents of course truly could not afford such expense. But many parents could have contributed, perhaps wishing to increase their retirement assets or to "live a better life" unburdened by such expenses because of the availability of student loans. I recall "the rule" of some of my peer group of parents: "We'll take care of college. Grad school is on your ticket."

# posted by

Shag from Brookline : 6:49 AM

JPK:

In that case, I suggest you avoid posting about facts of which you are ignorant and have "zero interest."

# posted by

Bart DePalma : 12:20 PM

So confused for so long -- perhaps you should be a Republican!

I didn't say I had zero interest in the facts. I said I had zero interest in your abilities. Such as the ability to read.

But I do wish you the best of luck in your fight against reality!

# posted by

jpk : 2:35 PM

Probably a better, at least a more plausible, explanation for the persistence of this right wing myth: here .

Summary: a fact inconvenient to the right wing is LESS regulation caused the financial crisis. So it's not that conservatives are idiots; by and large, they're not. But it's severely politically incorrect for them to admit facts that show bad things happening as a result of government inaction. So they pretend it was too much government interference.

# posted by

jpk : 3:17 PM

Federal student loans forgiveness is the name used when the federal government decides to cancel a complete educational loan or part of it under a variety of circumstances. If a former student who took advantage of a federal educational loan to fund his or her college or post-college education decides to undergo federal student loans forgiveness, he or she should pass a number of qualifications.

Pay day Loans

# posted by

Whitney09 : 4:09 AM