Admittedly, the ABA's proposal would be helpful to law students in the short term. However, the real root of the prolem is the massive amount of student debt that the increased cost of law school now requires lawyers to saddle themselves with, as I have previously discussed here amd here.
Our current thinking is that the greatest virtue is to "provide access" to law school by allowing students to take out massive debts. We focus on getting the student into the law school, not on the overal financial impact of the law school decision on the student's life and on society. We like to pretend that the student's career choice is a product of a "free market in education." The thinking is that potential law students won't go to law school - and won't take on the massive debt - unless it is a winning proposition for them.
However, in reality the student is typically making the decision to go to law school based on faulty and inaccurate information. More specifically, the salary information provided by law schools and the popular press is typically highly suspect, as we have previously discussed here, here, here, and here. To use an analogy from the stock market, you have sellers pumping potential buyers with inaccurate information in an effort to persuade the buyers to make a huge financial purchase.
Further, we have sellers (law schools) raising their prices based on the ability of the potential purchaser to get a loan.
It is very disappointing that we insist on a very high standard for truthful information from a seller when the seller is selling a $20 stock, but when the seller is selling a $200,000 legal education we have virtually enforcement provisions - or even standardized ways of measuring value/salary from one law school to another. This lack becomes even more distasteful when we realize that the prospective purchasers of a law school degree are typically making a very highly leveraged decision that may have a very long-lasting adverse impact.
In the financial world, we attempt to moderate this risk in several ways: 1) Uniform rules for disclosing risk and performance information across companies, 2) Harsh penalties for misrepresenting this information. Also, for investments that are deemed to be more risky, we only allow certain "accredited investors" to participate in the investments. The idea being that 1) the accredited investor would be more savvy and perform better due dilligence, and 2) if the investment goes bust, the accredited investor is not likely to be ruined.
Translating this structure into the legal education field, here are some aspects that should be warranted to make the market safer for all participants:
- Standardized information reporting. All schools should calculate their salary in the same way. The process for determining the "average starting salary" should be transparent and uniformly applied.
- The ability of the student to accumulate student loan debt from all sources (both public and private) should be limited to a total amount for which the payments represent a reasonable risk-adjusted number based on the law school. For example, if a true determination of the average starting salary for a law school is $60K, and the law school has a placement rate of 80%, then the risk-adjust salary for the law school is $48K. Subtracting out $15K to meet poverty-level expenses leaves $33K. Imposing a percentage cap of 25% leaves $8250. This number would represent the maximum loan payments for a year. $8250 works out to about $687.50/month. That leads to a cap of about $60,000 in law school loans, according to this calculator.
First, the students will likely be a little older and have some experience working in the real world. Consequently, they will more likely look at the law school "opportunity" with a better appreciation of the relative risks and rewards.
Second, the whole transaction of going to law school will be less highly leveraged becase the student will no longer be leveraging 100% of the cost. This could provide for a softer landing if the job search does not go as expected.
Third, the impact on law schools will mostly likely be to drastically cut demand because potential students will be a little more savvy and be paying for a larger percentage out of their own pocket. This reduction in demand should in turn put pressure on law schools to reduce their tuition, which would benefit students. It may also put pressure on law schools to lower their class sizes or force the bottom-of-the-barrel law schools to close - both of which would further help the opportunities for the remaining law students.
In conclusion, we need to back away from enabling the "gotta-have-it-right-now" attitude and help potental law students make better finncial decisions. Ensuring information uniformity and right-sizing the amount of law school debt to match the potential oppotunity are two badly needed market reforms.