Saturday, March 24, 2012

The Quickly Exploding Law Graduate Debt Disaster

Brian Tamanaha

The average indebtedness figures for 2011 law graduates are stunning. Last year, 4 law schools had graduates with average debt exceeding $135,000. This year 17 law schools are above $135,000. Last year the highest average debt among graduates was $145,621 (Cal. Western); this year the highest average debt is $165,178 (John Marshall). Below are the 20 schools with the highest average law school debt among graduates (these figures do not include undergraduate debt).

California Western $153,145
Thomas Jefferson $153,006
American $151,318
New York Law School $146,230
Phoenix $145,357
Southwestern $142,606
Catholic (DC) $142,222
Northwestern $139,101
Pace University $139,007
Whittier $138,961
Atlanta's John Marshall $138,819
Pacific (McGeorge) $138,267
St. Thomas (FL) $137,721
Univ. San Francisco $137,234
Vermont Law School $136,089
Golden Gate $135,645
Florida Coastal $134,355
Stetson $133,082
Syracuse $132,993

What's remarkable is that the majority of graduates from these law schools--with the exception of Northwestern--do not obtain jobs with salaries sufficient to make the monthly loan payments due on the average debt. At some of these schools 90% or more of graduates with debt do not earn enough to make the loan payments on this level of debt (not all indebted students will carry the average debt).

Consider Thomas Jefferson, with average law graduate debt of $153,000. According to statistics provided by the school, only 33% of graduates landed jobs as lawyers in 2010. Most of the graduates who obtained lawyer jobs earned around $60,000 or less. (This estimate is based on the fact that the bulk who landed these jobs worked in firms of 2 to 10 lawyers; the salary figures supplied by TJ are based upon 16% reporting, and consequently are unreliable.) The placement numbers for the class of 2011 will be the same or worse (only 33% of Thomas Jefferson's 2011 graduates passed the California bar).

A simple calculation shows that many TJ graduates are in severe financial straits. Let's assume that taxes will take 30% of the graduate's $60,000 pay, leaving net monthly income of $3,500. The monthly loan payment due on $153,000 debt is $1,800; rent for a modest one bedroom apartment in San Diego is $1,200--totaling a combined outlay of $3,000. This leaves the graduate with $500 a month to spend after making rent and loan payments. It is not doable. Graduates in this position will be forced to enter Income Based Repayment, a reduced payment program that helps graduates in financial hardship avoid default, but which has significant negative consequences of its own (in particular, the loan balance will quickly balloon and will negatively affect the graduate's FICO score).

This is not just about Thomas Jefferson, of course. Eight of the law schools on the above list are in the bottom tier of US News, and 16 of the 20 schools are outside the top 100. At a number of these schools only half or fewer of the graduates will have obtained full time jobs as lawyers (these statistics should be available soon), and most of those who land lawyer jobs will earn $65,000 or less. At these debt levels, only graduates who obtain NLJ 250 jobs can manage the monthly loan payments--and on the above list only Northwestern places a significant percentage of graduates in these jobs.

Thousands of 2011 law graduates across the country will not earn enough to manage the debt they incurred to obtain their law degree.

When will law schools decide that they cannot continue to inflict ever increasing levels of unmanageable debt on their students? At the very least, the admissions offices at law schools across the country should explicitly warn students that anyone who expects to incur law school debt above $100,000 will likely suffer financial distress upon graduation unless they land a NLJ 250 job or a public service job that qualifies for reduced loan payments--and admitted students should be told that relatively few graduates get these jobs. Unfortunately, we cannot count on law schools to provide this message--which, if effective, would result in some schools closing their doors for lack of enough paying students.

This financial insanity will not stop until significant changes are made to the federal student loan program.


Post secondary education has become a small but not insignificant source of systematic credit growth. In order for the the economic and thus political system to operate the US must have credit expanding approximately $2 trillion a year.

After the 08 crisis credit demand and supply collapsed, except for governments. In the case of government it stepped up to the plate to borrow and lenders were eager to lend at super low rates. This still applies as of the last quarter of 11 the Treasury was still responsible for 70% of all non financial credit.

So back to education loans. Because they often have implicit government guarantees, like the GSE's, the supply of credit for education loans has continued to expand. So in a way colleges and universities, public and private have been in a bubble akin to the housing bubble. The benefits to the institutions are irresistible and so there is no way they will try to reign in costs and thus tuiton. Not as long as students are willing and able to borrow.

Here is the link to the non-paywall listing:

I question the John Marshall listing though--it's a bigger increase from last year than I would have expected, and I don't believe that only 50% of its graduates have loans. Even if they were giving generous scholarships to applicants with an above-median LSAT, you'd think that more students would be taking on some debt for living expenses. Cal Western and TJ seem right, though.
Also, IBR (even without public service) will lessen the immediate repayment burden for most students, but at significant cost to the taxpayer.

When the government subsidizes demand and supply remains the same, costs will rise as a matter of course.

If you want lower tuitions costs, drop the subsidies significantly. Of course, is will me less compensation and more classroom work for professors.

Thank you for this post, Brian.

Do you have any thoughts as to why students have kept flocking to these schools even though there are almost always less expensive alternatives that would require students to assume less debt?


You are right that the 50% in debt for JM is odd and might be an error.


I can only think of one answer to your question. These students were bent on going to law school no matter what, and these schools were the best ones they got into in the cities they hoped to work in. They did not take a close look at the economics of the situation, and law schools have been posting misleading employment numbers.

Keep in mind that 2011 graduates entered law school in 2008, well before the drumbeat of bad publicity about law schools. Prospective students today will be better informed about the financial risks. But I suspect they will continue to enroll no matter how poor the odds of success.

And now law schools are using IBR to tell students they won't have to pay back the scary loan numbers in the end if their high-risk gamble does not pay off.


Milan, my hypothesis is that current loan policies make students largely non-price-sensitive (but still highly prestige sensitive), so that they are willing to take on more debt to go to a slightly higher ranked school (even when they have to move to do it--while many stay local, many do not--and the Cal Westerns/TJs/Florida Coastal type schools do get lots of non-local students). As others have convincingly shown, this is rarely a wise decision.

I've argued that the prestige hierarchy will change dramatically if (when?) loan limits are put into place:

While not focusing on law schools, today's Boston Sunday Globe Ideas Section, on page 1, features "Why is college so expensive? A new study points to a disconcerting culprit: financial aid" by Paul Kix. Reference is made to the Bennett Hypothesis, named after William Bennett who had served as Secretary of Education in the Reagan Administration.

So back to education loans. Because they often have implicit government guarantees, like the GSE's, the supply of credit for education loans has continued to expand. So in a way colleges and universities, public and private have been in a bubble akin to the housing bubble. The benefits to the institutions are irresistible and so there is no way they will try to reign in costs and thus tuiton. Not as long as students are willing and able to borrow.

Cuurent law school loans are overwhelmingly not just gurenteed by the federal government but actually provisioned directly by the department of education under the Stafford and PLUS Grad loan programs.

It is a lose-lose situation. The students are saddled with crushing debt burdens and the federal government is left owning debt with high non-payment rates much of which will have to be written off altogether in 20 years under IBR.

The only people who come out ahead are those that work for these law schools.

Brief comments:

I agree with the analysis - with these additional points.

1. Even if students could pay their loans by obtaining high-paying jobs, the rising expense of legal education could weaken the provision of services to indigent and less fortunate clients (and other vital settings with lower salaries).

2. Even if students could pay their loans by obtaining high-paying jobs, the enormous costs of legal education would still have differential effects for students whose families have relatively less wealth (not just income).

Poor students often leave law school with demands for assistance from friends and families. Higher salaries do not always translate into more personal gain.

Ancillary but inevitable damage: that debt won't be paid off working public interest law. Corporate law is more like it.

So even those grads who wanted to do some good in the world, can't afford to.

The only one of those law schools anyone has any business borrowing money to attend is Northwestern.

Brian -- Thanks for your post on such an important conversation. I posted some thoughts over at the Literary Table suggesting some solutions -- like Law School internalizing debt of unemployed students and broader reporting windows.

Sue, sue, sue! Let's foment a mutiny on the pirate ship! A feeding frenzy of cannibalistic sharks!

It's high time the law schools got a good hard taste of what the rest of us have suffered at the hands of the rapacious ambulance-chasing filth they excrete. There is nothing so heartwarming as seeing lawyer scum in misery.

My fondest wish is to make it onto a jury for a class action lawsuit against the legal establishment. I'd lie through my teeth about my lack of bias, then lead a runaway jury to a RICO award that would bankrupt three quarters of the law schools in the country and annihilate the endowments of the rest.

horrifying that my alma mater leads the country in turning out debt slaves. I got out in the 80's owing $9300.

Bart's right that subsidies just drive up costs.

I suspect my solution would be different than his, but here goes-- I think we should eliminate all subsidies from PRIVATE schools and make PUBLIC schools free (and use the money saved by not subsidizing private schools to build more of them).

This would force private schools to cut costs substantially, but it would also force textbook printers, producers of educational materials, computer services that sell to the educational market, etc., to price closer to marginal cost as well. And at the same time, we'd get a lot more bang for our buck by funding public education.

Student loans debt now totals over $1 trillion.

It is reportedly growing at $40 billion a month.

Of the loans that are now in the repayment period as much as 27% is now 30 days past due, or more of course.

Not to worry there of course, for the lenders, the government has their back.

So students will be long term debt slaves, or deadbeats, and taxpayers will bail out the lenders.

I hope this all sounds familiar. Of course I am not talking about macro economic issues, not educational ones per say. But all the forces which encouraged the housing bubble are on board with this education bubble. Remember we are talking $40 billion a month into post secondary schools that may not otherwise be going there. Thus a bubble has been created.

This will end badly.

What will happen when most new JDs have so much student loan debt that they will not be able to pass character and fitness reviews? What will happen when the act of financing law school disqualifies law school graduates from legal practice?

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