California Bar Journal
CBJ - February 2012 #01.
The Law School Bubble: How Long Will It Last if Law Grads Can't Pay Bills?
The California LawyerFebruary 2012The Law School Bubble: How Long Will It Last if Law Grads Can't Pay Bills?By William D. Henderson and Rachel M. ZahorskyFor Andrea, a past decision to ensure her future in law has left her in a stressed and distressful present. Concerned over how it might affect her job prospects, she would not allow use of her real name. And there is reason for concern: She's been laid off twice since her 2009 law school graduation, including from a position where she earned $20 an hour at a small firm practicing as a licensed attorney. For the 29-year-old, who's supported herself since college, the financial repercussions of law school may amount to the worst investment of her life, despite a degree from a second-tier school and a resume that boasts a position on law review and coveted summer associate positions.
"I deferred my loans because of economic hardship the first time," says Andrea, who borrowed nearly $110,000 to finance her education. "After that," she falters, "they might be in forbearance ... accruing interest ... I just don't know."
Andrea's situation is far from unique. In 2010, 85 percent of law graduates from ABA-accredited schools boasted an average debt load of $98,500, according to data collected from law schools by U.S. News and World Report. At 29 schools, that amount exceeded $120,000. In contrast, only 68 percent of those grads reported employment in positions that require a JD nine months after commencement. Less than 51 percent found employment in private law firms.
The influx of so many law school graduates-44,258 in 2010 alone, according to the ABA-into a declining job market creates serious repercussions that will reverberate for decades to come.
Moreover, lawyer salaries vary greatly across the country, with the top 35 legal markets sucking up 75 percent of the payroll (see "What America's Lawyers Earn," ABA Journal, March 2011). And the number of law office jobs in private practice peaked at 1.23 million in 2004 ("Paradigm Shift," July 2011).
Heavy loans now threaten to consume the future earnings and livelihood of the nation's young lawyers. Yet, even as the legal market contracts, more than 87,900 potential candidates vied for 60,000 seats at 200 ABA-approved law schools in 2011, according to the Law School Admission Council.
More than 78,900 have applied for 2012 spots, according to preliminary LSAC counts in November.
Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.
Very few critics, however, have examined the part played by the federal government through its student loan policies in creating a law school bubble that may be on the verge of bursting-one strikingly similar to the mortgage crisis that cratered the economy in 2008.
Direct federal loans have become the lifeblood of graduate education, and they shelter law schools financially from the structural changes affecting the profession. The bills are now coming due for many young lawyers, and their inability to pay will likely bring the scrutiny of lawmakers already moaning about government spending.
BUCKS BACK BOOKS
As student groups continue to lobby the federal government for increased transparency, the lawmakers are bound to ask a very simple question: Why should the U.S. government, through the Department of Education direct-lending program, continue to make billions of dollars of loans to law students when structural changes in the legal market suggest that a large portion will lack the earning power to repay those loans?
The answer to this question has potentially grave implications for legal education. Law schools-many for the first time ever-will become vulnerable to significant cuts in the amount of money available to students as Congress tries to hold the line on additional deficit spending.
"There were people warning about this 10 years ago, but a lot of people were not paying attention to it," says Phoebe A. Haddon, dean of the University of Maryland School of Law. "But debt wasn't as great as it is now, and the likelihood that people could repay tuition was built on a different financial structure of law firms."