Law School Problems, Proposed Reforms Could Affect Colleges

Law schools could be the canary in the coal mine for colleges – both in terms of problems and reforms.

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Extending gainful employment regulations could help ensure the federal government receives a good return on its investment in legal education.

We've mentioned before that law school might be the canary in the coal mine when it comes to broader problems with postsecondary education.

Some of the problems that law schools may face in the near future because of the massive student loan debt students are racking up and some of the reforms that have been proposed may also be coming soon to a college near you.

One avenue of potential trouble for law schools is that the federal government may decide it is not getting its money's worth from student loans. Kyle McEntee, executive director and co-founder of Law School Transparency, recently calculated the massive investment the federal government has made in law schools via student loans.

According to his figures, the federal government disbursed $4.88 billion in loans to law students during the 2012-13 academic year. He estimates the federal government will provide another $4.47 billion during the 2013-14 year, a time of declining law school applications.

[Get tips and advice on paying for graduate school.]

However, these huge numbers are a drop in the bucket of the federal budget. The Department of Education disbursed $112 billion in student loans in fiscal year 2012 alone; law school student loans make up only about 4 percent of that disbursement. And the total amount of federal higher education student aid for fiscal year 2013 will be around $100 billion more than that.

Furthermore, assuming the Bipartisan Student Loan Certainty Act of 2013 goes into effect and sets new market-based rates for student loans, the Congressional Budget Office estimates the government (which is expected to make a nearly $51 billion profit this year off student loans) will again start making billions of dollars off the overall federal direct loan program beginning in 2017.

[Understand how the government calculates the cost of student loans.]

Some argue that new income-driven repayment plans such as Pay As You Earn – which limits monthly payments to 10 percent of a borrower's discretionary income and provides taxable forgiveness after 20 years – could result in the federal government losing money on law student loans in the long run. Though the Student Loan Ranger doubts that will be the case, those losses will not amount to much in the context of the overall federal student loan budget.

Given all that, the Student Loan Ranger would strongly argue against proposals made by the New America Foundation and others to eliminate PLUS loans for graduate and professional students. The amount of money saved would be trifling and, rather than lowering the cost of graduate and professional schools, would probably force law students to rely instead on riskier private student loans.

One avenue of federal intervention we support and think is more likely to occur is the extension of gainful employment regulations to law schools. These regulations, which remove eligibility for federal student aid to schools with truly bad employment outcomes, currently only apply to vocational programs.

This could be an effective means of ensuring the federal government receives a good return on its investment in legal education, given the employment woes of law school graduates.

[Learn about proposals that would eliminate student loans.]

Gainful employment would also accelerate market corrections that are rapidly ushering in a new era for law schools. Declining enrollment, driven by the increased public awareness of the risky combination of high student debt and lack of legal jobs, is affecting the economic viability of the law school model and may well result in a handful of law schools going out of business.

McEntee has posited that law schools may soon divide into "elite" and "practice-oriented" tiers and that faculty will be forced into more flexible and part-time employment. Law professor and legal education critic Brian Tamanaha believes law schools will have to make a choice between decreasing enrollment while maintaining academic quality and rankings and maintaining enrollment yet sacrificing academic quality and rankings.

In the meantime, the cost of college continues to increase, borrowers continue to struggle to repay student loans (take a look at our e-book, "Take Control of Your Future" for information and advice on repayment) and the underemployment of college graduates continues. If these trends continue, it becomes more likely that federal government reforms and increased market pressures will also begin to reshape undergraduate education.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.