Pilot for a new series: Helpful Law School Scholarship

A little over two years ago Chief Justice John Roberts dissed legal scholarship when he said this in June, 2011:

Pick up a copy of any law review that you see, and the first article is likely to be, you know, the influence of Immanuel Kant on evidentiary approaches in 18th Century Bulgaria, or something, which I’m sure was of great interest to the academic that wrote it, but isn’t of much help to the bar.

There are countless reasons for this, a couple that I support are lack of faculty interest in legal practice (one of the reasons that many probably are law faculty) and that there are way too many articles out there, making it harder to separate the X-Wings from the Y-Wings (or if you are into more mundane analogies: the wheat from the chaff).

Since this is a blog aimed more at law schools, and since I am a third-year law student, I'm going to be highlighting legal scholarship that is of particular use to prospective law students, law students, recent law graduates, and of course, law schools themselves.  If this "pilot" receives at least some support, I will do more in the future.

The article in question for the test-run is by law professor Jim Chen, who has written previously on good, adequate, and marginal debt-income ratios of law graduates, and the mathematics of stipulations on law school scholarships.

Here, I have read his working paper for the Michigan State University law school, "Measuring the Downside Risk of Law School Attendance."  It is a short article at 11 pages.  In his own words, this is what the article is about:

In this document, I shall focus on student welfare, especially the core economic
question of whether law school attendance delivers a valuable return on students’ investment. I shall also describe the tools, drawn from quantitative finance and econometrics, that I would use to evaluate downside risk and inequality within any cohort of law school graduates.

Professor Chen is much brighter than I am, and I do not pretend to understand the economic, business, and math reasoning which leads him to his conclusions.  For instance, in addition to more intuitive conclusions (like debt-income ratios and win-loss percentages), the "quantitative finance and econometrics" which includes "postmodern portfolio theory" are dense.

Chen partially backtracks from his "Degree of Practical Wisdom" debt-income ratios.  In it, by studying how mortgage lending worked, he identified three debt-income ratios: A "good" debt-income ratio was 0.5 (total debt is half of one year of income), "adequate" is 1.0 (total debt is equal to one year of income), and "marginal" is 1.5 (where income is 2/3 of total debt).  Anything lower than a 1.5 debt-income ratio would put the graduate in a precarious situation.

However, as Chen notes in his newer working paper:

My original stress tests have proved too stringent to offer useful guidance to law schools or their students. Almost no law school graduates begin with an annual income double their level of law school debt.

Thus, he readjusts and renames the three ratios.  Instead of debt-income ratios, he now uses income-debt ratios ("in order to focus attention on different salary outcomes realized by recent law school graduates").  Now, Chen considers a 3:2 annual gross income to total law school debt to eb "excellent."  "Healthy" is 1:1.  Finally, "viable" is 2:3.

As a disclaimer, Chen notes that he has

consistently (and perhaps too conservatively) assumed that law students have sufficient earnings, savings, or family resources to cover their background costs of living and therefore borrow solely to cover tuition. I know that I have adopted the unrealistic assumption that students begin law school with no undergraduate debt, on the unsupported surmise that they have retired any debt accrued in pursuit of a prelaw degree. I do have reason to believe that average law school debt levels are close to three times the nominal tuition rate of a law school (or, at a public law school, the average blended annual tuition rate) . . .

 Again, I am not familiar with "postmodern portfolio theory," but I can understand the bottom line.  Professor Chen puts forth a hypothetical law school, and by drawing on his knowledge of economics and business, is able to glean numbers that can actually mean something to someone like me. 

Here is the chart. 

The first thing I noticed is that the average debt at the hypothetical law school is only $60,000.  I don't even think that CUNY, perhaps the most affordable law school in the country (if you are a New York citizen), has an average debt that low.  But the debt isn't the takeaway.  The takeaway, at least for financial plebeians like me, is the win-loss ratio % underneath the different ratios.

At this hypothetical law school, we find that only 2.61% of the class obtained "excellent" salary-debt ratios, earning $90,000.  For those with a "healthy" salary-debt ratio, it is 26.96%.  The majority of the graduates of this law school are "viable," 60.87% of them.

If you add up the figures, you will only get to 87.85%.  This leaves 12.15% of graduates without a a viable salary-debt ratio, making them unemployed, making less than $40,000 a year, or are pursuing more education.

This article by Professor Chen is highly technical, and in hindsight, may not have been the best choice for a "pilot."  That being said, Professor Chen has put forth a new salary-debt ratio standard that is easy to understand, with 3:2 being excellent, 1:1 being healthy, and 2:3 being viable.  His table, if it could be more universally employed, would give us a great new tool to "stress test" schools to see what percentage of their graduates are "winning" rather than "losing."

We already know that the majority of law graduates are losing.  But legal scholarship like this and others that I will hopefully highlight in the future will help us muddle our way through, as Professor Chen puts it: "the greatest economic challenge the American legal profession has ever faced."