No More Federal Student Aid Money for Charlotte School of Law

On December 19, the U.S. Department of Education announced that as of the end of the year, it would no longer allow students to use federal aid money at the Charlotte School of Law (CSL). The reason for this unprecedented move was the decision by the American Bar Association in November to place CSL on probation because of the low passage rate among its students on the most recent administration of the North Carolina bar exam.

Whether CSL will survive is not yet known, although it has announced that it will continue its scheduled spring semester. Whether it should survive is debatable. The question I want to explore is whether the Department’s decision to pull the plug on federal aid is a sensible one.

I have long argued that higher education is a “bubble,” which is to say that enrollments will eventually decline when people realize that the costs often exceed the benefits. The best example of that is law school.

For most of the last half century, law school was a growth industry. Legal jobs were plentiful and paid pretty well; sometimes spectacularly. More schools were founded and enrollments grew steadily. And then, around ten years ago, things began to change rapidly. Technology reduced the demand for time-absorbing legal research and consumers found that it was possible to do some work themselves that had formerly been done for them (at considerable expense) by lawyers.

Therefore, the market for legal education started to deflate. Law school enrollments peaked at just short of 38,000 in 2010 and since then have fallen by more than 30 percent. University of Colorado law professor Paul Campos put his finger on the problem when he said in this New York Times story, “People are coming to terms with the fact that this decline is a product of long-term structural changes that are not going away. It’s kind of a watershed moment.”

That watershed is having a tremendous impact on many law schools.

The high prestige law schools like Harvard, Yale, and Stanford hardly notice it, but as you go down the prestige list, schools are increasingly desperate to maintain their revenues. With fewer and fewer sharp students (as indicated by their scores on the Law School Admission Test, or LSAT) applying, lower-tier schools have largely chosen to accept students who would have been rejected in the past because of their low LSAT scores.

That has been the case at CSL. It was founded in 2006, received provisional American Bar Association accreditation in 2008 and full accreditation in 2011. Enrollment peaked at over 1,400 students in 2012, but is now down to 712. The school has been accepting more students with LSAT scores that put them at high risk of failing out or if they do graduate, not passing the bar. These data show that in 2010, the average LSAT score for its lowest quartile of students was 148; by 2016, that had fallen to 141. (A perfect score is 180 and the average is around 150.)

Reflecting the changes in its student body, the school’s bar passage rate, over 80 percent in 2010, has steadily fallen to just over 46 percent in 2016. Recent graduates have also found it difficult to land full-time jobs in the legal profession, with less than a quarter doing so; more than half are underemployed given their credentials.

CSL has a lot of company in the sinking low-tier law school boat.

As law school deans Craig Boise of Syracuse and Andrew Morriss of Texas A&M write, “In the face of a nationwide application slump, many law schools have admitted students with ever-lower LSAT scores—of all races and ethnicities—to prop up tuition revenue. They now seek to avoid accountability for the resulting poor bar passage results.”

But only CSL has been hit with the Education Department’s ultimate sanction, the loss of federal student aid.

In his statement on that, Under Secretary of Education Ted Mitchell said, “The ABA repeatedly found that Charlotte School of Law does not prepare students for participation in the legal profession.”

That’s a wild exaggeration. The ABA declared CSL not to be in compliance with its standards on legal education and student admissions in November, but the difference between being in or out of compliance is marginal. And if it were really true that the school does not prepare students for the legal profession, how could any of them have passed the bar exam and found legal jobs?

In the past, other law schools have been put on probation for the same apparent weaknesses in admitting and teaching their students. In 2005, Golden Gate Law School and Whittier Law School were put on ABA probation over low bar passage rates, but were given time to improve and got off probation. CSL wants the chance to do the same.

So why was the Department of Education so eager to administer a severe penalty that will disrupt many students and potentially prove fatal to the school?

The answer, I believe, is that the Obama Education Department, which has been on a crusade against for-profit education across the board, saw this as a final opportunity to take down what they consider an unwanted institution. Fresh off their annihilation of ITT Tech and the accrediting agency ACICS, the Department was not about to let CSL get away unscathed. With only one month left in power, the administration saw its chance and acted.

As was the case with ITT, the Department focused only on the bad aspects of CSL and ignored the good. Where the Department sees the side of the coin with low admission standards and weak results, others might view the opposite side and see an institution that gives students who probably couldn’t otherwise get into law school a chance to prove themselves. All of the students enrolled knowing that law school is hard and the bar exam the biggest intellectual challenge they’ve ever faced.

Some succeeded while others didn’t. That’s normal. But the Education Department takes the position that it’s the school’s obligation to ensure that the outcomes are good enough to satisfy it. If not, the administrative truncheons are used.

The complication is that most CSL students rely on federal aid. If they pile up huge student loan debts but can’t find jobs that pay well enough, they’re apt to default and leave the taxpayers with the expense. In justifying its action against CSL, the Department gave the need to “safeguard taxpayer dollars” as one of the reasons.

But if CSL goes under, many of the students who would have enrolled there will just find another law school willing to accept them. Eliminating one law school does nothing to solve the basic problem, which is that the output of law graduates is far in excess of the number of jobs in the legal profession.

Instead of an administrative decree that one (or even a dozen) of the schools with low bar passage rates will be denied federal student aid money, the right move would be to stop subsidizing law students entirely. If there was ever a case for using federal aid to encourage people to go to law school (I think not), that case evaporated years ago. It makes no more sense for the government to help a student with a 175 LSAT pay for Harvard than to help a student with a 145 LSAT pay for CSL.

Congress should change the law so that federal student aid money may not be used for law school. The schools will then compete as best they can for those students who can arrange to pay for their degrees with money from willing funders. No doubt there will be attrition among the law schools, but it will come from market competition, not bureaucratic diktats.

  • Glen_S_McGhee_FHEAP

    “So why was the Department of Education so eager to administer a severe penalty that will disrupt many students and potentially prove fatal to the school?”

    Good question, but without better documentation, any answer is just a guess.

    As indicated, the separation between winners and losers is growing, and is reflected in a bi-modal distribution (i.e., dumb-bell shaped) of income for graduates, increasing policy concerns about debt levels (see Kasser below).

    As Paul Campos writes, “Few areas of American life are as hierarchically stratified as the legal profession in general and the law school component of it in particular. We already have, in the legal academic world, Ritz-Carltons and Motel 6s and many exquisitely calibrated gradations in between. But there is an important difference between hotel and law school pricing: If a room at the real Ritz-Carlton costs $300 per night, a room at the Motel 6 does not cost $270. That, however, is the pricing structure of law schools.”

    But because federal dollars are involved, such blatant inequity shifts the burden of regulation to the department. Jake A. Kasser, Professional Integrity: Why the DOE Should Apply Debt Measures to Law Schools, 43 U. Mem. L. Rev. 805, 806 (2013), argues that the debt-burden on students graduating from for-profit institutions that have prompted ED regulation is not unlike the debt-burden of law graduates. For ED to fulfill its policy initiatives articulated in the most recent rulemaking, the new gainful employment-debt measures should be expanded to encompass law school institutions.

    Perhaps this is what we are seeing, since the department is apparently reading more into the ABA probation warning than the ABA is willing to say or do.

    Some time ago, the Wall Street Journal (9/24/2007, A1 and A11) noted “a survey of about 650 Chicago lawyers published in the 2005 book ‘Urban Lawyers’ found that between 1975 and 1995 the inflation-adjusted average income of the top 25% of earners, generally big-law firm lawyers, grew by 25% — while income from the other 75% actually dropped.”

    True to type, this local stratification of the ranks of Chicago lawyers is an especially interesting example of occupational bifurcation, where conditions of extreme competition and hierarchicalization predominate, resulting in large divergences over seemingly small underlying differences. This last point is key.

    Moreover, law school salaries clearly demonstrate a tri-modal bifurcation: $0 (i.e., unemployed or part-time work, not necessarily in the legal sector); $60k; and $120k. Over the years 1996, 2000, 2006 (Fig. 1., Fig. 2., Fig. 3.), this demonstrates a noticeable divergent stratification process.
    http://www.lawschool.cornell.edu/research/JLPP/upload/CJP102-Macchiarola-Abraham-2.pdf

    “The result was, for the first time, the two peaks of a bimodal distribution, with nearly 14% of salaries reported at the $125,000 level and 48% of the new lawyer salaries falling in the $30,000 to $50,000 range. [But] By 2006, … the obvious and dramatic stratification of the market for new lawyers was conspicuous, with 44% of new lawyers earning between $40,000 and $60,000 and 17% of new lawyers earning the $135,000 or $145,000 starting salary common to big law practice.”

    http://www.nalp.org/2008jansalaries
    The successive graphs clearly show the emergence of increasing bimodalism over time.

    But what is noteworthy is that each of the bifurcations (employed/unemployed vrs $60k vrs $120K) that are emerging among law school graduates are indicative of underlying instability. Emerging bifurcations show the greater risk that small changes can result in massive shifts in herd behavior. In terms of this model, any increase in “fear” could have this effect, and supports the plausibility of a cusp-catastrophic bifurcation, or series of bifurcations, occurring in higher education.

    • George Leef

      Thanks for the comment, Glen. First, it’s not possible to prove that the Department officials were just carrying out their vendetta against for-profit schools, but it’s perfectly consistent with their behavior over the lifetime of the Obama administration and especially the last two years. The “gainful employment” regulation itself is an indicator, since it targets for-profit institutions and leaves non-profits alone.

      As for the idea that the “increasing bimodalism” of legal salaries makes the case for increasing federal regulation, I think we need something far more direct — to get the feds out of financing and regulation law schools entirely. We need deregulation, not more regulation and I mean for the entire profession, just merely law school.

      • Glen_S_McGhee_FHEAP

        Thank you for the reply, George. Do you know if Kasser is correct, that GE does not apply to ABA accredited law schools?

        The sudden withdrawl of Title IV support from law schools would send shock-waves across the country — but it would limit the production of law grads, and the lawyering guild would secretly love it for that reason.

        Publically, however, the law schools would do everything in their power to prevent the loss of their access to federal resources by characterizing it as an attack on the profession and the rule of law in the USA. Our federal legislators, many of whom are law school graduates, would be bombarded by their schools to order back such aid. Parents of students without jobs and no employment options would pressure them to bring back these middle-class privileges as well.

        If this analysis is even partially correct, there is no chance of ending access to federal funds, at least not in this way.

        A similar change in access to federal funds for medical students would create a national emergency. The enormous student debt of medical students is one of the reasons we see the unceasing in-flow of foreign doctors, medicaid and medicare corruption, and doctors refusing to service the uninsured — even those with low-paying health plans. I don’t think anyone realizes that extent to which high medical student debt levels and the cost of medical school education contribute to the health care crisis in this country. The immediate responses have been the nurse practitioner and physician assistant programs, created to address the appalling shortfall in the provision of health service. Pity the person having to go to an urban emergency room — they will learn first hand about this problem.

        • George Leef

          I believe that GE does not apply to ABA accredited law schools, but haven’t looked into that.

          If law schools were no longer eligible for federal student aid funds (something that I’d suggest be done over a period of years, not immediately), they would find ways to lower their costs and outside parties who want to see non-wealthy people be trained as lawyers would come up with the necessary funds. And if fewer people graduated from law school, that wouldn’t mean any reduction in the availability of legal services since a large percentage of grads never practice law. The “output” of law school credentials exceeds the number of jobs that demand them by a wide margin.

          Finally, I’ll add that the legal profession it complicit here by its ugly turf protection wars against allowing people who aren’t members of the cartel (that is, a bar association) do any legal work. What I’m talking about here are unauthorized practice of law prohibitions that the bar uses any time a non-member, no matter how competent, starts to divert billable hours away.

  • Mark Burkey

    “These data show that in 2010, the average LSAT score for its lowest quartile of students was 148; by 2016, that had fallen to 141.” NOPE.

    Stats lesson for the day: The first quartile being 141 does not mean that “the AVERAGE LSAT for its lowest quartile of students was 141”. It means that “25% of students scored LESS THAN OR EQUAL TO 141”. Similarly, the 3rd quartile of 148 means that 75% of students scored LESS THAN OR EQUAL TO 148.

    • George Leef

      Thanks for the clarification. Do you think that changes anything, though?

  • Glen_S_McGhee_FHEAP

    New statistics released by the department show how 5 of 6 law schools are not achieving debt-earnings goals for their graduates. (Generally, the for profit schools take a beating in comparison with public schools in regard to this particular metric.) https://studentaid.ed.gov/sa/about/data-center/school/ge

    Here is more on LSAT score distributions.
    http://www.lsac.org/docs/default-source/research-(lsac-resources)/tr-12-03.pdf?sfvrsn=4

  • machinephilosophy

    Not 1 in 1000 know what logical validity is. A degree guarantees only ignorance, vagueness, mediocrity, and possibly sabotage of your business if you hire a wimp-loser with one.