American Law Schools: The New Economic Realities

Lawyers produce the invisible infrastructure of life in all modern societies. This home is mine, that car is yours, you can't take that property, she is entitled to that dividend, he earned that wage, your doctor can not disclose that condition, the police can not examine the contents of that car, his insurer must cover the treatment, they have a right to bargain collectively about their working conditions: all those claims presuppose legal rules, rules that lawyers typically wrote, and rules that they help enforce. Civilization does not exist without lawyers, however mundane their tasks may often be.

In the United States, law schools offer a three-year program of post-graduate education leading to the J.D. degree, which permits students to sit for the bar examination, and be admitted to the practice of law. The American system is only one approach, even in the economically developed, Western democracies. Most European countries, for example, offer law as an undergraduate degree, followed by a period of apprenticeship with experienced practitioners, and then full admittance to legal practice. Salaries for newly minted law graduates are quite low -- lower than in the United States -- and then rise, and most who study law at university do not actually practice it.

By contrast, until relatively recently, most newly-minted lawyers in the United States found employment in the legal or related professional sectors, and those who graduated from the ten or twenty leading national law schools, or who graduated at the "top of their class" from the more regional ones, earned very high private-sector salaries early in their careers: six figures at least, climbing within 15-20 years to seven figures for those particularly successful.

Money has taken over much of the practice of law in the United States. The American Lawyer magazine ranks law firms by their revenues and profitability. U.S. News & World Report -- a news magazine a generation ago, and now merely a website that ranks anything that can be ranked -- began evaluating U.S. law schools in the late 1980s. The driving force of their rankings, as numerous critics have noted, is money: how much money is spent per capita on education. (My institution, which ranks 4th currently, would rank 1st if my dean would only double faculty salaries!) The dramatic increase in law school tuition, partly attributable to the general financial pressures on institutions, like universities, that do not achieve productivity gains through technology, is also partly due to the perverse U.S. News incentive to spend, spend, spend.

U.S. News also purports to "measure" employment outcomes, though only in the sense of asking the schools to self-report how their graduates fare. Given the media frenzy that surrounds the U.S. News rankings each year, it was predictable that schools would massage the data to over-state the outcomes -- in a handful of cases, even hiring their own graduates as library assistants to boost the employment numbers! As I wrote a decade ago, the employment statistic for most schools published by U.S. News "should be treated as essentially fiction: it may have elements of truth, but basically it's a work of the imagination."

Nonetheless, the status quo in American legal education hummed along quite well for several decades -- most graduates of accredited law schools passed the bar, most found paid work as lawyers, and most fared far better, financially, than those who did not get law degrees. But two events in the last eight years unsettled the status quo, one familiar, one less so.

The familiar event is the collapse of the global capitalist system in 2008, which soon spread to the legal sector, which entered its own severe recession. Less familiar is that in 2005, Congress overhauled the bankruptcy laws to make them much harsher for debtors and much friendlier to creditors; among the changes, no student loans were dischargeable in bankruptcy any longer, except in extraordinary circumstances. The combination proved toxic for many American law schools. Suddenly, substantial minorities of law school graduates were unemployed, thanks to the recession, and many were saddled with significant debt without any recourse of relief in bankruptcy.

The situation came to public attention when, in 2011, Senators Barbara Boxer (D-CA) and Tom Coburn (R-OK) began challenging the American Bar Association about the accuracy of employment data reported by ABA-accredited law schools. The ABA had been derelict in its duties for far too long, and there is nothing like stern reprimands from U.S. Senators to focus the attention. Soon enough, the ABA mandated improved employment data reporting by law schools, which made clear how poorly graduates of some law schools were faring during the recession. Around the same time, the New York Times began running a series of front-page stories about the collapse of the job market for new lawyers and the staggering debt loads some were carrying.

The wave of unfavorable publicity had predictable consequences. Applications to and enrollment in law schools entered a steep decline (they are down a third since roughly 2010). Law schools began reducing tuition and cutting faculty. The American Bar Association convened a committee to make recommendations about the "future of legal education." Critics suggested that law school could be two years, instead of three; some suggested making it an undergraduate degree, as in Europe.

None of this was surprising: law school had become very expensive; the legal job market was in recession and that fact was now front-page news; and some graduates now faced mountains of debt without any hope of digging out. The steep decline in applications was a sensible "consumer" response to a downturn in the legal sector. (Ironically, it may have become too steep: we are on track to have more jobs than graduates seeking work by 2016, according to The National Jurist.) What was surprising was a new "meme" that took hold in cyberspace: that this economic catastrophe was actually the fault of law schools and law professors! I return to that topic in Part II.