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How law schools priced themselves out of the higher education market

[ 31 ] March 4, 2015 |

canary

‘How did you go bankrupt?’ Bill asked.
‘Two ways,’ Mike said. ‘Gradually and then suddenly.’

— The Sun Also Rises —

Over the past half century, higher education in America has been a spectacularly successful growth industry. At the beginning of the 1960s about 400,000 people were graduating each year with four-year degrees: by 1970, the demographics of the baby boom and the passage of the original Higher Education Act had combined to more than double that figure.

Despite the baby bust (there were fewer 18-23 year-olds in the US in the late 1990s than there had been 30 years earlier), enrollments and graduation totals grew slowly but steadily between the early 1970s and the late 1990s, and then began to zoom upwards again about 15 years ago: annual college graduation totals increased by 56% between 1998 and 2014. American colleges and universities currently produce nearly twice as many bachelor degrees annually as they did forty years ago, and about four times as many as they did 50 years ago. (The traditional college-age population cohort is only about 10% larger than it was in 1974).

Still, there may be storm clouds on the horizon.

Overall enrollment totals at colleges and universities declined slightly in 2012 and 2013, although the rate of decline appears to be slowing. Whether that decline, small as it has been, is a function of an improving economy and thus increasing opportunity costs for potential undergraduates (this seems doubtful), or a harbinger of the beginnings of an actual rebellion against the ever-growing cost of higher education, remains to be seen.

As to latter hypothesis, the experience of American law schools may prove instructive.

Many people are aware that law school applications, and to a somewhat lesser extent enrollments, have collapsed over the past four years. (Enrollments haven’t fallen as quickly because a significant minority of law schools have adopted de facto open enrollment policies for anyone who has a college degree, an LSAT score, no matter what that score might be — even this formal requirement may be dispensed with soon — and a less than hair-raising criminal record.)

What’s generally unappreciated is that, relative to the population of new college graduates, law school enrollments were sliding for 30 years even before the recent sharp contraction. To put it in crass economic terms, law schools had already been losing market share for a generation, and the present crisis is merely bringing that fact into particularly sharp relief.

Numbers

Law school enrollments between the 1960s and the 1980s were affected by an overwhelmingly significant factor, which was the entrance of women into the legal profession in more than token numbers. This immense shift in social mores took place at a remarkable speed. In 1967, less than 5% of first year law students were women; over the course of just the next six years, this percentage more than quadrupled, and then doubled again over the course of the next decade. In short, while less than one in every 20 law students was a woman in the late 1960s, fifteen years later two out of every five law students were women.

Note that this radical change had very little to do with the percentage of annual college graduates who were women, which was already 43% in 1970. Basically, the influence of traditional gender roles was so strong in the legal profession that, until the 1970s, legal academia maintained an informal rule that law students should be drawn almost exclusively from the population of male graduates, even though this rule was very much against the economic self-interest of law schools, since it all but eliminated almost half of their natural market for students. (This is one of an endless number of illustrations of how, contrary to simplifying assumptions employed in classical economic theory, ideological considerations often trump economic interest).

In large part because of this change, law school enrollments exploded by 171% between 1960 and 1980, outstripping even the breakneck pace at which college graduation totals were increasing during these years. Here are the totals of law school matriculants over this time, expressed as a percentage of the total number of college graduates during the previous academic year, and broken down by gender:

1960: 3.98%
Male: 5.90%
Female: 0.44%

1970: 3.68%
Male: 6.82%
Female: 1.04%

1980: 4.55%
Male: 5.70%
Female: 3.35%

(In other words, the total number of students entering law school in the fall of 1960 equaled just under 4% of the total number of college graduates the previous spring. While the number of male law school matriculants equaled nearly 6% of the number of male college graduates that year, the number of female law school matriculants in 1960 was equal to less than one in 200 of the total female college graduates that year).

It turns out that, in comparison to the market for higher education as a whole, 1980 represented Peak Law School:

1990: 4.20%
Male: 5.19%
Female: 3.32%

2000: 3.52%
Male: 4.15%
Female: 3.04%

2010: 3.18%
Male: 4.0%
Female: 2.56%

2014: 2.06%
Male: 2.55%
Female: 1.69%

Another way to express the decline in law school market share is to look at the number of law degrees awarded in a year as a percentage of graduate degrees awarded in that year. By this measure the decline will be even sharper. Law degrees represented 8.75% of all graduate degrees awarded in 1980, and 4.71% of all graduate degrees awarded in 2014. Since far fewer people are enrolling in law school now compared to three years ago, this percentage will fall considerably further over the next couple of years. Based on last fall’s enrollment, the graduating class of 2017 will include about 34,000 JDs, which will, per government projections, equal about 3.3% of all graduate degrees awarded two years from now.

Male college graduates are now 63% less likely to go to law school than they were in 1970. Perhaps an even more startling statistic is that, even though women now make up 47% of all law students, the rate at which women college graduates enroll in law school has declined by almost half since 1990.

All this means that, while total college enrollment more than doubled between 1974 and 2014, total JD enrollment at ABA law schools this fall will be back to the same level it was at 40 years ago, when there were 163 such schools, as compared to 204 today. As the numbers above illustrate, this isn’t merely the product of the sharp decline in applicants and matriculants over the past four years: it’s the culmination of 35 years of declining market share.

That contraction is a product of a couple of very straightforward factors. First, as a percentage of the overall economy, legal services have constituted a declining sector for the past quarter century. Second, the cost of getting a law degree has risen inexorably for six decades now.

While it’s true that even minimally transparent information regarding employment outcomes for law graduates was generally unavailable until just three years ago, and that making such information accessible has no doubt played a significant role in the sudden acceleration in the declining demand for law degrees, the numbers above illustrate that this demand has been, relatively speaking, falling for a long time. Indeed for a generation now, law schools have been in the process of pricing themselves out of even the wildly distorted market for higher education in America, although it took the shock of the current crisis to make this clear.

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Comments (31)

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  1. BigHank53 says:

    the wildly distorted market for higher education

    For-profit schools haven’t been in that market. They’ve been jostling for position at the troughs full of non-dischargable federally backstopped student debt. Any education that was actually delivered falls into the “nothing up my sleeves” category of misdirection.

  2. NewishLawyer says:

    I just saw an article on Slate yesterday about how Mary Baldwin College decided to shut down because the market for all women’s colleges in deeply rural areas is not that strong anymore. They are shutting down despite having a relatively healthy 94 million dollar endowment.

    One wonders what happens to the endowment and buildings.

    I still think that a massive revolt against traditional 2 or 4 year non-profit colleges is far away. Mainly because many employers still demand some kind of post-High School degree for many jobs even if said job does not really require a post-High School degree. The only person who is sort of trying to do anything about this is Peter Thiel and he is only concentrating on teens with uncommon levels of prodigy. So he basically conceding that most people need a college degree to do well in life socio-economically.

    • Snarki, Child of Loki says:

      “One wonders what happens to the endowment and buildings.”

      No doubt the trustees will cash in their stock options.

      • NewishLawyer says:

        Serious question. Do trustees of non-profit colleges have stock options?

        • Barry_D says:

          “Serious question. Do trustees of non-profit colleges have stock options?”

          Not technically, but I’ll bet that if you could follow the money, the Board and the top 10 administrators would somehow become rather rich.

    • BigHank53 says:

      Sweet Briar College is also closing. They’ll be using the endowment for pensions, debts, severance packages, and assisting undergraduates who will need to find someplace else to finish. There will be legal wrangling over restricted endowments, no doubt. The biggest challenge for them will be figuring out what to do with a 3000+ acre campus and the historic buildings on it.

      • Barry_D says:

        “The biggest challenge for them will be figuring out what to do with a 3000+ acre campus and the historic buildings on it.”

        That is a very big thing. With UC Irvine (?) it turned out that having a heavily mortgaged brand new building was a club to hold over creditors’ heads.

    • MacK says:

      A couple of things. First, the Slate article was about Sweet Briar, not Mary Baldwin.

      Mary Baldwin, which is staying open has an endowment of $34.3 million (many Sweet Briar students are expected to transfer there to complete their degrees.) Other reports say Sweet Briar’s endowment was $84 million. Now look at the numbers. Nominal tuition was $47k, but it claims an average subsidy/discount of 60%, i.e., $28k p.a. – or $19.75 million for the whole student body. If Sweet Briar was to say, decide that it would keep up the financial aid for the students who are being transferred, that would come to somewhere close to $40 million.

      That leaves around $44 million for severance and pension funding for the remaining 64 academic staff and others (there have to be a good few employees beyond academics. It comes to around $600,000 per, maybe more, maybe less – which would be very generous even if you consider that the job prospects of academics in rural Virginia are probably not good.

      Still the big issue is where would Sweet Briar have been a year or three down the road? It was covering 60% of tuition – it had to be eating into the endowment steadily. The ability to do some fair arrangement especially for the enrolled students was shrinking, it is fundamentally unfair to enrol new students if you know the school is heading down the drain and may close before the complete their degrees.

      It is a decision that had to be taken sometime and frankly I think the administration at Sweet Briar may have done the right thing. Would that a few law schools would make the same calculus.

      • MacK says:

        A lot more detail is in this article. A few interesting quotes:

        many experts on higher education started to consider the board’s actions.
        Several told Inside Higher Ed they thought the board had made a courageous, difficult decision. Some didn’t want to be quoted by name as they didn’t want to appear to be suggesting that other colleges should make the same decision. But they suggested that they believe some boards may be fooling themselves into thinking they have sound strategies — and that delaying the inevitable would only hurt students, faculty members and other employees.

        ***

        He praised the board there. “It seems like a very principled decision,” he said. “If we can’t maintain our fundamental mission, we should get out of the business. I think more small institutions, especially those in isolated areas, may feel similar pressures in the years ahead.”
        Another who agreed was Judith Shapiro, president of the Teagle Foundation and former president of Barnard College. “The point is not to say that every liberal arts college in a similar situation should do the same thing,” she said. “But I happen to think that what Sweet Briar did was both gutsy and principled. They decided that they could not continue to provide the kind of education that accorded with their mission and values. And they wanted to face that fact — and that was responsible.”

        ***

        She also said she viewed it as crucial that colleges expand programs to inform professors of the economic challenges facing higher education. “We have to give faculty members a more sophisticated grasp of how institutions are run,” Shapiro said.

    • Delete already noted info… sorry!

  3. OhioDocReviewer says:

    “One wonders what happens to the endowment and buildings.”

    —————————————————————————

    “Joanymandias”

    By

    Percy ByTTThe Cooley

    I met a counsellor from an boutique firm
    Who said: Two vast and trunkless legs of stone
    Stand on Joralemon Street. Near them, on the berm,
    Half sunk, a shattered visage lies, whose frown
    And botoxed lip, and sneer of GOLD demand
    Tell that its sculptor well those passions read
    Which yet survive, stamped on these lifeless things,
    The greed that mocked grads and the school that fed.
    And on the pedestal these words appear:
    “My name is Joanymandias, Joan King of Kings:
    Look on my networks, ye J.D.s, and despair!”
    Nothing beside remains. Round the decay
    Of that law school wreck, boundless and bare
    The lone and level asphalt stretches far away.

  4. Fred says:

    I believe it was Sweet Briar College.

  5. Joe Bob the III says:

    My feeling is that a lot of Master’s and professional degree programs are on the same trajectory as law schools as far as pricing themselves out of the market.

    A seldom-acknowledged sideshow to the dramatic run up in undergraduate tuition rates is that increases for all manner of graduate programs have been markedly worse. I think this has managed to happen because: 1) The programs are small and fragmented so not as many people are watching and the constituencies that could complain are smaller. When undergraduate rates are increased it usually makes the front page of the local paper. 2) The assumption is you will have a fabulous job that will more than pay for your advanced degree.

    Using my own field, architecture, as an example: In the past 15 years tuition for an M.Arch. degree has increased 200%. Starting salaries have increased about 40% in the same period, which is almost entirely attributable to simple inflation and not more valuable credentials. The return on this particular educational investment has been relentlessly downward. I would hazard a guess that the situation is similar with other high-credential/modest salary fields like education and social work.

    • Snarki, Child of Loki says:

      In spite of all the confusion and misdirection, tuition increases have not been primarily a matter of increased costs, but rather a matter of poor price competition in a market where the “public option” has been continually degraded by GOP state legislatures.

      There’s even less price competition for graduate/professional schools.

      • PaulB says:

        Snarki,

        The Democrats have controlled the legislature here in California for over 40 years while general funds for the university system have been slashed. Seems to be a bipartisan decline nationally in university funding although I suspect that bloated administrations and declining teaching loads for the tenured faculty may be more at fault.

    • MacK says:

      The best chef I know was originally trained as an architect. Too many graduates, too few jobs.

      • Downpuppy says:

        Cousin’s husband is an architect. He has an great kitchen remodeling business.

        The business of Architecture collapsed long before law. Design once, build 100X is kind of obvious.

  6. Crusty says:

    Does anyone else think that perhaps in the future, people will focus on spending as little as possible on undergrad, with an eye towards spending money/going into debt for graduate or professional school? That would make sense. Of course, people will be concerned that if they don’t go to a good/expensive enough undergrad, they won’t get to that next tier, but at least according to the ads on the subway, people who do well at CUNY still have good options. (Not trying to be snarky with that last sentence). So while law school may have priced itself out of reach for the moment, I think its actually pricey undergrad that is pricing itself out of reach.

    • J. Otto Pohl says:

      Actually University of Ghana is trying to recruit foreigners for graduate programs because they pay more than Ghanaians. But, at the same time it is much cheaper here than Nigeria or the Caribbean. Our only current PhD student in the history department is an African-American woman and when I first arrived here there was a Jamaican who has since graduated working on his doctorate here. A PhD here is a lot cheaper than in the US.

      • The Dark Avenger says:

        The medical school in Guadalaja, Mexico was famous for accepting Americanos who didn’t get into medical school but hoped to transfer out into an American school after the first or second year of classes. It was and probably still is a lot cheaper than its’ American counterparts.

  7. azzizello says:

    What about the fact that the number of institutions producing undergraduate degrees has grown at a much faster rate than the number of law schools, wouldn’t that have the effect of showing that law schools have been capturing a declining share of undergraduates in the aggregate, even though they were enrolling record numbers only a few years ago? Am I missing something?

    Didn’t law school enrollment peak a few years ago as well?

  8. Fortunado says:

    Does anyone else think that perhaps in the future, people will focus on spending as little as possible on undergrad

    Yes, I believe we will reach a tipping point in the next couple years where it will suddenly be “ok” to live at home and go to community college for 2 years before transferring to a larger school to complete your degree. Community college was really looked down on when I was enrolling a decade+ ago.

    with an eye towards spending money/going into debt for graduate or professional school?

    Not necessarily.

  9. squirt says:

    Huge fan of almost everything Campos posts but this blog entry baffles me. There is no a priori reason to expect the percentage of college graduates going on to law school to remain constant.

    The demand for college degrees has increased tremendously – before, college was for management and professionals – now almost any entry-level white-collar job requires a college degree. Law degrees, on the other hand, prepare someone to be a lawyer.

    There’s no reason to think that just because the number of college graduates has quadrupled, the number of law graduates would also quadruple in order to keep the percentages the same.

    • CSI says:

      There’s no reason to think that just because the number of college graduates has quadrupled, the number of law graduates would also quadruple in order to keep the percentages the same.

      Of course. Although it could be that law schools used such simplistic calculations when estimating their budgets? I wouldn’t be surprised.

      And someone asked above why graduate school in general is far more expensive than undergraduate. There is one main reason which trumps all others. Federal loans for bachelors degrees are capped. Federal loans for postgrad degrees are unlimited.

    • Paul Campos says:

      You’re assuming implicitly that the growth of higher ed is constrained by demand for degrees. This is certainly not the case in law. If law school enrollments were constrained by economic demand for lawyers, law schools would be half as large as they are now.

      As for college degrees, it seems problematic to assume that demand for degrees has increased because the number of people with degrees has skyrocketed. That many jobs are now filled by people with college degrees when formerly those jobs were filled by people who didn’t have degrees might merely reflect chronic underemployment, as opposed to shifting employer demands.

      The OP is based on the assumption that what drives enrollment policies in higher ed at both the undergraduate and graduate level is the desire to maximize tuition revenue, full stop.

  10. […] Guns and Money argues that law schools have priced themselves out of the market for higher […]

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