Is Law School A Wise Investment?

A horrible job market and rising tuition have led many critics to argue that law school is no longer worth the cost. Some think the answer is fewer law schools. But the real culprit appears to be the staggering cost of legal education.

Fernando Rodriguez is like many recent graduates — employed, but not at the job or salary that he imagined when he first entered Drake University Law School three years ago. “We are producing way too many law graduates for the number of positions,” Rodriguez said. “And a lot of recent graduates are in a lot of debt.”

Rodriguez, who graduated last May and now works in social services in Salt Lake City, created a blog — Third Tier Reality — that he said exposes the reality of the situation. “I try to use the industry’s own numbers to smack them over the head with them,” Rodriguez said about his blog. Rodriguez said there are too many law schools, too many students, misused salary information by law schools and too many prospective students making poorly informed decisions.

He is not the only critic of legal education. A host of bloggers and some academics have cropped up in the past year questioning whether law school is a wise investment given the troubled job market and the rising cost of legal education.

And a recent survey found that 21 percent of law students regret attending law school based on the changing legal marketplace. While the LexisNexis survey (pdf) was based on the responses of only 100 students, it shows the growing disenchantment with what some call the value proposition of law school.

“The trends that we are seeing now have been going on for a while,” said David Van Zandt, dean at Northwestern University School of Law. “What is new is the wake up call from the sputtering economy.” Clearly, the recent recession has led to a major slowdown in law firm hiring— with almost 10,000 fewer jobs for newer attorneys than expected prior to the economic slowdown. But research shows that the market for legal services should regain its footing and remain strong for the remainder of the decade.

Law schools were not producing more attorneys than the market could bear prior to the recession, and experts expect most to still land full-time legal jobs. But, tuition and student debt loads have increased so much that the value proposition indeed appears out of whack, especially given the new realities of lower starting salaries.

Two law professors have recently done their own analysis showing that law school is not a wise financial investment in many cases. And the American Bar Association Commission on the Impact of the Economic Crisis on the Profession and Legal Needs, installed in 2009, has issued a similar warning. “Far too many law students expect that earning a law degree will solve their financial problems for life,” the Commission found. “In reality, however, attending law school can become a financial burden for law students who fail to consider carefully the financial implications of their decision.”

Are there too many law schools?

Mark Greenbaum made waves in January with a column in the Los Angeles Times that argued there are too many law schools, and that the ABA was a weak accreditation body. “[The ABA] continues to allow unneeded new schools to open, and refuses to properly regulate the schools, many of which release numbers that paint an overly rosy picture of employment prospects for their recent graduates,” the 2005 graduate of Rutgers Law School wrote. “There is a finite number of jobs for lawyers, and this continual flood of graduates only suppresses wages.”

Greenbaum’s column was picked up in other publications and widely written about on blogs as if it were gospel. But while the sentiment is widely held, the facts do not support the premise that there are too many law schools. In fact, there are fewer law schools today per U.S. resident than at almost anytime in the past 45 years.

There are currently 200 ABA-accredited law schools, or 6.6 schools for every 10 million Americans. That is down from 7.5 schools for every 10 million in 1980, and 7.0 schools for every 10 million in 1965. The number of law schools has increased by 17 since 2000. But that year represented a low point in the past 45 years for ratio of schools to population.

The numbers are not much different when you compare the number of students to population. There are currently 5.0 law students for every 10,000 Americans. In 1975, there were 5.42 law students for every 10,000 Americans. The only time since then that the ratio has dropped below 5.0 was in the late 1990s when potential law students flocked to dotcom companies, leaving a shortage of lawyers in the early 2000’s.

This constancy over the past 30 years is despite the fact that the legal market has quadrupled in size. Legal services as a percent of Gross Domestic Product increased from 0.4 percent in 1978 to 1.8 percent in 2003.

From 1998 until 2008, legal services grew by 60 percent, while the Gross Domestic Product grew by only 38 percent, according to the Department of Commerce. And the profession is expected to continue to grow by 13 percent this decade — about as much as in other professions — according to the Bureau of Labor Statistics.
Until 2009, the percent of law school graduates who landed full-time legal jobs was very constant.

“In the long haul, the market for law graduates has been remarkably constant,” said James Leipold, executive director for the National Association for Law Placement. “This recession will mark an interruption to that, like we saw in �?91 to �?93. But overall it should remain remarkably constant.”

But the bottom fell out from under the legal job market last year, and the employment numbers are grim compared to years past. With more than 5,500 layoffs at the nation’s largest firms in the past 15 months, and firms lowering new hires by an estimated 4,300, the number of jobs lost in the past year roughly equals half of the recent graduates that law firms typically hire in a year.

While it will take time for the legal profession to absorb the recent losses and make room for the displaced attorneys, experts feel that the worst is over. But most do not expect a quick rebound and that will likely mean depressed or stagnant salaries for the foreseeable future.

The problem with salaries

“Don’t you know who I am?” says a white figure. “I am the ghost of another naïve law student’s career. I’ve come to warn you about what lies ahead. I am not really sure why since you are clearly a stubborn fool.” So starts “A Law School Carol,” an animated video on YouTube that was produced by an anonymous recent graduate and blogger — “Esq. Never.” The video, presented in six parts, is modeled after Charles Dicken’s classic — with a law student being visited by the ghosts of his prelaw, law school and post-law lives.

In the video, the law student is awakened to the harsh reality of attending a “third tier toilet school of law,” with its accompanying debt and d
ismal job prospects. “Like a lot of people, I took society’s view that law school is a good career move and leads to a stable job,” the anonymous video producer and blogger told The National Law Journal in December. “Unfortunately, I think a lot of employment career statistics aren’t accurate, and I ended up with buyer’s remorse.”

While “Esq. Never” has perhaps invested the most time in attacking employment career statistics, he is not alone. There are hosts of bloggers who have attacked NALP’s figures that show that close to 90percent of recent graduates land full-time jobs within 12 months of graduation. They also attack the individual law schools that advertise their average starting salaries.

“It’s so uninformed that it’s hard to get upset,” said NALP’s Leipold about the bloggers. “It’s like talk radio.”

Leipold points out that NALP collects a very large sampling of recent graduates — 93.1 percent reported their employment status for the class of 2008. Even if everyone who did not report was unemployed — a statistically unlikely scenario — 84 percent of the class of 2008 still found employment.

But Leipold does agree that some law schools can do a better job with reporting salaries. “The schools don’t do a good job with real disclosure,” he said. “There is no incentive for them. Some still report an average, and no one earns the average. There is 20 percent that earn at the top and then 80 percent that earn far less than that. The average is not a useful number.”

Starting salaries for entry-level attorneys used to fall into a single bell curve. But that changed with the law firm salary wars that started around the year 2000 — when the ratio of law school students to general population dropped. Today there are two bells — one group that earns between $140,000 and $160,000 and one that earns between $35,000 and $60,000.

That results in a median of $72,000, which few law students earn.

Critics have argued that the lower bell curve would be even higher if the graduates whose status is unknown were factored into the chart.

But Leipold disagreed. “Even if the number reported were 100 percent, we know that the frequency distribution would not be skewed,” he said.

Still, the discrepancies between the two bells are significant, and have led many to point out that students who rely on a school’s median or average, may be disappointed when they graduate and land a job far below that.

“The realities haven’t trickled down to the students,” said William Henderson, a law professor at Indiana University Mauer School of Law in The National Law Journal. “They all believe they are going to be in the top 10 percent of their class, and they have this vision of the profession that doesn’t exist. And law schools don’t try to dispel those myths to potential applicants.”

The failure of law schools to dispel the myths has fueled bloggers like “Esq. Never” and Fernando Rodriguez, who are waging an all-out war of words to convince prospective law students to forgo the profession altogether.

While some have referred to these critics as the “deeply unhappy” minority, Henderson points out that the anger and frustration is real. He said law schools must recognize the pressure that high tuition and the difficult job market are placing on their graduates.

“The new math of legal education is grim reading for the large numbers of today’s law students and new lawyers earning less than they need to meet their loan payments,” Henderson wrote in a recent article. “Prospective law students need better information about the legal marketplace. Law school brochures are filled with glossy pictures of alumni at large law firms. Many law schools fail to provide the complete picture of what their graduates do and how much they earn.”

And the reason many will lose out is because of the cumbersome debt loads that many students must now undertake to get a legal education.

When law school is a bad investment

Herwig Schlunk does not mince words when it comes to whether law school is a good investment.

“There are a lot of people for whom this is just a plain bad investment,” said the Vanderbilt University Law School professor. “Most people think they are in the category for which this is a good investment, and that is an area where they need to wake up.”

Schlunk drafted a paper in October titled, “Mamas Don’t Let Your Babies Grow Up to be Lawyers,” (pdf) in which he looks at law school as if it were a financial investment. “If your law school education were a stock or a bond, would you buy it?” he asks.

Schlunk, who specializes in tax law, takes a detailed and what he calls “rigorous” analysis of the law school investment. He looks at the cost of education, the lost opportunity cost of not working those three years and earning potentials, in and outside of law, for three hypothetical students — “Hot Prospect,” “Solid Performer” and “Also Ran.”

He concludes that “Also Ran” would need to earn $80,000 for law school to be a good financial investment, but will most likely fall into the $40,000 to $65,000 starting salary range. “Solid Performer” would need to earn $113,000, but would fall somewhere around $105,000. “Hot Prospect” would need to earn $150,000, and would “in all likelihood land a BigLaw job starting at $160,000 per year …[making] the law degree … an acceptable investment … albeit hardly a no-brainer.”

Schlunk’s analysis has been criticized for applying a high discount rate, which makes the break-even point for the investment much more difficult to attain. But Schlunk defends his analysis, pointing out that the more volatile an investment, the higher a risk adverse person will discount it.

“If you are a public interest guy and you really love the law, this calculation is irrelevant,” he said. “But I think most people go to law school because it provides greater economic growth potential.”

Schlunk said that is how law schools advertise themselves as well — focusing on high-paying careers. He believes that most pre-law students are already engaging in a similar calculation subconsciously, “but naively,” as he puts it.

“[My] paper has a negative title, but the analysis is not necessarily that negative,” Schlunk said. “My real goal is simply to have people make the investment analysis in a more sober way.”

Northwestern’s Van Zandt, has done his own investment analysis. His more simplified approach shows that schools with median starting salaries under $65,000 are not good values. That would total about 60 percent of all law schools — but not Northwestern.

Van Zandt admits that the study makes some assumptions that don’t hold true for every law school. He said he originally undertook the analysis because there was a lot of talk about the value of a JD, and he wanted to determine the value of a degree from Northwestern. For schools that are below the $65,000 threshold, Van Zandt said they must either lower their costs or improve job opportunities.

Schlunk agreed. “The pace of tuitions are outstripping the pace of starting salaries,” he said. “Schools need to refocus how they finance themselves so that tuition is in check until we get back in alignment. They need to find alternative financing sources or cut expenses.”

The real problem: rising tuition

Law school tuition has been on mad dash upwards for the last 20 years, fueling a da
ngerous rise in student debt. The average debt load for law school graduates soared by 431 percent from $16,000 in 1987 to $85,000 in 2005. It was primarily driven by the cost of tuition, which increased by 381 percent over the same period for private law schools, and 702 percent for residents of public institutions.

And the average amount borrowed for students at private schools is now close to $100,000.

But the race may be slowing. “There is a lot of pressure right now on the current law school business model,” Van Zandt said. “It has counted on medium and large-sized law firms paying ever increasing salaries. As long as those salaries grew, it made it easy for law schools to get a little [financially] lazy. Tuitions kept going up, partly because we could and partly because law students demanded more services.”

But with the hiring market now in chaos, and dozens of graduate’s unemployed, law schools may be forced to rethink their business model. Van Zandt said all law schools need to try to lower costs, and many should look to different models.

“Schools serve different markets,” he said. “But there has been a tendency for a one size fits all model for all of legal education that is very expensive.”

Indiana’s Henderson agreed. “There is little reason for legal education to look the same everywhere, yet the differences in methods among ABA-accredited schools are minute at best,” he wrote in a recent paper, “The New Math of Legal Education.” “Law schools need to earn their hefty tuition price tags by offering teaching methods that are proven to increase students’ human capital and employability.”

While many think law school is now a poor financial investment, even Schlunk cautions that a law degree provides benefits that go beyond a pure investment decision.

“A law degree opens up many more avenues of potential employment,” he wrote in his paper. “Lawyers are found in all parts of the workforce performing all manner of jobs.”

The ABA’s Commission on the Impact of the Economic Crisis agreed. “The lack of a financial return does not mean that it is not valuable to go to law school,” the reports states. “Many lawyers receive intrinsic benefits from a satisfying career that cannot easily be quantified. It does mean, however, that students should think twice before going to law school simply for the money. All too often, students who bank on reaping a positive financial return from law school lose out.”

This guest post is authored by Jack Crittenden and was originally published in the March 2010 issue of The National Jurist Magazine. You can click here for the digital edition of the magazine or visit The National Jurist website for more great content about law school.

To hear more on this topic, you can also listen to Law School Podcaster’s show, The Current Economic Environment: What It Means for Law School Applicants and Students, featuring Jim Leipold, Executive Director at NALP, National Association for Law Placement and Ashby Jones, Lead Writer of The Law Blog at the Wall Street Journal.