31 March 2015

Law School Market Dysfunction and What To Do About It According to Steven Harper

Some of my readers may be familiar with Steven Harper's book, "The Lawyer Bubble: A Profession in Crisis." If not, or if its price/length seemed daunting, then track down his article in the Winter 2015 issue of the American Bankruptcy Institute Law Review: Bankruptcy and Bad Behavior -- The Real Moral Hazard: Law Schools Exploiting Market Dysfunction. So far as I can determine, Harper's article is not yet available online. I will link to it when it becomes available. Until then, go to your local law library or download it if you have access to the WestLaw or LexisNexis databases.

Harper writes directly and to the point. His first part is a useful empirical analysis dividing American law schools into three sub-markets based on three criteria: (1) the success of their graduates in obtaining full-time, long-term jobs (FTLT)  that require a J.D., (2) the starting salaries of graduates who obtain such jobs, and (3) the geographic dispersion of graduates who find employment.

The twenty-four law schools that placed at least 60% of their graduates in FTLT JD-required jobs and placed at least 20% of those graduates in the 250 largest law firms in America make up the National Schools sub-market. The next sub-market--Regional Schools--were those that placed at least 55% of their grads in FTLT-JD jobs but with fewer than 20% with large firms. Last and least are the eight-nine (89!) law schools outside either of the first two sub-markets.

Graduates of what Harper characterizes as the "Problematic Submarket" have difficulty finding the sort of employment for which they have spent three years and many dollars. Indeed, "among the weakest competitors in this submarket are the thirty-four schools that placed fewer than 40% of graduates in FTLT-JD jobs"

So far, at least, there's no evidence of market dysfunction. Providers of any service can be always divided into three (or more) tiers. What Harper argues is dysfunctional is not that the job-related outcomes of some law school is better than others but that there has been no meaningful market-related response to this state of affairs:
An unimpeded market response to the collapsing demand for lawyers--a response that economist Joseph Schumpeter might have called "creative destruction"--would have required the weakest competitors in the Problematic Submarket to innovate dramatically, slash tuition, and/or close their doors.
Such has not been the case. But why not?

Harper assigns responsibility to three players. First, "students share some of the blame for the market's failure because they indulge their own confirmation bias. For too many, bad things happen only to someone else." Second, "the easy process of securing federally guaranteed loans encourages price insensitivity." Third, and the object of Harper's most barbed comments, are the Problematic Submarket law schools themselves, that is, "schools whose graduates experience the worst employment outcomes produce some of the highest levels of student debt."

As long as these law schools are playing with someone else's money (i.e., students' and the federal government's), there's no reason for reform. In other words, the market for legal education is not working.

Harper goes on to suggest reform centering around reducing availability of federal student loan funding to students who attend such schools. I won't reproduce the entirety of Harper's proposal here but suffice it to say that if graduates of a law school do not get FTLT-JD jobs at the rate of the Regional Submarket schools, that school's students would could not borrow the full cost of attendance. Students attending the Problematic Submarket schools would thus need to find resources other than federal loans and, to the extent that money came from private lenders, it would be dischargeable in bankruptcy.

I have repeatedly posted to the effect that federal student loans distort the market for higher education generally. Harper's proposals go some way toward restoring market competition for law schools


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