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The law school crisis: An update

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Almost exactly two years ago, in the fall of 2011, Brian Tamanaha took part in a forum at the National Law Journal regarding whether law schools were in crisis. Tamanaha noted sardonically, and correctly, that “law schools are doing just fine, thank you.”

We should be clear: law schools are NOT in crisis. Although a number of law schools shrank their entering class in 2011, enrollment at most law schools remains near all time highs, and tuition is sky high, especially at private schools. Law schools have more resources than other university departments. Law professors are paid far more than other professors and earn more than most lawyers.

The real crisis, he pointed out, was being endured by law school graduates, who faced mountains of debt and grim job prospects.

Since then, in part because of Tamanaha’s work, the situation has changed drastically. When Tamanaha took part in the NJL forum, the most recent enrollment data (for the entering class of 2010) revealed that ABA law schools had enrolled their largest first-year class ever, featuring 52,500 matriculants. These schools had enrolled a record total of 153,700 JD students over the previous three years. Law schools were both larger and much more expensive than ever: average private law school tuition had increased, in constant, inflation-adjusted terms from $15,000 in the mid-1980s to $40,000 — an astonishing 167% increase in real terms. And resident tuition at public law schools had increased by a vastly greater percentage.

What’s happened since then is what Matt Leichter has called “the law school tuition bubble” has burst. Applications have plummeted from 88,000 in 2010 to around 59,400 in 2013. And the trend shows no sign of reversing: LSAT administrations were down by 11% in October year over year, marking the 16th consecutive administration in which the number of test takers had fallen relative to the previous year. Halfway through the current administration cycle, it appears that a total of around 103,000 tests will be administered, based on historical patterns. This in turn is likely to yield around 54,000 to 55,000 total applicants in this application cycle.

In other words, around 10% fewer people will apply to law school this academic year than were admitted to law school in 2009-10. Even with more and more schools adopting de facto open admissions policies, these numbers mean that the trend in first year matriculant totals will, by next fall, look something like this:

2010: 52,500

2011: 48,700

2012: 44,500

2013: 40,500

2014: 38,000

It’s important to recognize that the effect of this sort of pattern is cumulative: each year, a larger graduating class is replaced by a smaller entering class, so that each year the effects of declining enrollment become more severe. For example, by next fall, law schools will have enrolled 123,000 people over the the previous three years — meaning that, assuming attrition levels have remained constant, there will be 20% fewer JD students enrolled in ABA law schools than there were four years previously. And even if enrollment were to plateau in 2015, schools will be looking at declining total enrollments for at least two more years beyond that.

What about tuition? While nominal tuition has continued to increase, it is far from clear that real per capita tuition — the amount actually collected per law student after taking into account the increasingly aggressive price cutting schools engage in, in the form of faux “scholarships,” will be higher next fall than it was in 2010. Indeed, some schools are now taking the unprecedented step of actually slashing nominal tuition: Just this week Ohio Northern announced that it is cutting nominal tuition by 25% next year, while last month Iowa (whose entering class is half as large as it was two years ago) announced it was drastically cutting out of state tuition for non-resident students.

All this has radical consequences for law school operating budgets. Most law school budgets are heavily tuition-dependent, as only a few schools have large private endowments, and very few faculties generate much in the way of grant money to help fund research. In addition, since almost all law schools are, as a matter of tax status, non-profits, and furthermore are engaged in a negative-sum positional game in which they fight for relative status with each other via idiotic “rankings,” schools have tended to plow almost all their ever-increasing revenue back into ever-increasing operating costs — with the exception of whatever revenues are extracted by central university administration to subsidize other university programs (As we shall see, the extent to which law schools actually subsidize other university operations varies enormously, and indeed at present it appears that, at a large number of schools, any subsidy is now going the other way). Even more problematically, these increasing operating costs have, for reasons that will become clear, a tendency to become fixed rather than variable. Any slowdown in revenue growth, let alone an actual decline in revenue, is thus going to produce serious budgetary strain.

In any case, it’s clear that a very large number of law schools are no longer doing just fine. How many? That will be the subject of a subsequent post.

Update: Further discussion.

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