Monday, April 7, 2014

A report from New America sheds light on graduate school debt

The drumbeat of criticism of the federal government's policy on the financing of college and graduate school education hit a new pitch with the release of the excellent report from New America.  New America identifies itself as a nonpartisan, nonprofit public policy institute, and is funded by grants from various organizations, including the Bill and Melinda Gates foundation. 

The conclusion that New America's makes is that the debt crisis in America's graduate education should be separated from problems stemming from America's undergraduate education, even though many media accounts seemingly equate them.

Perhaps the most interesting part of the report is the figures themselves.  When law schools report debt figures to US News and World Report, they report the total amount of debt that a student has accrued while in law school, sans interest.  However, the debt levels that New America reports on include the total debt that a graduate has at the point they completed their degree.  In other words, a law graduate's undergraduate debt, law school debt, and interest on the two would count.




Another very important facet is that it reports what college graduates going specifically into law school owe in student loans before going into law school.  Legal education reformers like Professor Brian Tamanaha or Lawprof were usually stuck using a median for college graduates to calculate what a 0L's pre-existing student loans were.  No longer.

I encourage you to look at the report itself, as it has a lot of interesting information that goes even beyond law students.  For those of you who want the low-down, I have included a brief summary of the four main data tables that New America includes at the end of the report.

Table 1: Undergraduate Debt Levels

Perhaps one of the most interesting things that the report sheds light on is the percent of law graduates who begin law school with debt.  The report seems to indicate that in 2004, 2008, and 2012, the years that the report has data on, the students entering law school with debt was slightly less than one-half.  In other words,we should not assume that the average law graduate should tack on an additional $20,000-25,000 in student loans when we try to calculate their aggregate debt, because roughly half of the students entering law school do so without any pre-existing student loans.

As for the actual undergraduate debt levels, the study looks at the 50th percentile, the 75th percentile, and the 90th percentile.  The report shows that that student debt among college graduates hasn't been uniformly increasing.  While it seems counter-intuitive that the amount of debt that a college graduated ended up with between 2004, 2008, and 2012 decreased in some instances, as well as the percent of graduates who even ended their college career with student loans, the simplest explanation is that the economy was healthier when the students graduated college (note that the graduates included in the three data points would have graduated college at the minimum 3 years earlier), and they and their parents were able to pay their loans off while they were in school at a higher rate.

However, at the margins, at the 75th and 90th percentiles college graduates with debt who went on to law school, there was an increase from $26,486 to $35,000 at the 75th percentile, and nearly $20,000 at the 90th percentile, from $47,676 to $67,500.

Table 2: Graduate Debt Levels

What this Table shows is the effect that the Great Recession had on student borrowing specifically for law school.  Increases at the three measured percentiles for the amount still owed was rather small between 2004 and 2008 for the 50th and 90th percentiles, and the measured amount actually decreased for those at the 75th percentile.

However, for graduates in 2012, the total amount borrowed for law school was $128,125 for those at the 50th percentile (roughly $45,000 more from 2008), $173,105 at the 75th percentile (roughly $57,000 more), and $200,392 for the 90th percentile (roughly $53,000 more). 

Just incredible.

One final takeaway from all of this, however, is that it reveals the effects of the more aggressive tuition discounts that law schools began to undertake to attract "higher qualified" students during the Great Recession.  In 2004, 86.5% had law school debt, increasing to 87.3% for 2008, and decreased to 85.6% in 2012.  While people at the three percentiles saw great leaps in debt between 2008 and 2012, the overall amount with law school debt decreased in 2012 to less than the number in 2004.

 Table 3: Combined Undergraduate and Graduate Debt Levels

The figures here are very similar to the previous tables in year-to-year changes, obviously.  The percent with debt shows the effects of tuition discounting in 2012.  The changes of total debt levels between 2004 and 2008 are much smaller, compared to the changes between 2008 and 2012.

The kicker is that total law graduate borrowing at the 50th percentile increased by about $50,000 between 2008 and 2012.

To put it mildly, that is a shocking number.  If you graduated from law school in 2008, you would owe about $90,000 in college and law school loans, but if you were unfortunate enough to graduate four years later from law school, you would owe $140,616!  Talk about being born in the wrong year, or deciding to pursue your law school dreams a few years too late!

At the 75th and 90th percentiles, the increases were about $60,000 between 2008 and 2012, for a total of $193,823 at the 75th percentile and $224,061 at the 90th percentile, in 2012.

Standard ten year monthly loan payments for those at the 50th percentile of $140,616 is about $1600 a month, or  $19,200 a year, and a $2,577 monthly payment at the 90th percentile at $224,061, or roughly $31,000 a year!  Just incredible.  And in 2012, 1 in 10 law student graduates owed MORE than $224,061!  I don't even need to include the recommended salary for repaying these loans.

Table 4:  Graduate Program Overview

The last table is simply a measure of what percent a graduate program is represented as a share of graduate degrees conferred.  Law graduates have declined from 5.4% in 2004, to 4.3% in 2008, to 3.5% in 2012.  Since the "other" category is so large, I think it's hard to take too much away from this, but interestingly, Master of Science graduates increased as a total share 5.1%, from 13.0% in 2004 to 18.1% in 2012.  This seems to support those who criticize the conventional wisdom of the US not having enough STEM graduates.

Conclusion

The report gives some numbers that challenge some of the conventional wisdom, such as people who pursue law school graduate college with the median debt, and shows the massive increases in student borrowing between 2008 and 2012.  It also shows the redistributive effect that the massive increases in law student borrowing had on the students who were "bought" by the lure of tuition discounts.

By compiling debt figures for those who go on to graduate programs, New America may help the conversation about the higher education bubble shift a little more to the graduate programs, and help law students in the process.


19 comments:

  1. This shows just how irrelevant any stats before 2008 are about the earning power of a law degree. The OLs considering law school now need to look at employment plus debt for the classes from 2008 until 2013 and then decide if they think it's a good deal.

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  2. The law school pigs cannot legitimately justify these outrageous sums of non-dischargeable debt. All they can snort is "The job market will rebound by (insert an upcoming year)." There is no basis for such claims. The cockroaches simply want applicants to BELIEVE that the job market will rebound right as they graduate. This is deplorable, reprehensible conduct by supposed "educators."

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  3. I think the decline in percentage of students graduating with debt has at least one other explanation. As tuition continues to skyrocket, and as enrollment numbers decline, it is quite likely that the students relying entirely or mostly on debt financing are choosing to skip law school, versus those who can rely on family (or other means) to cover most or all of the cost.

    In other words, whether UVA costs 100k or 250k doesn't really influence whether a rich kid goes to law school - so the number of such students holds steady. On the other hand, it might sway the middle-class kid from attending, since each tuition increase hits him or her directly in the pocket book (in the form of non-dischargeable debt). This shifts the percentage towards those with no debt, but it's not because "discounts" are making school more affordable.

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    1. If law schools charged a million dollars a year for tuition, it would be more honest than this mishegoss.

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    2. An interesting theory. The scam blogs often mention the hypothetical student from a rich background whose family can pay full tuition without skipping a beat. However, I would theorize this is a much smaller group than many people realize.

      How rich do you have to be to pay $250,000 in grad school tuition for one of your kids without a problem? Keep in mind that the family probably has multiple children. Do you need $5 million? (Assuming you are getting a 5% return on your assets, $250k would be a year's investment gains.) Only about .3% of estates pay the estate tax, which currently starts at a threshold of around $5 million. Some may argue that a family with $1 or 2 million can pay law school tuition with no problem, but while that may be true mathematically, it seems unlikely that the parents would pay such a large chunk of their net worth. The pool of law school applicants does skew rich, but after decades of tuition inflation, the number of families that can pay full freight with total comfort is quite small indeed.

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    3. That's a good point. Students who need to borrow are self-selecting themselves out of law schools, thereby decreasing the amount of students in law school who have to borrow.

      I think that the aggressive tuition discounting has something to do with that as well.

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    4. It's worth adding that, statistically, those from wealthy background are more likely to achieve higher GPAs and higher LSAT scores. This correlates with tuition discounting, thus reducing the net impact of tuition increases to wealthy families. For instance, if UVA costs increase from 100k to 250k at sticker, the average student (or his or her parents) from an upper class background may actually face very little of that increase, due to greater likelihood of capturing the escalating "merit-based" tuition discounts.

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  4. It's hard to figure out what's a scam and what's not anymore. God help us.

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  5. For a long time, law schools have hidden their own rent-seeking within the much larger problem of undergraduate student loan debt, hoping that nobody will parse the data. These guys have gotten around to it, and the numbers tell the story. Hopefully Congress will sit up and take notice.

    There is absolutely nothing about a law school program that requires it to be more expensive than an UG liberal arts education, other than the egos of the people running law schools. The federal government should set an immediate cap on the amount of GRADPLUS loans, essentially making them COL only.

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    1. Unlikely. Congress protects powerful interests, it doesn't compromise them.

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  6. "There is absolutely nothing about a law school program that requires it to be more expensive than an UG liberal arts education, other than the egos of the people running law schools."

    Bingo. I have a friend in practice who has been asked to teach a course in commercial law at a second-tier law school. He will be doing everything a full-time prof would do except attend committee meetings. They're paying him about $5,000. That's all-in, the entire semester, without an assistant to help grade exams, without an office, without benefits -- Five Thousand Dollars.

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    1. I think the compensation packages for law professors are, for the most part, absolutely shocking. They get six figure salaries to teach a couple of days a week, get summers off (or paid extra money to work a few hours a week during summers), get a "sabbatical" e.g. paid vacation every few years, almost absolute job security (if tenured), and retirement benefits most of us can only dream about. They also get expenses-paid trips to conferences and "study abroad summer" programs in exotic locales. If taxpayers really knew the truth I would have to think people would be marching in the streets over this.

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    2. The problem with public education in this country is that before public funds, these same institutions were private schools, which had all the fiefdom characteristics of a traditional university. The schools kept these trappings while taking public money. Public schools should be turned into subsidaries of the government, like a k-12 school, that has to justify expenses and has set salaries. I do think tenure should be granted irrespective of a committee, as the reason social science scholarship is so abysmal in this country is the pressure to "play the game", whether it's Friedman economic 'theory' or social idenitity 'politics'.

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  7. You know, I read the scam blogs regularly. It is a respite that takes me away from having to deal with law practice. But as I sit here and think of all the stuff we have to deal with . . . I get sick to my stomach thinking that I could have graduated from Law School with hundreds of Ks in debt after having been scammed by the school into believing my prospects were much better than they really are. And then turning around and watching the Courts deny justice, i.e., the right to be heard, to have a jury decide the issue, because so many of these claims are dismissed outright or by Summary Judgment (where material facts in dispute are supposed to result in a decision by the Jury . . not the Judge), it is simply infuriating. I will not be surprised to read if somebody, somewhere goes ballistic and takes deadly aim at some of the players in the law school scam. Unfortunately, when that happens, it will likely be some innocent party instead of the strategists who colluded and cooked up the scam that has caused so much misery throughout the land.

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    1. Well, take heart. There is a consequence to all this for culpable parties. The interests of the federal government and law schools are not aligned. The fraud of the schools is and will cost the federal government a huge amount of money. At some point the DOJ smells blood in the water, i.e. that some law schools are going to be filing for bankruptcy soon, and their students will all get Closed School Discharges under the C.F.R...then we'll see how fast the DOJ shows up as a tort creditor in a bankruptcy proceeding. If the feds were truly interested, they could find plenty to prosecute. Eventually, they will be interested in picking at the carcass of one of these schools. And once they do, private suits riding on the coattails have a shot.

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    2. sadly to say, the feds are making cash on this. unless someone is homeless, the gov will get the dough, not that middlemen lenders have been pushed out of the loan business. Let's just hope the Western idea of "civil society" that the gov is supposed to promote wins when public outrage begins to build.

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  8. The report makes it clear that law school debt is almost as high as medical school debt. However, employment outcomes are vastly inferior for law than for medicine.

    Should be a call to action for Congress to do something about unreasonable levels of law school debt relative to employment outcomes for law graduates.

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  9. The interest on student loans during law school is often overlooked and I am pleased to see that it is being addressed. I recall how my first year loans of law school exploded by the time of graduation. Anyone considering higher education should really calculate the interest over time and see its effect, especially on 150k-250k or more.

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    1. Amen. Not even car dealers are allowed to quote only the sticker price. The interest rate on these loans are fixed, compound, and not subsidized. Schools should be forced to discount the whole price back to present dollars and quote a more real price.

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