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VALPARAISO, Ind. — By most measures, John Acosta is a law school success story. He graduated from Valparaiso University Law School — a well-established regional school here in northwestern Indiana — in the top third of his class this past December, a semester ahead of schedule. He passed the bar exam on his first try in February.

Mr. Acosta, 39, is also a scrupulous networker who persuaded a former longtime prosecutor to join him in starting a defense and family law firm. A police officer for 11 years in Georgia, Mr. Acosta has a rare ability to get inside the head of a cop that should be of more than passing interest to would-be clients.

“I think John’s going to do fine,” said Andrew Lucas, a partner at the firm where Mr. Acosta rents office space. “He’s got other life skills that are attractive to people running into problems.”

Yet in financial terms, there is almost no way for Mr. Acosta to climb out of the crater he dug for himself in law school, when he borrowed over $200,000. The government will eventually forgive the loan — in 25 years — if he’s unable to repay it, as is likely on his small-town lawyer’s salary. But the Internal Revenue Service will probably treat the forgiven amount as income, leaving him what could easily be a $70,000 tax bill on the eve of retirement, and possibly much higher.

Mr. Acosta is just one of tens of thousands of recent law school graduates caught up in a broad transformation of the legal profession. While demand for other white-collar jobs has grown substantially since the start of the recession, law firms and corporations are finding they can make do with far fewer in-house lawyers than before, squeezing those just starting their careers.

Nationally, the proportion of recent graduates who find work as a lawyer is down 10 percentage points since its peak of the last decade, according to the most recent data. And though the upper end of the profession finally shows some signs of recovering, the middle and lower ranks remain depressed, especially in slower-growth regions like the Rust Belt.

As of this April, fewer than 70 percent of Valparaiso law school graduates from the previous spring were employed and fewer than half were in jobs that required a law license. Only three out of 131 graduates worked in large firms, which tend to pay more generous salaries.

“People are not being helped by going to these schools,” Kyle McEntee, executive director of the advocacy group Law School Transparency, said of Valparaiso and other low-tier law schools. “The debt is really high, bar passage rates are horrendous, employment is horrendous.”

Even as employment prospects have dimmed, however, law school student debt has ballooned, rising from about $95,000 among borrowers at the average school in 2010 to about $112,000 in 2014, according to Mr. McEntee’s group.

Such is the atavistic rage among those who went to law school seeking the upper-middle-class status and security often enjoyed by earlier generations, only to find themselves on a financial treadmill and convinced their schools misled them, that there is now a whole genre of online writing devoted specifically to channeling it: “scamblogging.”

Belatedly, many schools are starting to respond to this brutal reality, or at least the collapse in applications it has set off. In February, Valparaiso announced it was offering buyouts to tenured professors. As of May, 14 of 36 full-time faculty members had either accepted the package or retired. The law school plans to reduce its student body by roughly one-third over the next few years, from about 450 today.

To the faculty at Valparaiso and the roughly 20 percent of the 200 or soAmerican Bar Association-accredited law schools that have cut back aggressively in recent years, these moves can feel shockingly harsh.

“Maybe I was naïve, but I didn’t think it would be as stark,” said Rosalie Levinson, a longtime constitutional law professor at Valparaiso who recently headed a committee on restructuring the school. “The number of tenured faculty that would be leaving — not gradually but immediately — just personally, that was difficult.”

But from the perspective of the students caught up in the explosion of unrepayable law school debt, the shake-up at the school, and others like it, look rather pedestrian.

Given the tectonic shifts in the legal landscape, the relevant issue may not be how much law schools like Valparaiso should shrink. Today the more important question is whether they should exist at all.

‘We Buy Liens’

If you drove west from the eastern edge of Valparaiso’s campus early this spring, you would have passed a pawnshop, a discount cigarette outlet and, intriguingly, a sign announcing “Café available for rent,” before reaching the heart of the city’s downtown, which includes the county courthouse and a handful of law offices.

When I met Mr. Acosta at one of the offices on an afternoon in late April, he was moving the last of his lawyer swag into the windowless space that will house his practice. He wasn’t scheduled to start work for another few weeks, until after he was sworn into the state bar, but he had the giddiness of a man eager to try on his new professional identity.

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