Wednesday, December 12, 2012

Why Are Law Schools Expensive

There has been a lot of concern of late in the law school world over falling numbers of applicants, poor employment opportunities for graduates, high debt loads, and associated problems. I recently came across a post on another blog discussing the question, and decided that a post here would be more appropriate than a very long comment there.

From the standpoint of potential law school applicants, there are two problems—a shortage of jobs for lawyers, relative to the number of graduates, and the high cost of law school. The current administration will probably help with the former problem, since an increase in the size and intrusiveness of government is likely to lead to an increased demand for lawyers. The purpose of this post is to discuss the latter.

The fundamental problem, as I see it, is with the incentives facing the schools. Law schools are heavily dependent on their reputation to attract students. The two biggest sources of information available to the students are the American Bar Association, which accredits law schools, and the annual U.S. News and World Report ranking. Both of those are based mainly on measures of inputs, not outputs. Thus, for example, the ABA recommends a student to faculty ratio of no more than twenty and takes a ratio of thirty or more as presumptive evidence that the school does not meet the standards for accreditation. Its rules for calculating the ratio count one adjunct as one fifth of a tenure-track professor and it requires that "substantially all" of the first third of a student's coursework be taught by the full-time faculty. The standards include a lengthy list of what must be in a law school library—almost all of which is material currently available to both faculty and students online.

So a school that chose to spend less on its library, have a higher student to teacher ratio, use more inexpensive adjuncts and fewer tenure-track professors, do a variety of other things to cut costs, would risk losing its accreditation, whether or not it was doing a worse job of teaching its students. A school which provided its education in any form other than the conventional number of hours sitting in a classroom would lose its accreditation, since one of the ABA requirements is that:
 A law school shall require, as a condition for graduation, successful completion of a course of study in residence of not fewer than 58,000 minutes of instruction time, except as otherwise provided. At least 45,000 of these minutes shall be by attendance in regularly scheduled class sessions at the law school.
U.S. News and World Report does not publish the details of its ranking system, but a number of people have reverse engineered it. The four factors that together predict the ranking almost perfectly are peer reputation, fraction of graduates employed nine months after graduation, student-faculty ratio, and undergraduate GPA of the students.

The ABA includes in its requirements a measure of what fraction of students pass the bar. That, the USNWR employment measure, and the peer reputation measure, are output measures. Unfortunately, they are not very informative ones.

Start with peer reputation. A professor at one law school is unlikely to know much about how good a job other law schools do educating their students. What he is much more likely to know, and base his opinion on,  is what prominent scholars in his field are at which school—information almost entirely irrelevant to most students. And this criterion has the unfortunate side effect of giving each school an incentive to barrage faculty at all other schools with glossy pamphlets boasting the activities and accomplishments of their own faculty, an expense that does nothing to improve the education of their students.

Bar passage and (very imperfectly measured) employment rates are more relevant. The problem with both of those is that they depend on two different inputs—quality of instruction and quality of students. Top schools get very high bar passage rates not because they do a particularly good job of teaching the skills relevant to bar passage—most of their students take an additional bar preparation course before taking the exam—but because they admit only smart students.

In an old post, I proposed a simple solution to this problem. Schools should report their bar passage rates as a function of some measure of student quality such as LSAT or undergraduate GPA. That would provide the potential applicant with the information that matters to him—what the chance is that a student of his ability who goes to that school will pass the bar. A similar approach could be used for employment statistics.

There are two possible approaches to reforming legal education to lower its cost. One is to recommend specific changes, such as Judge Posner's old proposal to make the third year of law school optional. The other is to recommend changes in the incentive structure that currently prevents such specific changes from being in the interest of law schools to make. At the level of the individual law school, the first is all that can be done—but, short of crisis, mostly will not be, because it is not in the interest of law schools to do a better job for their students at the cost of risking their ABA accreditation and USNWR ranking. 

At the level of the legal education profession, I think the second approach makes more sense. It too, however, faces incentive problems. One effect of the current ABA standards is to increase law school demand for tenure-track faculty, and tenure track faculty have a substantial influence over those standards.


P.S. The post that inspired this one has a delightful comment by a law school student about to take his last exam, detailing what is really need to teach law. His bare bones law school ("Perhaps you feel that your students cannot survive without a cafe? Build/rent your school next to a Panera") would cost students about $10,000 a year. Combine that with Posner's proposal for a two year degree and you have the cost of legal education down to $20,000.

But I don't think the ABA would accredit it.


Anonymous said...

It sounds like the ABA has done everything in its power to restrict the supply of lawyers with costly barriers to entry. This makes the poor employment prospects you report all the more surprising, though. For now, fewer applications sounds like part of the solution -- facing insolvency, maybe law schools will have the gumption to push back against most egregious requirements.

C. Bella said...

The ABA has done nothing to reduce the number of students entering law school. Many argue that the ABA has given accreditation to too many schools, which is part of the reason there are so many unemployed graduates. Even the worst schools with awful employment statistics and sky high tuition still find people to fill seats.

More to the point, the cost of legal education is extremely high but the ability to fund this education is relatively easy to obtain. Student loans are practically given out to students by the federal government. A private loan can be had with the income one obtains from a part-time job. This ease in obtaining loans is not much different than the recent housing crisis subsidized loan issue.

D. Friedman brings up some interesting points, specifically the interests of schools are misplaced due to US News rankings and the ABA. I don't see any meaningful changes until a crisis of the recent housing bubble occurs

Tibor said...

C. Bella: I don't live in the US, so I cannot say for sure but I've got the exact same feeling.

There are often rants in Europe that paid university schooling does not work, they say "Look how the private schooling is disfunctional in the US and wrecks people's lives...we have to keep it funded by the state!". But they miss the fact that even though there are a lot of private schools in the US, the tuition heavily subsidized by the state which creates both wrong incentives to study and higher than free market prices of tuition:

Everyone has a degree so you have to have it just not to look totally stupid and you don't care what they actually teach you....that is a major problem in Europe where there are a lot of countries with a de facto full state control over the university (and other levels) education with a very few private schools that actually only meet the market demand for the titles as the title inflation is so high (due to the fact that studying is almost costless and also the EU is politically pushing to increase the amount of university graduates - so most schools get easier) and really everyone needs it to have a chance of a decent job (which is often completely unrelated to the subject of study). Also since it is so cheap to study, not many people actually think it through and you have loads of graduates with philosophy degrees that are good for nothing outside of academia (for which a minor fraction the current number of graduates would suffice) and a shortage of technical degrees or degrees in natural sciences and mathematics. I talked with a girl from Hong Kong where the schooling market seems to be much less distorted and she said almost everyone there studies technical subjects since it will get them a better job and only a few do things like philosophy, sociology or film (which she does)...that seems to me to be a healthy system. But we did not go in too much detail on that subject so maybe there are some problems unknown to me there.

The schooling market is so distorted by the central planning in Europe today that "all of the sudden" there is also a shortage of skilled craftsmen around (since almost everybody goes to universities)...and so the geniuses in the European commission have come up with a new plan - subsidizing these kind of schools and making advertisement campaigns - paid by taxpayers of course - in their support.
But what can you expects from people who now seriously suggest that it should be made a law in the whole union that young people after graduation are to be guaranteed employment by the government. They are fixing problems of central planning with even more central planning...oh well, I hope that that system just collapses fast enough, cause I don't see any other way to get to something more reasonable and I don't fancy spending my life in a stagnant or regressing society.

Tibor said...

I think this neatly summarizes all the current problems with higher education (even if not their causes)...and it is damn funny too.

Anonymous said...

"the ABA recommends a student to faculty ratio of no more than twenty and takes a ratio of thirty or more as presumptive evidence that the school does not meet the standards for accreditation."

I wonder if Harvard and Yale Law Schools in 1940 or 1960 would have met this standard. It might be fun to find out if pre-1970 law schools were all of such disgracefully low quality that they shouldn't have been accredited.

RichardKerley said...

V interesting ; reading rom the UK ; and not from a legal background but [now partially ] involved in Business School/Management Education .
Much the same analysis - other than the professional lock - applies to BSs , both in UK and in USA.
Richard Kerley