Friday, August 10, 2012

Federal Funding of Higher Education--A Bubble that is Going to Burst

NPR's Planet Money has a story on interplay between higher college and university tuition and changes in financial aid.  As shown in the graphic below (from the College Board), the federal government is assuming a larger role in finaning higher education. Every other source of funding is shrinking its a proportionate contribution to financial aid.  Despite favorable bankruptcy laws enacted in 2005, the federal takeover of higher ed financing has almost completely muscled out the private lenders.

Gr-pm-studentfinances3column-462

Coincidentally, a colleague forwarded to me a pointed commentary from zerohedge.com, which suggests that recent comments by Ben Bernanke portend serious financial instability.  In 2007, Bernanke said:

"At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained" - March 28, 2007.

Two days ago, Bernanke said:

"I don’t think student loans are a financial stability issue to the same extent that, say, mortgage debt was in the last crisis because most of it is held not by financial institutions but by the federal government" - August 7, 2012

Now take a look at the federal government's holding of consumer debt (overwhelmingly student debt that has piled up since the 2010 legislation). See Henderson & Zahorsky, The Law School Bubble, ABA Journal (Jan. 2012).

Collegedebt

Student loans are viewed as "assets" by the federal government ... until they become uncollectable, in which case the value of the assets eventually has to be adjusted through write-downs, just like mortgages in the mortgage crisis.  Extensive use of Income-Based Repayment makes it possible for a student loan to be simultaneously uncollectable but not in default.

Folks, I am an unapologetic New Deal Democrat.  But the current "system" of federal higher education financing is near perfect insanity.  We set tuition and, no questions asked, the federal government writes us checks in exact proportion to students' willingness to sign loan papers.  For young people who have never worked, it is all like Monopoly money. 

The only way the math works is if the real earnings go up en masse for virtually all college and professional school graduates.  In a rapidly globalizing world in which our students are competing against Chinese and Indian professionals, the assumption of mass rising real incomes is implausible.  See, e.g., views of economist Alan Blinder in this NPR article.

Right now we--higher ed and the nation as a whole--are maintaining the illusion of prosperity through debt financing heaped on naive young people.  This is immoral in the extreme.  Moreover, in the long run, it is economic and political ruination.

The only long term solution is cost containment imposed on higher ed by reforming the terms of federal financing.  The financing has to incentivize educational productivity -- i.e., fewer tuition dollars expended to obtain better skills and learning as measured by marketplace earnings and innovation.  No more $100,000 checks from the federal government for sorting students by standardized test scores.  Our graduates will actually have to think, collaborate, communicate and problem-solve at a very high level.  How many of my fellow law professors grasp the depth of our problems?  Not enough.

[Posted by Bill Henderson]

August 10, 2012 in Blog posts worth reading, Cross industry comparisons, Current events, Structural change | Permalink | Comments (9)

Wednesday, August 8, 2012

Comparison of 2010 and 2011 Enrollment and Profile Data Among Law Schools

A recent posting by Paul McGreal at The Faculty Lounge and an article in the National Law Journal by Matt Leichter (discussed in July here on the Legal Whiteboard) raise issues about the enrollment challenges law schools began facing last year, are facing now, and likely will face next year.  This post summarizes the comparative data for the 2010 and 2011 entering classes covering the 197 schools ranked by USNews.

PROFILES IN DECLINE -- Between 2010 and 2011, 111 law schools had a decline in their LSAT/GPA profile, 59 had an increase in profile, and 27 had a mixed profile.  (A decline means across six possible data points, 75th, median, and 25th for LSAT and GPA, more scores went down then up; an increase means more scores went up than down; a mixed profile means the same number of scores went up as went down.  For example, if a school had an LSAT/GPA profile in 2010 of 160/156/153 and 3.82/3.65/3.45 and an LSAT/GPA profile in 2011 of 160/156/152 and 3.83/3.64/3.43, this would be a decline in profile – down on three parameters and up on one parameter.)   The average 75th LSAT has dropped from 160.2 to 159.9, while the average 25 LSAT has dropped from 155.2 to 154.3.  The median scores for the 75 and 25 fell from 160 and 155 for LSAT to 159 and 153.

ENROLLMENT IN DECLINE – Between 2010 and 2011, 141 law schools had a decline in enrollment (of which 63 had a decline of 10% or more), 30 had an increase in enrollment (of which 6 had an increase of 10% or more), and 26 had flat enrollment (within +/- 1% of 2010 enrollment).  This means over 70% of schools had a decline in enrollment and that nearly one-third had a decline in enrollment of 10% or more.  The decline in enrollment totaled roughly 4000 students or roughly 8 percent.

ENROLLMENT AND PROFILES IN DECLINE – Most significantly, 75 schools (roughly 38%) saw declines in enrollment and in their LSAT/GPA profiles, of which 37 schools saw declines in enrollment of greater than 10% and saw declines in their LSAT/GPA profiles.  These 37 schools are highlighted here -- (original chart has been deleted and replaced by an updated chart reflecting 39 schools as described in post on August 16).  Four of the schools are ranked in the top-50, while the other 33 schools are relatively evenly divided between the second-50, the third-45 and the alphabetical schools.  There is some geographic concentration, with five Ohio schools (plus Northern Kentucky), three Illinois schools and four of the six Missouri and Kansas schools on the list.  Notably, 16 of the 37 are state law schools, several of which are relatively low-tuition schools that should conceivably fare better in the current climate in which prospective students are increasingly concerned about the cost of legal education.

FORECAST FOR 2012-- Given that LSAC has estimated a decline of roughly 14.4% in the number of applicants for fall 2012, from 78500 to roughly 67000, and given that the decline has been greatest among those with higher LSAT scores, one should anticipate further declines in enrollment and further erosion of entering class LSAT/GPA profiles for fall 2012.  The admit rate will be the highest it has been this millennium, probably exceeding 75% and possibly exceeding 80% (after increasing from 55% to 71% between 2004 and 2011).

IMPACT FELT ACROSS THE RANKINGS CONTINUUM, BUT WORSE FOR LOWER-RANKED SCHOOLS -- While the decline in enrollment and in profiles was experienced across the board, it was more pronounced among lower ranked schools. 

-Among the top 100 schools, 55 schools (over one-half) had a decline in profile, while 67 (two-thirds) had a decline in enrollment, with 27 experiencing a decline in enrollment of 10% or more.  Notably, 35 schools saw a decline in enrollment and in profile (over one-third) of which 15 schools saw declines in enrollment of 10% or more and a decline in profile.  Overall enrollment was down roughly 6%.

-Across the bottom 97 schools then, 56 saw a decline in profile while 74 (more than three-quarters) saw a decline in enrollment, of which 36 (nearly 40%) saw a decline in enrollment of 10% or more.  Notably 40 schools saw a decline in enrollment and a decline in profile, of which 22 saw a decline in enrollment of 10% or more and a decline in profile.  Overall, enrollment was down nearly 10%.

[Posted by Jerry Organ]

August 8, 2012 in Data on legal education | Permalink | Comments (6)

Legal Whiteboard Welcomes Two New Contributors

The Legal Whiteboard is believed to announce the addition to two new bloggers, Michele DeStephano of the University of Miami and Jerry Organ of the University of St. Thomas.  

Beardslee_micheleMichele is scholar of the legal profession and one of the founders of Law Without Walls (LWOW), an innovative teaching format that levels the barriers between students, professors, practicing lawyers and clients.  I have been fortunate to have been involved with the LWOW during its first two years of operation.  It has opened my eyes to the benefits of experimentation, how students learn, and the indispensible role to be played by practicing lawyers.  The students need the mentorship and the lawyers benefit enormously from the opportunity to reflect--far more than they ever realized.  Michele and her co-founder Michael Bossone (yes, the guy with the really cool ignite video) are working diligently to scale the LWOW insights into something large and enduring.  You will no doubt read about it here!

OrganJerry Organ is scholar of property and environmental law who left his professorship at University of Missouri to be part of the founding faculty of the University of St. Thomas School of Law, a very innovative school in Minneapolis, Minnesota that is unapologetically mission driven.  I have visited St. Thomas for faculty and students talks and have been inspired and humbled by the wonderful spirit that pervades the institution.  Jerry, who embodies the St. Thomas ethos, is deeply interested in the professional formation of lawyers and the types of teaching methods needed to effect the transformation from student to professional.  He is also a hardworking reformer.  Jerry recently served on the ABA Questionaire Committee.  From my perspective, the work product of that committee has, for all practical purposes, ended the law school transparency crisis.  

I am confident that both of these colleagues will add something new and fresh to the Legal Whiteboard.

[posted by Bill Henderson]

August 8, 2012 in New and Noteworthy | Permalink | Comments (1)