Cutting Law School by 1 Year Could Worsen Law Grads' Finances

(Note: I admit, this post really has nothing to do with technology.  But it might still be interesting to anyone with an interest in education, or graduate school.)

In comments that most non-lawyers probably glossed over, President Obama commented today that "law schools would probably be wise to think about being two years instead of three."

Obama made the comments during a pro-student tour in which the President is taking aim at the high and continually rising costs of education.  The logic seems sound -- if a legal education costs $70,000 per year (accounting for inflation and interest), then two years in law school costs $70,000 less than three years. If you then assume that these hypothetical students could work during what would be their third year of law school, this puts the students $100,000 or more ahead of where they would be.

Anecdotally, this proposal seems to be extremely popular, with lawyers and law students on various social networks decrying the uselessness of the third year of law school.  (A popular follow-on proposal is "add an optional third year" or "get an LL.M. if you disagree".)  Indeed, Obama himself was a law professor, and other law professors have made this proposal before.

Surely, it can't be that easy.

There are two basic assumptions underlying the proposal that 3L year should be eliminated: 1) that students could be doing something economically advantageous in that year, and 2) that the economic advantage would outweigh the intangible benefits of spending an extra year in the classroom.

Again, at first glance, students finishing law school after two years seem to come out something like $100,000 ahead of those finishing in three years.  But there are a number of problems with this assumption, and complications to the model.

Law schools might raise tuition.  Assuming that college graduates continued to apply to law schools at the same rate, in order to keep up revenues, law schools would almost certainly increase tuition.  The reason is this: If law school matriculation stays steady, but law school length is reduced by 1/3, then the total number of students enrolled in law school at any given time also falls by 1/3.  [Example: If 1000 new students start law school in the US every year, and law school lasts 3 years, then, in any given years, there are 1000 1Ls, 1000 2Ls, and 1000 3Ls, for 3000 total students.  If the third year is eliminated, then in any given year there are 1000 1Ls and 1000 2Ls, for a total of 2000 nationwide students.]  Another way of looking at this is as follows: The same number of students graduate from a two-year law school each year as a three-year, but they've only paid the law school 2/3 the tuition they would in a three-year system.

One solution would be for schools to downsize.  With only 2/3 the students, you only need 2/3 the professors (and 2/3 the chairs).  But law schools won't be able to cut their operating budgets to 2/3 the size, because there are fixed costs that they won't be able to scale (and variable costs that don't scale linearly), like accreditation, facilities, and the Dean's salary (every school has one, after all).  So, if total enrollment falls by 1/3, but total costs fall by less than 1/3, then law schools will have to charge higher tuition to maintain their present revenues.

Lower-priced law schools might disappear.  What if schools don't want to raise tuition?  If a student's total lifetime tuition falls by 1/3, and schools do not want to increase individual students' tuition, then the only way to maintain revenue will be to enroll more students.  It's simple -- if the selling price of your commodity (in this case, a law diploma) drops by 1/3, and you want to keep revenue steady, then you need to sell 50% more of that commodity.  (Trust me, I did the math.)

But those extra students are going to have to come from somewhere.  If the number of law applicants nationwide stays steady, then those students are going to come from other schools.  And, overwhelmingly, they will come from lower-ranked schools.  It shouldn't be controversial to say that most students (though certainly not all), given the chance, will choose a school from a higher tier over one from a lower tier.  And it is easily confirmed that law school rankings correlate to tuition.

Highly ranked schools would probably have no problem filling their rosters from the rolls of lower ranked schools.  At a certain point, however, lower ranked schools -- which, remember, would already be losing 1/3 of their revenues -- would start bleeding students.  Some schools would be unable to operate without incurring fatal losses (again, there are fixed and non-linear costs in play here), and would go out of business.  (This happens more often than you think anyway -- here is a list of colleges which have closed for one reason or another.)

You could call this a market correction, if you wanted, but the fact is that if lower-tier schools started disappearing, annual tuition for some students would go up.  And two years at Harvard costs more than three years at UMass.

The law graduate glut could get worse.  There is, of course, one way that tuition could remain steady and law schools wouldn't have to close: Increase the number of total law students nationwide.

If every law school increased matriculation by 50%, then every law school could afford to stay open at its current tuition rates.  [To expand on our example from before, we would have 1500 1Ls and 1500 2Ls, for a total of 3000 students nationwide.]  That is, to keep enrollment steady, schools could increase matriculation across the board.  It is not difficult to imagine this happening -- if law school were cheaper by 1/3, more students would probably be interested or decide to attend.  (This, in fact, is a key point of Obama's education proposals -- decrease cost to increase access to education.)

But here's the problem: If matriculation increases by 50%, then the number of law graduates in each year will also rise by 50%.  (Let's ignore dropouts for a moment, and assume that 100% of all people who enter law school graduate.)  This would increase the number of fresh-out law graduates entering the work force each year by 50%.

Presumably, all of these graduates are going to want jobs.  But there is already a glut of law graduates -- nationally, there are two law graduates for every entry-level law job available every year.  If you increase the number of law graduates by 50%, then that ratio will increase to three graduates per job.  So instead of 1/2 of all law graduates being unable to find a law job, 2/3 of all law graduates would be unable to find one.  I don't think I need to explain how that would impact law grads' bottom line.

Law grads' earning potential could fall.  Assuming that a law graduate can find a job, he can usually command a fair salary.  The national average for entry-level law jobs in the non-profit sector ranges in the $40-50,000 area, and top corporate firms pay new associates as much as $160,000.

But, assuming there is any market aspect to salaries at all, those salaries are in part determined by the fact that graduates have three years of post-college education, and a certain debt level.  Decrease the education graduates have, and decrease the amount of debt a graduate has, and salaries will start to fall, because employers will want to pay less and someone will be willing to do the job for less.  (Lawyers rarely unionize.)  This problem would be further exacerbated if, as in the scenario immediately above, the number of law graduates suddenly jumped.

To be sure, one year of working is more lucrative than one year of paying tuition -- in that year.  But, depending on how much lower salaries were (especially if the graduate glut were to grow), salaries could stay depressed over several years of the graduate's career.  This is the exact reason why a bachelor's degree is worth more in earning potential than an associate's degree, even though it costs two more years of time and tuition.


So which of these things would happen?  Probably all of them, to some degree.  Law schools wouldn't suddenly raise tuition by 50%, nor would they raise matriculation by 50%.  But they would charge some more, and admit some more students.  Some schools would probably go out of business, and, in contrast, some more (but probably not 50% more) prospective law students would see the on-paper reduced cost and decide to take the plunge.  Increased number of graduates and decreased value of the degree would cause employers to lower salaries.  And what would all of these factors combined add up to?

There is no way of predicting that.

The average on-paper cost of law school would probably fall by some amount, but by less than 1/3.  No one can say how much, but it couldn't be more than 1/3 -- and, for some students, it might actually go up.  So the average debt of law graduates would probably fall by some amount, but not a dazzling amount. Is, say, $85,000 in debt better than $100,000 in debt?  All other things equal, yes, but if the graduate with the lower debt is less likely to get a job, and commands a lower salary when he finally does, his actual net worth might turn out to be lower five, ten, or even twenty years out from graduation.  Or it might be higher.  Whether it will be, and by how much, is something we can't possibly predict, because the calculation is subject to so many factors that prognostication is probably useless.  (I'm not an economist, but I guarantee you that you couldn't possibly get a room of more than, oh, about three economists agree to a simple yes/no answer to this question.)

So, finding ourselves completely unable to answer the question, "Is a 3L year economically advantageous?", what should we do?  And for that, we only have to answer one question: "Is 3L year worth anything to us?", and, if it is, there's no reason to give it up.

And here is where I will make my controversial claim:  If 3L year isn't worth something to you, then you're probably doing something wrong.

Education, in any discipline, is an incredibly unique thing.  For most of us, once our education is complete, and we enter our careers, we will never go back to that world.  (There are, of course, exceptions; one member of my law school class was retired from a previous career, and graduated law school at the age of 65.)  And after our education is over, we will never be an environment that develops and challenges us in the same way again.  No place encourages intellectual exploration in the same way.  At no point after our educations complete will the rewards for intellectual experimentation be so high, nor will the consequences for failed experiments be so forgiving.

All this may sound like high-flying ivory tower rhetoric, but I submit to you that we should want our lawyers to be Renaissance men and women.  Lawyers are the ultimate generalists, even within narrow practice areas; one day, your case may be about patenting circuit board design, and the next it could be about copyright in abstract art.  Not only that, but lawyers in a common law system (like the US system) have an incredible ability to affect the rights and obligations of citizens without the consent of voters, by litigating (and, in some cases, by being appointed to the bench as judges).  Intellectual curiosity, well-roundedness, and substantive flexibility should be highly prized in law school.

You may say, "I don't need more than two years in law school, because I just need to pass the bar to practice in [X area]," but the twists and turns in the career path of a lawyer can be mind-boggling, and, once a lawyer passes the bar, he can practice in almost any capacity (except patent).  The job of law schools shouldn't be to enable law students to pass the bar -- that's BarBri's (and Themis' and Kaplan's) job.  The job of law schools should be to encourage students to explore, respect, engage, and love the law.

My challenge to President Obama is this:  Do you really think access to law school should be greater?  Then keep your energy on lowering interest rates on student loans.  The rates for this year are nice, but the congressionally-set cap of 9.5% is absurd.  Strengthen the Income-Based Repayment Plan, and don't capitalize interest during periods of qualifying unemployment.  Unlike plans to fundamentally restructure education segments, we know this will lessen the burden of debt on students.  And strengthen federal hiring, which employs over 12% of all law graduates.