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Thursday, November 08, 2012

Reforming Legal Education's Finances: Let's Debate Specifics

This fall a lot of law schools are talking about finances.  While the blawgosphere and even the national press have addressed the basic market changes driving these discussions, I have not seen a lot of specifics about the difficult financial choices at stake.  Next week, I'll be posting a series of questions comparing different strategies for dealing with the new market realities.  The intent of these questions is to get folks talking about the costs and benefits of different approaches, so we may have a better handle of how to address them at our own institutions.

Here are the questions I was thinking of posing:

  • Is it better to cut tuition or class size?
  • If tuition is to be cut, is it better to cut the sticker price or increase the scholarship pool?
  • If a school is cutting costs, is it better to cut positions or cut salaries?
  • If salaries are to be cut, is it better to have an across-the-board cut or cuts based on different principles?
  • Should the faculty be responsible for implementing a cost-cutting plan or is that best left to administration?

Obviously, these questions are not exclusive -- one can cut tuition and class size, for example, or cut salaries both across the board and based on certain principles (teaching load, etc.).  But the purpose of these dyads is to pit them against one another and talk about their specific strengths and weaknesses.  If a school has $X in potential savings, would that savings be better spent on reductions in tuition or class size?  The questions are intended to get readers and commenters to debate the relative merits in specific terms.

If you have an idea for a dyadic question like the ones framed above, please feel free to leave it in the comments.  I'll start up with the questions on Monday.

Posted by Matt Bodie on November 8, 2012 at 11:34 AM in Life of Law Schools | Permalink

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Comments

Thanks for doing this, Matt. Always glad to read your posts.

A possibility: Increased scholarship monies OR expanded LRAP?

Posted by: SparkleMotion | Nov 8, 2012 11:42:39 AM

The market for lawyers appears to be such that many schools should cut both tuition and class size. I think increasing the scholarship pool makes more sense that cutting the sticker price because it allows the schools to remain competitive for high LSAT/GPA students. Realizing that GPA and LSAT are imperfect predictors of success, it still seems fair to assume that high LSAT/GPA students have more non-law school options, and therefore will demand high discounts due to their opportunity costs. Many lower LSAT/GPA students may not have as many options and may be willing to forgo the discount for the opportunity to obtain an advanced degree.

Salaries will be cut at many schools, but I think it should be left to the administration. The faculty will not vote for cuts, and if forced will probably vote for across the board cuts to keep the peace. Some faculty members are marketable. Some are not. The administration probably knows this. If significant cuts are made, the marketable ones will leave. I think it more likely that professors would leave for other schools. Most do not want to return to private practice, and many could not return to private practice.

That said, I actually have an open door invitation to join a top-50 law firm (where I previously worked) at three times my current salary. I prefer the professorial life, even with the much smaller paycheck. But any pay cut would cause me to think about moving to another school. Given this academic hiring market, such a move would probably not be possible for me, but might be possible for bigger names in the academy.

A 25+% cut would cause me to go back into private practice, simply because of the fixed expenses I have. I did not despise private practice as much as some of my academic colleagues. Also, I practiced for longer than many of my academic colleagues (over 15 years), and in an area that pays quite well in private practice. You could cut my ConLaw colleagues salaries in half and they would whine, but would have nowhere to go. I think the move toward significant differentiation based on subject area may become a reality if schools cut salaries and want to hold onto corporate, tax, bankruptcy talent. Finally, cuts could be made based on workload/production. I think we all have very hard working colleagues and very lazy colleagues. We all know who they are. The current salaries, at least at my school, are pretty close and do not differ as much as the workload differs.

Posted by: 1Prof | Nov 8, 2012 12:20:09 PM

As a professor of public budgeting, I find curious your request for dyadic questions. I fight hard to get my students to understand that such policy choices are far more complex than effectiveness vs efficiency, guns vs butter, taxes vs spending. I acknowledge your rationale, but unless you have a method for integrating these bits, you are evading the complexity of the issues. The strengths and weaknesses discussion will quickly evolve into a question of what matters most. I suggest you start there instead of ending there.

I would begin with a set of values (or strategies) on one hand and a set of cost-cutting measures on the other and then engage in an exercise where you attempt to match measures with the values. This process allow you to see how measure A in pursuit of value 1 simultaneously does violence to value 2.

By extension you can identify the stakeholders of the values and can identify paths to consensus or compromise.

Posted by: Phil | Nov 8, 2012 2:00:38 PM

If tuition is to be cut, is it better to cut the sticker price or increase the scholarship pool?

One problem with leaving the sticker price high and increasing scholarships it is that it is regressive with respect to future incomes (at least outside of the schools with the best placements.)

Those on scholarship are most likely to do well and thus most likely to be able to earn more when they graduate, while those paying full price will on average have higher debt burdens and less earning power.

At least to the extent that the frequent invocations of social justice by law professors are genuine this should be an important factor.

Posted by: brad | Nov 8, 2012 3:22:33 PM

I think the merit scholarships versus loan forgiveness is a nice question -- I will add it to the discussion. And in response to Phil, I agree that these things cannot be considered in a vacuum when an actual faculty is sitting down making actual decisions about actual finances. But these discussions are designed to refine our ideas about the costs and benefits of the various approaches. If not put into oppositional pairs, it's too easy to fight the hypo and/or argue about noncomparable things. Anyway, that's my thinking.

Posted by: Matt Bodie | Nov 8, 2012 3:32:30 PM

My views, for what they are worth, on questions 1-4:

Better to cut class size than tuition; tuition reductions increase the number of job seekers while class size cuts decrease it. There are not enough jobs. We do better by our students if there is a better match between supply and demand. But this won't work if, when school A in market X decreases class size, school B in market X increases it. Schools alone in their geographic area have a better shot.

Better to decrease effective tuition than the sticker price - except that one must be transparent. Full payers should know that their tuition is being used to subsidize the tuition of their better-credentialed (on whatever metric) peers. If they refuse to pay on those terms, then schools must adjust.

Much much better to cut positions than to cut salaries. Administrative bloat in law schools is flat-out staggering. A lot of ire is directed at faculty salaries but numerous administrators are paid very well to make work for one another. See Benjamin Ginsberg, The Fall of the Faculty (Oxford UP 2011); everything Ginsberg says applies fully to law school administration.

Across-the-board salary cuts reward incompetence, and markets rule whether you like it or not. People should be paid what they are worth. Also, 1prof is quite right that market forces in the medium term won't let you cut across-the-board without losing your best people.

Posted by: CAProf | Nov 8, 2012 4:41:33 PM

Would it be better to:

Require heavy math and science of all applicants, or admit and graduate folks like Obama (or Scalia, Roberts, Alito, Thomas, Kennedy, Ginsburg, Sotomayor and Kagan) who've never mastered any?

Require English language skills of all applicants, or admit and graduate folks like Obama who missed sentence-diagramming and repeatedly utters sentences like, "The problem is is that...."?

Require foreign language skills (like the German, Russian, French and English of Merkel, the PhD physicist) of all applicants, or admit and graduate folks who can't even speak proper English (see above)?

Require business or employment skills of all applicants, or admit and graduate folks who haven't even done "community organizing" yet?

Require all applicants to know how to build a house or grow sunflowers, or admit and graduate folks who have demonstrated their ability to breed but no knowledge of which end of a screwdriver to hold?

Posted by: Jimbino | Nov 9, 2012 1:25:13 PM

Is it better to herd students into required classes paid for by taxpayers without regard to utility, or to allow a prof to propose a class and then enroll those who bid for admission with their own dollars (as has been done historically throughout Europe)?

Is it better to allow the gummint to bless a state bar's monopoly limitation of entry and selection of useless courses, or to kill off all certification as Milton Friedman suggested?

Is it better to abolish tenure in the interests of freshening the stream of scholarship, or to grant sinecures to protect petrification (putrification?) of ideas?

Is it better to rate schools based on concepts of net contribution to improving students' minds, or to rate and reward them based on GIGO and the diamonds-in-diamonds-out (of Harvard and Yale)?

Is it better to subject students to expensive education with no hope of employment afterward, or to grant every kid a PhD, JD and MD at birth, so that those who were not prepared for, or inclined to, educational improvement would not have incentive to go into deep debt all the while polluting the nation's classrooms?

Posted by: Jimbino | Nov 9, 2012 1:47:07 PM

This will - I am sure be deleted so as to manipulate the posts so that everyone agrees with the prawfs (cf legal scholarship). There is a ludicrous aspect to the posts in that it would seem that many law professors do not understand the economics of their own schools.

What demonstrates this is the very first post:

"A possibility: Increased scholarship monies OR expanded LRAP?"

"I think increasing the scholarship pool makes more sense that cutting the sticker price because it allows the schools to remain competitive for high LSAT/GPA students."

and I would add -

"Better to cut class size than tuition; tuition reductions increase the number of job seekers while class size cuts decrease it."

The first two posters seem to have missed a key issue - the scholarship pool is achieved by cross-subsidization - reduce the number of full tuition students - and the scholarship pool falls in lockstep. But the amount that a law school can charge in full tuition and for that matter the number of students it can recruit is constrained by an externality - the lousy job market for JDs and the poor pay of many lawyers is undermining the supply of students willing to pay full freight for a JD. The reality is that the scholarship pool will need to shrink because there will just be less money to put into it or LRAP (there is a reason so few praws actually practice law, numeracy....)

The third poster exhibits an idea of the principles of supply and demand - but a certain lack of understanding. Thus this poster thinks that by constraining the output of JDs the market price for law graduates will rise. The problem is that the market price for law graduates is actually driven by the demand of the consumers of legal services - not by law firms, and those consumers of legal services are reducing their demand for expensive junior associates - the main product of higher ranked law schools (god knows who buys the product of the lower ranked - these days it seems like nobody.)

There really is only one solution - reduce law school capacity by 60% and lower tuition by 50% That is going to hurt - a lot.

Posted by: MacK | Nov 9, 2012 6:54:17 PM

it won't hurt you mack--it seems like you spend an incredible amount of time and energy pushing/wishing for this kind of ridiculous result...

not going to happen, though. it's not a rational market and thus your higher level of "economic understanding" about legal education is inapposite...

Posted by: anon | Nov 9, 2012 10:41:58 PM

I'm worried about the issues brad identified. If the cost of law school has risen and the expected return has diminished, shouldn't we expect that at the margin law school will be more attractive to upper middle class kids with financial and social capital who expect to work full time in law for a long time? That could marginally reduce lots of potential applicants from the middle and working classes, people who expect to have a heavy child care responsibility in their first ten years after graduation, and others. I hope it's not going to turn out that way, but it sure seems possible.

To respond more directly to the questions, it's nice to debate what law schools should do, but as for what they will do isn't the likely outcome that they will do as little reforming as they can get away with, and will reform in ways that primarily protect tenured faculty? (That isn't a slam. Just a prediction. It's just like the way big law firms faced by downturns undertook reforms that protect partners will big books of business.) For example, Hastings has a very high price, has reduced class size, makes public exhortation to other schools to mirror Hastings' lead, and fired staff.

Posted by: John Steele | Nov 10, 2012 9:55:32 AM

And Anon at 10:41 - you devote your time to what "legal scholarship"

This takes me very little time - I'm not a law professor paid to engage in time wasting pretence. I spent - oh 3-4 minutes on that last post and maybe 1 minute on this. The delusions of law professors are an interesting exercise to read though-

So anon- if law schools are graduating north of 45,000 students a year for around 20,000 jobs - Cost of Attendance at law school massively exceeds the typical salary of a lawyer per annum - and lost of law students are being forced onto IBR at graduation, by what economic miracle do you think law schools will be able to keep going without aligning supply to the market and price to the market?

Is it the prawfs that think they are special snowflakes?

Posted by: MacK | Nov 11, 2012 11:33:43 AM

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