Law School Reality Archives - Page 31 of 37

Subprime Goes to College The New Mortgage Crisis — How Students at For-Profit Universities could Default on $275 Billion in Taxpayer-backed Student Loans

New York Post: “Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.”

“The for-profit industry has grown at an extreme and unusual rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk, and the for-profit industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.”

“Though for-profit students account for 10% of all college students, they represent 44% of all loan defaults, according to the Department of Education.”

Higher Education’s Bubble is about to Burst

I’ve been saying for some time that the higher education system in the United States is broken. Rather than existing to educate young people and prepare them for jobs in the adult world, institutions of higher education have become money printing machines for the people and organizations that run them. While the cost of an education goes up, the quality of the education goes down. It’s a win win situation for schools on the gravy train, but it’s a lose lose situation for the victims students. Consider reality:

A college degree is not an automatic ticket to a good paying job.
Big school debt equals big life-long problems when you owe $100,000, $150,000, $200,000 or more

1. It becomes harder to find somebody who will marry you. A lot of people will not want to marry into that kind of debt.
2. It may not be possible to get a loan to buy a home. School loan debts may replace home ownership as the big debt paid over thirty years.
The real estate market and the real estate industry will suffer because so many people will simply have too much debt to qualify for a home loan.
It is virtually impossible to discharge a school loan in a bankruptcy.

According to University of Tennessee law professor Glenn Reynolds who wrote the article in the Washington Times linked to below, the cost of a college education has gone up 439 percent since 1982. Why? The higher education bubble is about to burst. Schools may set tuition at any amount and students will pay because they can borrow any amount necessary to finance higher education from an approved institution. Consider these actual tuition and total costs of school year numbers and ask why would anybody would spend the incredible amounts of money required to get a law degree in these difficult economic times. Below are the annual tuition and total expenses for nine months of law school at the indicated schools.

California Western School of Law (a bottom tier U.S. News & World Report law school)- $40,680 tuition/year & $61,000/year total (estimated because the school doesn’t give prospective students a clue as to how much it will cost for room, board and incidentals in San Diego, California for nine months) = $183,000 for three years
Harvard Law School – $45,450 tuition/year & $70,100/year total = $210,300 for three years
University of California at Berkley– Boalt Hall: nonresident $49,310 tuition/year & $71,274 total/year =$213,822 for three years
Yale Law School – $48,500 tuition/year & $76,650 / year total = $229,950 for three years

Washington Times: “First — as with the housing bubble — cheap and readily available credit has let people borrow to finance education. They’re willing to do so because of (1) consumer ignorance, as students (and, often, their parents) don’t fully grasp just how harsh the impact of student loan payments will be after graduation; and (2) a belief that, whatever the cost, a college education is a necessary ticket to future prosperity. Bubbles burst when there are no longer enough excessively optimistic and ignorant folks to fuel them. And there are signs that this is beginning to happen already.”

For more on this topic see:

Growing Student Loan Debts Mortgaging Future of Young College Grads

Houston we have a problem, but it’s not in outer space. The university system with its out of control tuition increases and lack of regard for the laws of economics is crippling young people with mountains of school loan debt that will take decades or in some cases, lifetimes to repay. The system allows schools to increase tuition at will knowing that students have a blank check from the federal government student loan program to borrow as much as necessary to attend every school regardless of how much the room, board and tuition.

The schools do not warn the prospective students about the consequences of incurring huge student loan debts. Nor do the schools give accurate employment statistics for their graduates in all their majors so that prospective students can know in advance what their chances are of getting a good paying job that will allow them to repay the debts. Truth in advertising does not apply to schools when it comes to the cost of an education. It’s only a matter of time before aggressive trial lawyers start filing class action lawsuits against schools for omitting to tell prospective students the material facts. Only then will schools stop raising tuition through the roof and become competitive in terms of the cost of a college education.

The New York Times published an eye-opening story about big school loans called “Placing the Blame as Students Are Buried in Debt.” The story discusses the sad situation of a 26 year old young woman who ran up a $100,000 debt while getting an undergraduate degree from New York University. She attends night school to defer the payments, but that only causes the interest to accrue and the debt to spiral upwards. The story says:

“It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it’s a shared failure of parenting and loan underwriting. But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.”

Forbes has a related story called “Five Options For Grads With Student Debt But No Job.”

“Taking out student loans is as common among college students as posting pictures on Facebook. But as recent graduates try to find their gainful employment at a time when one in five under-24-year-olds is unemployed, making monthly payments on student loans can range from tough to impossible. . . . Student loans are one of the stickiest types of debt around. Unlike credit card debt, mortgages and most business loans, the money you owe on your student loans won’t be forgiven, even if you file for bankruptcy.”

Large student loan debts can also scare away potential spouses and make it harder to find a mate. Many young people do not want to marry a person who brings the baggage of a $100,000+ debt into a marriage. The worst situation is when two young people meet in school and marry and have a combined debt of the husband and wife. I know of a young couple that met after graduating from law school while they pursued graduate law degrees. They both have over $150,000 in school loans. They newly weds now have a combined loan debt that exceeds the cost of a nice home in most parts of the country.

President of the State Bar of California Worries About the Law School Problem & Future of Recent Law School Grads

Howard B. Miller, President of the State Bar of California, wrote an important article called “Truth in lending and in careers.” Everybody who is considering going to law school should read the article. He discusses the terrible situation facing many recent law school graduates – huge student loan debts and no lawyer jobs or low paying lawyer jobs. Here are some points covered in the article:

“The economic impact of the great recession has been acute. For graduates in 2008, 2009 and this year, the combination of the number entering practice, the lack of jobs and the levels of debt are devastating personally to those involved and should be to all of us who care about our profession.”

“The average debt of law graduates now approaches or exceeds $100,000, and because of recent increases in tuition, especially at public institutions which historically have been more affordable, debt burdens will be even greater in a couple of years.”

“At least 10,000 lawyers, probably more, including many, many mid-level associates with no place to go, have been officially laid off during this recession. Many more have job offers with deferred entry dates, or are counted as “employed” while voluntarily interning for nothing, or are in temporary lawyer jobs reviewing documents for $15-$20 an hour, with no security and jobs that can disappear at any moment.”

“For the foreseeable future the starter jobs that provided traditional training for those lawyers are not coming back.”

“we need to be transparent with potential lawyers about the cost and benefits of studying law. All law schools need to gather, verify and report, in consistent and specified ways, the employment record of their graduates, as well report on those who may have started, paid tuition, but never graduated.”

See “$10 an Hour for a J.D.” Also, read about and listen to five recent graduates of Georgetown University law school interviewed by National Public Radio. Three of the five have lawyer jobs, although one job is deferred until January of 2012.

Job Market Leaves New Lawyers Far from Easy Street

Star-Tribune: “A law degree used to be a ticket to the good life. But in this economy, debt-burdened law school grads scramble for a job – any job. . . . A few years ago, a law degree was practically a ticket to a comfortable life. The recession has changed that for most new graduates.”

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