Money Law Question?

I can provide a reason for why it is appropriate to ask this of moneylaw readers but let's just assume I have and get right to the question.

Many schools have increased their number of transfer students. We all know why. Typically when they enter their slates are clean as far a GPA and their final GPA and class rank will be based on the last two years.

At many schools there is a lower curve in the first year than in selected second year courses. For example, small sections and seminars may have a higher curve -- 3.6 as opposed to 3.2.  For all practical purposes this means the average curve in upper level coures is higher than the first year curve. The outcome is that transfer students are ranked and recieve  honors based on a higher curve than non transfer students who are saddled with their first semester grades that are on average lower than upper level grades.

The perception is that transfer students then have an advantage as far a class rank, honor, GAP, etc.

I am asking if  your school or any school you know of has reacted to this by normalizing grades or creating two rankings or eliminating the dual curve or at all? Thanks.

ARM-twisting "A Degree of Practical Wisdom": A one-year readjustment of legal education's debt-based stress test

Roughly a year ago, I posted what was then the preliminary version of A Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduates’ Economic Viability, 38 Wm. Mitchell L. Rev. 1185 (2012) (available online at http://ssrn.com/abstract=1967266 or http://bit.ly/DegreePracticalWisdom). After a year of summarizing and presenting A Degree of Practical Wisdom before multiple audiences and subjecting its model to the test of actual, real-world applications, I have decided to propose some modifications in my model. Think of it as the annual ARM-twisting that accompanies any adjustable-rate mortgage.

A Degree of Practical Wisdom argued that law schools should subject themselves to one form of stress-testing: measuring the ratio of their students’ educational debt to those students’ post-graduation incomes. My original analysis used mortgage lending policies, as developed by private lenders and by the Federal Home Administration, to identify three ratios of monthly debt service to monthly gross income:

1. Marginal: 0.12
2. Adequate: 0.08
3. Good: 0.04

On the assumption that the most affordable loan terms allow law school graduates to amortize their loans at 6 percent interest over 25 years, the foregoing versions of the “educational back-end ratio” correspond to the following ratios of (law school) educational debt to (gross) annual income:

1. Good: 0.5
2. Adequate: 1.0
3. Marginal: 1.5

In the year since I first posted A Degree of Practical Wisdom and invited commentary on it, I have had the benefit of "field testing." Drawing upon efforts of my own and by others to apply my stress tests, I now propose a modest readjustment of my approach for assessing recent law school graduates' economic viability. I will restate ratios of debt to income as their reciprocals — as ratios of income to debt — in order to focus attention on the different salary outcomes achieved by recent law school graduates. I will also relax the stringency of my original stress tests. It turns out that almost no law school graduates begin with an annual income double their level of law school debt. A 2:1 ratio of annual gross income to law school debt is the reciprocal of the “good” 0.5 ratio of debt to income. I will readjust this highest level of economic attainment to a ratio of 3:2. I will also rename the three levels of economic attainment:

1. Excellent: A 3:2 ratio of annual gross income to total law school debt
2. Healthy: A 1:1 ratio
3. Viable: A 2:3 ratio

Multiplying by 1.5 (or 3:2) closes the gap between the viable and healthy levels, or the healthy and excellent levels. Relative to my original level of "good" economic performance, the new "excellent" category actually reflects a slightly higher debt burden. The reciprocal of an "excellent" 3:2 ratio of annual income to total debt means that the ratio of law school debt to annual income is 2:3. The corresponding ratio of law school debt service to gross annual income is approximately 5.33 percent.

The new ratios sacrifice some of my original model's elegance for real-world utility in a legal services market where very, very few entrants can expect to win an annual salary whose face value is double their level of law school debt. Then again, the 1.5 (or 3:2) ratio that describes the transition between each of the new categories — from viable to healthy and again from healthy to excellent — has an elegance all of its own. A 1.5 ratio is reasonably close to (1 + √5)/2 (approximately 1.618) or φ, the celebrated golden ratio of Pythagorean mathematics. In an age when grades and tuition rates have inflated faster than salaries and the gross domestic product, we may take solace in the legal academy's own version of the "Aurea mediocritas."

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Editor's note: For the images in this post, I tip my hat to Scottish artist Judith I. Bridgland.

Big law firm suicide

In The better angels of our profession, I sorted law professors into three camps according to their reaction to recession and industry-wide restructuring in the legal profession. Because the revolution in legal education and law practice has not abated, I believe that the time has come to perform a little triage.

One deeply cynical camp refuses to change business as usual. To comfort themselves, members of this camp have their sinecures and the self-satisfaction drawn from academic achievements as irrelevant as they are ancient. At their worst, this camp's partisans gleefully trash critics who have been insightful and courageous enough to identify serious flaws in law schools and law firms. Once upon a time, I took umbrage at people this petty and this selfish. With age comes wisdom — These days I just remind myself: "[It] [d]oesn't mean that much to me / To mean that much to you." Live and learn; live and let live. All it took to rediscover the the right motivation was to remember this bit of sound advice: we should strive "to make a positive difference in the world, not to win popularity contests among people we don't respect."

I will therefore devote the bulk of my efforts to persuading a second group: that "less angry cohort [that] fervently wants to believe that tough times in the legal profession are merely cyclical." Their wish appears to be this: "Wait a year or two or five, . . . and things will be back to the way they always were."

More than just a river in Egypt.

No, they won't. We have ever stronger reason to believe that the legal profession and the academy that feeds it have both undergone permanent, structural change. Adapt or die.

This, at any rate, is my position. This view, I believe, commands a meaningful fraction among lawyers, judges, and law professors. The latest evidence of permanent, structural change comes via Bruce MacEwen of Adam Smith, Esq., with a further hat tip to Debra Cassens Weiss. MacEwen points to the prevalence of economically suicidal, cut-rate fees among law firms as evidence of "excess capacity" and "enormous pricing pressure just to cover fixed costs." Those firms have the thinnest of margins for error: "A law firm cannot really lose money for even one year and remain viable . . . because that’s what they pay their partners with."

I speak with greatest urgency to fellow legal academics and to law firm partners who fit the life stage that David Bowie once described as "[t]oo old to lose it, too young to choose it." It's sad to watch these law firms, some at the pinnacle of the profession, cannibalize themselves and their employees. The clock waits so patiently on their song. They walk past a café, but they don't eat when they've lived too long. Oh no no no: We may be witnessing big law firm suicide.