I noted yesterday that Washington & Lee University has announced a “strategic plan,” intended to get the law school to stop costing it money sooner rather than later.
After crunching some numbers, it’s fairly easy to spitball how much money the law school is currently losing, by comparing its estimated overall revenue with the details of the university plan designed to get the school’s fiscal mind right.
Before getting to those numbers, here are a few facts about the university:
W&L isn’t really a university — it’s a very rich, very highly-ranked, liberal arts college, with a law school somewhat incongruously tacked on to the place.
As for its ranking, I was taken aback to discover that the college keeps company with places like Bates and Middlebury, just below the Amherst/Swarthmore line.
One reason for this lofty position is that the school is flat-out loaded: the endowment was $916 million in FY2013, which probably means it will reach the one billion mark this year if it hasn’t already. A couple of years ago W&L had the 11th-largest endowment on a per capita basis of any college or university in the country, and the fifth largest of any liberal arts college.
The other is that it’s very old, having been saved from financial extinction in the late 18th century by none other than George Washington himself. The college named itself after him, and then added Robert E. Lee’s name after Lee’s five-year presidency following the War of Northern Aggression (Lee is actually responsible for creating the law school, which was an undergraduate degree at the time).
Anyway, the place seems to have been the prime finishing school for well-heeled sons of the Old Confederacy (the college didn’t admit women until 1985, and the law school may have been the last law school in the country with an all-male class, as the first woman wasn’t admitted until 1972), before it started playing the ratings game so successfully, when college ratings started to be a big thing. 80% of undergraduates are in the Greek system, there are a bunch of secret societies of long standing, and in short the whole thing sounds like a setting for a sardonic Tom Wolfe novel.
As for the law school, it too played the ratings game very well. Although it’s not and never will be nearly as elite an institution, comparatively speaking, as the college, the law school almost always showed up in the 20-25 range, even though few of its graduates actually got prestige-oriented legal jobs. (In recent years about 15% of the class has gotten either big firm jobs or federal clerkships, which is a very low figure for a top 25ish law school).
The law school has traditionally had about 390-400 students, with entering classes of around 120-125, supplemented with a couple years’ worth of transfer students. Three years go it ended up admitting a class of 187 for some reason (my guess would be money), but over the last couple years the law school has struggled badly in the context of a cratering applicant pool at both the national and local level.
This last couple of admissions cycles have been a bit of a disaster for the school, as it ended up enrolling a combined total of only 212 students, despite slashing admission standards (the median LSAT fell four points in just two years) and throwing massive amounts of cash in the form of tuition discounts at the applicant pool. The school got only 10% and 11% of its admits to matriculate this year and last, which, along with a sudden plunge in the rankings, from 26th in 2013 to 43rd this year, are no doubt the proximate causes of the university administration’s displeasure (The fall in admissions doesn’t seem to have much if anything to do with the fall in the rankings, as the school’s ranking didn’t slip until this year, while admissions cratered in 2013).
The law school’s financial situation can be sussed out readily enough from its 509 disclosures and the university’s reaction. The school is netting about $9.8 million in tuition this year after discounts, charging an effective tuition of around $26,000, i.e., about 58% of its advertised sticker price of more than $45,000. The endowment is throwing off around $4.5 million, and I’m guessing annual giving is around $750,000, since the school is supposed to increase that figure (how is a good question) to $1.5 million going forward, and a pledge to double annual giving sounds like what harried administrators would most likely do in these circumstances. Thrown in another million bucks for grant money, ancillary income etc., and the law school is probably generating about $16 million from all sources, give or take.
We can also figure on the back of this particular envelope that the law school is being told to cut about two million dollars per year in operating expenses. Six faculty positions add up to around $1.3 million per year (based on an average tenure track compensation package of $215,000 in salary and benefits; in FY2013 three senior faculty were getting around $300K in compensation), while the 2% salary cuts for a few senior types are a few tens of thousands of basically symbolic dollars.
The administrative position cuts probably add up to around 400K to 500K, and cutting operations by 10% will save another 350K or so. All told that adds up to little more than two million per year in cuts, which can be added to around four million per year in increased revenue that is supposed to balance the budget: three million per year from raising the endowment distribution from 4.5% to 7.5%, 750K from sprinkling magic pixie dust on annual giving to double it, and another $300K or so on average from 2% annual tuition tuition hikes. This in turn suggests that the school is currently spending about $20 million, since, per the university’s plan, enrollment is going to decline about 20% from its current level, which adds up to another two million in revenue that needs to be replaced (it’s probably not a coincidence that the mandated spending cuts add up to just about exactly this figure).
A particularly tricky aspect of university accounting is that an estimate of the law school’s expenses includes both the direct expenses the school generates (basically personnel plus operating) and indirect expenses. The latter represents the law school’s share of university operating expenses not directly generated by the various academic units within the institution, i.e., central administration, common facilities, sports — the school has 22 [!] varsity sports teams, which generate millions of dollars per year in operating costs and essentially no revenue — advertising and promotion etc.
Small elite colleges have relatively high indirect costs, because they don’t benefit from economies of scale, and because institutions with access to a lot of money spend a lot of money — they’re “non-profits” after all, which means all revenue is internalized.
This probably means that W&L’s administrators expect the law school to fork over several million dollars per year over and above the school’s direct expenditures, and that this expectation isn’t even a product of trying to use the law school as a cash cow, to cross-subsidize other parts of the institution, but simply a product of the overall cost structure of the university.
In any case Washington & Lee is in one sense a rather special case among law schools. No other elite liberal arts college has a law school attached to it, and W&L’s law school will never be nearly as prestigious an institution, relatively speaking, as the larger institution of which it’s a part (The category of elite law schools is limited to 14, and 14 only, and despite W&L’s success at gaming the rankings no one has ever considered it to be anywhere close to that magic circle). In other words, the only substantial benefit the college was getting from the law school was that at one point the latter actually made money for the former.
At this moment, I suspect the college’s leadership is rather regretting having to manage what is something of an expensive white elephant, and that this regret is taking the form of very concrete financial demands. It will be interesting to see what happens if the law school finds itself unable to meet those demands.