It was a privilege to have three such eminent commentators on my Reasons to Be Cheerful essay. Brian Tamanaha deserves enormous credit for being among the first to sound the alarm on the financial problems of legal education. Sam Estreicher is not only a pioneer in bringing bench, bar, and academy together through his programs at NYU but also deserves some of the credit and/or blame for my presence in the academy. Not only was he enormously helpful and kind in participating in a workshop on my dissertation, he has proven equally helpful and kind ever since. Finally, Ken Randall is not only without peer in the world of deans for his success at the University of Alabama, where I had the privilege of being a faculty member, but has become a good friend. Responding to such eminent commentators is thus a challenge.

Prof. Tamanaha is gloomier than I am, because he thinks tuition levels are too high, debt burdens too great, law schools are admitting unqualified applicants, and bar pass rates are likely to continue to decline. He thinks loans and Income Based Repayment (IBR) and Pay as You Earn (PAYE)  will continue to subsidize bad behavior by law schools and innovation will be blocked or slowed by a combination of faculty resistance and ABA accreditation standards.

I think we should be cheerier than Prof. Tamanaha because I think that while there is some truth in each of his concerns, things are better than he recognizes. Real tuition is falling much faster than nominal tuition, as schools compete for applicants. One need not be in the roughly 200-300 applicants nationally with a 170 or better LSAT and a 3.75 or better undergraduate GPA to get an excellent price at many law schools. Jerry Organ (St. Thomas) presented data on this recently at Texas A&M and has been blogging on the subject and he shows that there is a widespread real price drop underway. Price conscious prospective students with reasonable credentials (LSATs above 150 and UGPAs above 3.0) can get much lower real prices than they could a few years ago because schools are discounting tuition to get good students. This will lead to declining law school debt burdens as well.

IBR/PAYE is more complex. It may steer more law graduates into public service (good), resulting in greater demands on the government as debt forgiveness starts to appear on the federal balance sheet (bad). Those burdens may lead to changes in the program in the future, although I suspect the politics will protect current participants even if such changes occur. As experience with IBR/PAYE grows, I think the most likely outcome will be that information spreads among students and prospective students about what participating in those programs actually means and that will diminish the subsidy effect that justly worries Prof. Tamanaha.

Prof. Tamanaha is correct that there are more students at the low end of the spectrum of credentials going to law school, and many of these students are still paying relatively high tuition and taking on substantial debt. I think that can be a real problem, but one that is likely to be less severe as market forces operate. Yes, some law schools are taking in students who have little likelihood of passing the bar based on their entering credentials. And some schools probably aren’t doing as much as they should to help them get ready, but others are investing in that. I think the ABA can play a constructive role here – if those lower credentials lead to bar passage problems (and I think they almost certainly will), the ABA could require schools with those problems to address them. Indeed, it is not a mystery how to equip a student with low credentials to be able the bar but it is expensive.  It takes significant investments in developing legal skills, test taking skills, and study habits by faculty working one on one with students, administering practice tests, and so forth.

As an economist, I’m reluctant to pin my hopes on a regulator, but the ABA is certainly aware of the problem. I think it is likely to act if it needs to because the profession’s interests are not served by large-scale bar passage problems persisting. Indeed, one of the biggest reasons to be cheerful is the ABA’s choice of Barry Currier to be managing director of accreditation and legal education. Choosing someone who had been dean of a for-profit, online law school as well as a more traditional law school to be the point person for the ABA was a bold, and good, choice. I hope it signals a shift by the ABA toward an approach more welcoming of innovation.

Prof. Estreicher is also less cheerful than I am, as he worries about the persistence of the “New Haven model” of legal education and its lack of fit for most students. I agree with him that there has been a long-term trend toward an academic model for law schools (although as a Princeton graduate, I dispute that anything in New Haven can serve as a positive model). I also agree with him that the positional competition for U.S. News rankings has exacerbated this over the past twenty years. (Positional competition long predates U.S. News; Olunfumilayo Arewa, William Henderson, and I discuss this at length in Enduring Hierarchies in American Legal Education) Sam’s solution is for state supreme courts to eliminate the requirement of a third year of law school and a J.D. and open the bar exam to anyone with two years of legal education (including specified courses) and a one year public service internship.

As an economist (and a libertarian one at that), I agree with Sam that the legal needs of the American public would be better served with fewer barriers to entry to the legal profession and more competition in providing training to enter it. I think he is right that law schools would respond to the change he seeks by developing programs that made a compelling case for a third year of study. As a public choice economist, however, I think the obstacles to his vision of that future are quite large. Not only would many university presidents and law school deans be worried about the financial impact of such a change on their budgets, but in a world in which hair braiders and interior designers are able to maintain substantial barriers to entry to their professions with even less justification than supports the third year of law school, I’m skeptical about how likely the change is to occur any time soon. However, Sam is an extremely persuasive lawyer and if anyone can initiate such a dramatic change, it is he.

More importantly, I think some of the changes that would follow are already underway. Let me use my own university as an example. Texas A&M is an extremely ambitious university, with a plan (titled Vision 2020 for its future). Part of that plan was to acquire a law school, which it has now done. But the plan is not to become Yale – we are a tier 1, public, land grant, American Association of Universities (AAU) university. Each portion of that is important, giving the university a mission to be in the community (land grant), to be of public service (public), excellent (tier 1), and academically successful (AAU). Moreover, succeeding on Vision 2020 requires succeeding on well-defined measures of success. (A huge benefit of being part of a university with lots of scientists and engineers is that they know how to measure things).

These criteria include measures of academic success, such as citations to faculty scholarship, and measures of student success, such as graduation rates. There is no danger that Texas A&M will ever try to be Yale – our mission is quite different and we understand that. I am confident that far more universities have similarly distinct missions than Prof. Estreicher’s pessimistic forecast suggests. Let Yale be Yale – there is a place for it (right behind Princeton). But plenty of the rest of the academy has figured out that differentiation, not imitation, is the key to persuading students to enroll and more schools appear to be embracing that.

In addition, financial pressures and competition for students are already producing change in legal education, and more is to come. For example, I was impressed by the widespread level of support for innovation among deans at my first ABA deans’ meeting. There are a lot of smart people who recognize the problems and there’s a lot of effort being put into improving legal education’s quality and reducing its costs. Yes, in the past the “academic model” was dominant. What is already happening suggests to me that this will not be true in twenty years. I think the non-virtuous circle is already broken at many, many schools.

Dean Randall is an optimist, as I am. I think he’s on to something important, with his current venture at iLaw. The company is offering online courses to law schools to supplement the schools’ own curriculum. It packages impressive technical support with award winning faculty from around the country into a course each school can deliver in its own system, following its own grading standards, and including local content where appropriate. This can allow a school without, say, an Admiralty course to offer one. It can also allow a summer course to be offered that is available to students in jobs outside the locale of their law school. I do not think this will be the only model of innovation, but it is an attractive one for some courses. What Dean Randall saw before others in legal education, both at Alabama which did innovative online education before many and now at iLaw Ventures, was that schools have to be create value differently for their students if they are going to avoid running deficits.

Other entrepreneurs include Kellye Testy at Washington, who has put together an impressive array of degrees and other programs to diversify away from a JD-only model, and Craig Boise at Cleveland Marshall, who has led an effort to “unbundle” the JD into degrees for other markets. That Dean Testy is the new president-elect of the AALS is an optimistic sign. As schools diversify their approaches to legal education, I think we’ll see more of such innovation.

So, at the end of the day, I remain an optimist for several reasons. First, markets really do work. Legal education has excess capacity relative to demand for JDs, and so prices will fall. Real prices have already. The “New Haven model” is insufficient to meet the needs of ordinary Americans for legal services, so the gap in demand will draw entrepreneurs to develop new ways to meet the demand. This change has begun. Technology offers new ways to deliver legal education. Entrepreneurs have already begun to respond. These are all reasons to be cheerful.