Has excess capacity hit the legal profession? The Chicago Tribune discusses the situation in Law school tuition hikes spark talk of bubble



The rising cost of law school is becoming a sore subject as the number of high-paying jobs shrink.



With large numbers of unemployed or underemployed lawyers who borrowed heavily to pay for their educations, legal educators face growing skepticism about the value of a law degree. Anonymous critics have started blogs with harsh names such as "Big Debt, Small Law" or "The Jobless Juris Doctor."



With three-year programs at top schools costing nearly $150,000, not including room, board or even books, some of the criticism is coming from inside the legal profession. Christine Hurt, a law professor at the University of Illinois, suggests that the market for legal education is strikingly similar to the subprime mortgage market. Her theory, which she posted on "The Conglomerate Blog" last week, goes like this:



Double-digit tuition increases in the last 25 years have priced law schools out of reach for many. Yet the promise of a career at a big law firm with its six-figure paychecks kept boosting enrollment. Easy credit allowed more students to finance their law degrees. All of a sudden law firms lay off droves of attorneys and limit the number of new hires, leaving graduates out of work with more than $100,000 in loans to repay.



The recession already has forced law schools to rein in tuition hikes that were well above inflation for the last 25 years, including double-digit increases in many years. Last fall, Northwestern University's law school raised its tuition by about 4 percent, its smallest increase in 32 years, said David Van Zandt, its dean. Its annual tuition is still among the highest in the country at $47,202.



But with law firms cutting salaries and hiring fewer graduates last year because of the economy, Northwestern sent just 55.9 percent of its 2009 graduates to the largest firms, according to the National Law Journal. Yet the school still was No. 1 in the publication's annual ranking of graduates who found jobs at big firms.



Van Zandt said he believes big law firms will never go back to hiring graduates in droves. That means they will recruit from fewer schools.



"It doesn't make a lot of sense to go to law school unless you go to a pretty good one," Van Zandt said.

Bubbles, Student Loans and Sub-Prime Debt

For a couple of decades now (and until a few years ago), the conventional wisdom was that real estate would always rise in value and that the world would always need lawyers. Home ownership at whatever cost, particularly with tax-deductible interest rates, was better than alternatives such as renting; financing a law degree with student loans, some of which was low-interest and tax-deductible, was an equally good investment given the value of the law degree. Just as something about home ownership seemed intrinsically good, so did getting a law degree, from any law school. Strangely, most law school educations were priced similarly. Law schools with lower employment rates charged more money than some schools with higher employment rates. Price was not a clear signal of quality. Anyway, more and larger houses were built; more and larger law schools were built. Then, as if on a dime, the world changed and all of a sudden lots of people with law degrees were getting laid off, deferred, ignored.



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How can someone write off $100,000 or $200,000 in student loans as a bad call? Many of these loans aren't federal loans -- they are from private lenders at high rates. And, unlike homeowners, law students don't have a "put" option -- they can't tell lenders to take their law degrees and quit calling them.



So, what's the future of law school pricing? Will someone create an affordable model that doesn't depend on third-party financing? Will some law schools start to look like culinary schools or technical institutes that provide financing of $40,000 a year for a law degree few employers are looking for? Or will law schools pride themselves not on inputs (LSAT, GPAs, you know -- USNews stuff) and on outputs (where our graduates actually end up working, and how much they make).