prospective law student

The Bright Legal Market of 2015

Andy had been keeping up with the poor state of the U.S. legal market a few years ago, and it seems like a good idea to continue his efforts. The recent positive U.S. job report for January 2016 had some minor bad news for the legal profession: a loss of 1,400 lawyers, or 0.12% from December.

But the sour news was completely offset by the 95 percent of law students who spent last summer clerking at a law firm and received an offer to work full-time at the firm after graduation. Read about it here, but the takeaway is that the effect of the ’08 recession was over last year, partially because the law school bubble has finished it’s big pop:

The 95 percent offer rate was up from 93 percent in 2014, and a marked increase from the low of 69 percent in 2009.

Leipold noted that with first-year law school enrollment having fallen by more than 15,000 nationwide over the past five years, law firms are seeing more competition for the top candidates simply because schools are producing fewer graduates.

So long as the January’s (… and February’s) stock market, oil plunge, emerging market trifecta doesn’t spin the United States into another recession in 2016 … it might be time to again start thinking of an American J.D. as a safe investment in the future. But don’t tell your friends.

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68.4% Employment for Class of ’10.

It seems like just yesterday I advised any law student to take a Sharpie and black out the part of U.S News & World Report where it talks about new graduates achieving 98%-100% employment.

Oh. Wait. It was.

NALP (an association that compiles all variety of legal employment statistics) just came out with its selected findings for the class of 2010 (those graduating last May). The numbers are as ugly as one might expect.

Only 68.4% of 2010 law school graduates had jobs that required them to take and pass a bar exam. Another 10% or so had jobs that were “J.D. preferred”. The odds are still better than betting $100k on red at the roulette wheel, but this is the lowest it’s ever been. Light still doesn’t seem to be at the end of the tunnel, either.

The NALP findings in full are available here.

[UPDATED: Things are looking better for 2016]

Demystifying Student Loan Reform; Income-Based Repayment (IBR) for Law Students

 

This is a post beneficial to many – not just JETs with J.D.s. But, since law students are the ones graduating in the largest numbers with work (or lack thereof) providing insufficient revenue to pay off their student debts, understanding the mechanics of what IBR is all about may not just be helpful, but necessary.

But first: because I’m an anal-retentive law school type, a DISCLAIMER: I’m not here to provide you legal or financial advice as to whether IBR is right for you (or whether you should go into law school and take on a massive amount of debt in the hopes that IBR will take care of all your financial worries). For that, please consult your conscience, or some kind of financial adviser.

Enough of that. Now onto the good stuff.

Why You Shouldn’t Expect a Student Loan Bail-out

There are plenty of folks out there hoping for some kind of student loan amnesty — a hope that, in some way, their student loan debt, acquired in a down-trodden economy with few job prospects, will evaporate by some magic act of the state. A quick look at the cost of such a bailout, however, is instructive. The average law grad carries around $100,000 in debt. There are currently 200 ABA-approved law schools in the United States. (This is a low-ball number as it does not count non-ABA approved schools. I’m looking at you California.) While each school admits different numbers of students each year, for my calculations I’ll assume 200 students per class. (I also consider this a low-ball since plenty schools clearly have more. See, for example, Northwestern, Ohio State, George Washington University, and the list goes on).

With those numbers, the low-ball cost to bail-out one graduating year’s worth of law school students is…
$100,000 x 200 schools x 200 students per school = $4,000,000,000.00. That’s billion with a “B” in case you’re bad at counting zeros. By comparison, that’s the low-ball estimate for the costs incurred by the BP Oil Spill.

Expand this number to include the entire “Lost Generation” of law students graduating between 2009-2011, and you are asking for a $12,000,000.00 bailout, c/o of the American taxpayer. This calculation doesn’t even entertain the risk that a law student loan amnesty would open the door to other unemployed students: undergraduates who graduate underwater; grad students. When you consider the financial implications of bailing them out, the numbers skyrocket.

I’m sure bailing out newly minted degree holders in the aftermath of the financial crisis carries with it a certain degree of moral superiority, at least compared to bailing out Wall Street bankers. But face it: it’s just not going to happen, and unemployed 20-somethings have a lot less political pull.

IBR may be the closest thing the student community will ever get to a bailout– so it’s worth your persual, especially if you are entertaining the thought of taking on law school debt.

Income-Based Repayment, and how it works

Eligibility

First: IBR only works for non-defaulted federal loans through the FFEL and Direct Loan programs (Stafford & Grad PLUS, for example), and only those loans are used to determine eligibility. So, if you’re in danger of defaulting on that $300,000 you took from Fat Tony that you gambled away in Vegas, sorry: no IBR for you.

Second: In order to be eligible for IBR, you have to be in a “partial financial hardship.” You have a partial financial hardship if the monthly amount you would be required to pay on your IBR-eligible loans under a Standard Repayment Plan with a 10-year repayment period is higher than the monthly amount you would be required to repay under IBR. That means you’re going to have to look at your individual situation to find out whether your current debt-load would be better under IBR than the Standard, and if you are eligible, determine if IBR is a better situation for you.

Reduced Payments

If your non-defaulted FFELS/Direct Federal Loans and your debtload meet the requisite criteria, IBR allows qualified borrowers to cap their monthly payment at an amount that is intended to be affordable based upon income and family size, and will be less than what you would have to pay under a 10-year Standard Repayment Plan. Whenever you hear President Obama talking about not having to pay more than 10% of your income in student loan payments, it’s reduced payments such as IBR that he’s talking about.

But reduced payments aren’t the only benefit. If you make consistent payments under an IBR plan for 25 years and meet certain other requirements, any remaining balance will be cancelled. If you work in public service and have reduced loan payments through IBR, your remaining balance after ten years in a public service job could be cancelled if you made loan payments for each month of those ten years. That’s right — loan forgiveness for consistent payers.

The Downside

You know there has to be one. But compared to the downsides of selling your liver for quick cash, the downside to IBR is not so bad. First: more of your payments are going to be going towards your interest, and not your principal amount. As a result, you’re going to put less of a dent into your principal. There’s also a mechanism in the loan repayment process whereby, if your payment doesn’t cover all the interest, unpaid interest capitalizes INTO the principal amount.

Second, because you’re paying more in interest and your principal is either remaining the same, or, possibly growing: your ultimate forgiven indebtedness after 10 or 25 years is going to be a larger number.

If it’s all disappearing, you’d think it wouldn’t matter, right? But, forgiveness of indebtedness counts as taxable income under the internal revenue code. So, if after 25 years, the government forgives your $100,000 law school debt in total – you now have $100,000 worth of taxable income.

Another drawback is that you’re going to have to submit paperwork to your debt servicer every year, indicating your income, so that they can recalculate your IBR payment for that given year.

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Resources

This post is just an overview of IBR, but I don’t want to provide you with just an overview. There are a great number of resources out there to help answer questions and flesh out IBR better for you than I can.

The Federal Student Aid Website has a quick explanation of IBR, and an IBR Calculator available for your use.

They Federal Student Aid site also has a document addressing the most common questions raised about IBR. There is a lot of great information there, including the mechanics of applying for IBR.

Here is a transcript running down the various other methods of student loan repayment, including IBR, that while quite lengthy, goes through things in great detail.

Finally, a fellow colleague of mine over at The Law School Tuition Bubble has also provided a couple of posts regarding IBR that are well worth reading.

Stand Aside U.S. News, Crowdsourced Law School Rankings

Up to now, the primary resource for prospective law students looking for school rankings has been U.S. News & World Report. Exclusive reliance on its rankings is something U.S. News & World cautions against, but that caution sounds no different than S&P or Moody’s saying: “Our ratings of various securities are the best in the industry, but don’t make them the only thing you rely on when making an investment decision.”

In short, rely on us, but don’t really rely on us.

Well, perhaps now U.S. News doesn’t have to worry about being relied on nearly as much. A group called the Conglomerate is taking web user’s votes on law school rankings. The website is hardly scientific, and the voting scheme is more like voting on hot or not. (I can’t even believe that website is still up. You’re welcome.)

But really, is consulting it any worse than consulting a magazine that ranks people according to statistics everyone knows are gamed by the schools, statistics that aren’t adequately audited in any accountable manner, statistics that no reasonable person should trust as a representation of reality?

Conglomerate’s Crowdsourced Rankings are here.

Great Above the law Commentary is available here.

Law School Grades versus the Grade of Your Law School, Which is More Important?

As a prospective student, one of the hardest choices you have to make is which law school you will choose for enrollment.  While you naturally want to make sure the school you choose has the faculty and course selections you are looking for, how are you going to choose amongst the schools that meet those criteria?  The instinctive choice, one would think, would be to choose the school with a higher ranking.  Higher rankings open more doors, right?  And if “C’s get degrees,” what need is there to worry about taking  a hit to your GPA if it means you get a degree from one of the top schools in the country?

Not so, say two law professors. UCLA law professor Richard Sander and Brooklyn law professor Jane Yakowitz argue that the “eliteness” of your degree doesn’t matter as much as your GPA. When it comes to predicting career success, they say, it’s all about the grades.  So, while C’s may get degrees, it’s the A’s that get what pays, if you will.  My first reaction to this, not being part of an elite law school myself, was: “Excellent!”

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Choose your law school by the height and quality of its towering spires. 

My second thought was: “Wait … what?”

But before I can get to the major problem this study leaves untouched, for the uninitiated let me provide a quick bit about law school grading– which is vastly different than anything you experienced in your undergraduate studies.

 

(1): Nobody Fails Law School

Seriously.  Of course, like JET, every law school’s grading situation is ESID.  But, even with bare minimum effort, at law school you are guaranteed a C average.  Once you are in, it would take a far more concerted effort to fail — requiring you to get things blatantly incorrect on exams and plagiarize your papers to truly fail out of law school.

(2): Most Law Students Don’t Have an A-Average

Unlike your undergraduate years, a well-concerted effort in law school is no guarantee of an A. The undergraduate system rightly rewards hard work: put forth the effort and show mastery of the material and you will get an A, if your understanding is a little off, you might hope for a B. Law school, however, grades on a curve.  This is assuming your law school even has grades, but again, ESID on that. Most law schools set a curve where a few number of people walk away with A/A-, a glut of people walk away in the B range, and a few unfortunate souls get a C.  If you do walk away with a C, there is a slight chance that your grade may actually go up, retroactively, with inflation, but that’s a risky strategy not worth banking on. Moreover, because the whole system is curved, the law school grades aren’t a measure of competence or material mastery, but a competitive comparison of where you stack up against your classmates.

Add to that the fact that most people at any given law school are within the same LSAT range, and that means that if you go to a law school within you LSAT range score, you are competing against a couple hundred clones of yourself for a very finite number of As.

(3): Most Employers Know Both (1) and (2)

And hire accordingly.  Of course, one C on a transcript can easily be explained as an outlier and dismissed if the rest of your transcript shines accordingly– but a host of  C’s on a law school transcript will likely raise a red flag to potential employers.

But really, do grades outweigh eliteness?  Is it really advisable to take that lower ranked law school instead of that shiny Harvard or Yale law degree?

It seems that the study runs a great risk of being misunderstood.  Perhaps there is a correlation between GPA and the amount law graduates end up earning in the long run (which is what the study maintains), but the study doesn’t speak to your actual job prospects in the lower ranking schools as opposed to the elite schools.  The ability to earn more money with a great GPA from a lower ranked school is meaningless if you don’t have a starting salary to develop that from.

Certain employers, moreover, knowingly discriminate by eliteness of school. If you’re an Ohio State law student, for example, you can pretty much count out a Supreme Court clerkship with Supreme Court Justice Scalia.

My point is simple: a higher GPA at a lower ranked school might net you more money at some point, but it’s still the elite named law school degree that will open doors.  And, in an economy where the doors to the legal profession are few and narrow, the edge of eliteness cannot really be understated.  Of course, in an era where even the elite law students are begging for work on Craigslist, my guess is as probably good (or bad) as any.