This post is designed to help law professors make a rough calculation of how likely it is that their current positions are going to be put in some sort of financial jeopardy over the course of remaining decade. I hope it has at least a little value for other academics, who may be able to adapt some part of the analysis to fit their own institutional situations.
So here we go.
Once upon a time law schools were cash cows for their parent universities, throwing off surplus revenue that helped pay for less lucrative academic programs, ever-expanding university administrations, climbing walls and lazy rivers, etc.
Then a terrible thing started happening about a dozen years ago now, when some very tactless and inconsiderate people started asking some super hurtful and unfair questions about whether law schools were maybe not being 100% totally truthful about what sorts of jobs their graduates were getting, how much those jobs (if any) paid, whether those jobs had anything to do with being a lawyer, how much it was costing to graduate from these schools, and so forth.
Because the actual answers to these questions turned to be extremely inconvenient for the finances of American law schools, those finances declined drastically over the course of just a few years. The result is that the cash cows were retired to a vegan commune in Vermont, and a bunch of schools — 11 out of 205 ABA approved schools as of last week, i.e., 5.4% — more or less went out of business between 2016 and last week (prior to this only one ABA school had closed since the Eisenhower administration).
Meanwhile, a lot of other law schools are struggling along, even after in some cases drastically cutting expenses by downsizing their faculty and staffs, since payroll is pretty much the only variable cost that can be altered enough to make a real difference to a school’s budgetary bottom line. On the revenue enhancement side, since it’s become much more difficult to squeeze tuition dollars out of J.D. students, a huge number of schools have massively increased their non-JD degree programs, which fortunately for them remain completely unregulated by the ABA. The result is that the percentage of students at ABA law schools pursuing degrees other than the basic law degree that allows you to in theory to become a lawyer has risen from 6% a dozen years ago to 17% last year, although this figure varies very widely from school to school, with it still being 0% at a lot of schools, and 30% or 40% at others. But this strategy still has its practical limits.
Moving right along, everybody in higher ed knows that this is going to be a really rough decade for the business as a whole, between the demographic baby bust that started about 15 years ago, the fascist distaste for higher ed as a nest of reds, etc.
TL;DR: A lot of law schools are in a lot of financial trouble right now, and as a result are going to have to get rid of a lot of law professors, aka cost centers, one way or another, in the not too distant future. Are you going to be one of them?
Now I’m well aware that Tony down at the Bada Bing, aka your vice provost for synergistic interdisciplinary synergy, will tell you not to worry your pretty little head about such things, and to instead go out and buy yourself something nice, like maybe another research center, or a few more administrators. But maybe you should, given the bottom line, which may look pretty grim if you look at it. But how do you do that?
Like this: Figure out how much core revenue per full-time faculty member your law school is self-generating.
Core revenue consists of two things: Net tuition, and gift income.
Net tuition is how much tuition your law school actually collects, after discounts off sticker.
Gift income consists of how much expendable income your school’s endowment throws off per year, plus whatever it receives in current gifts (This means money that people give to the law school to be spent immediately, rather than to be donated to an endowment).
At a small number of schools there may be other sources of significant income, such as research grants generated by faculty (this rarely amounts to much, and at most schools it’s functionally zero), or rental income from properties owned by the school (this is generally only applicable to free standing law schools rather than those that are part of a larger university). But at the vast majority of law schools, almost all self generated revenue consists of net tuition plus gifts.
Now, once you have those two numbers, plus your current total number of full time faculty, you can do some simple division and figure out how much financial trouble your school, and hence you yourself, may be currently looking at. Just divide total core revenue by total full time faculty members, and then plug that figure into this metric.
The Aristocrats. These are schools that are generating more than one million dollars per year in core revenue per full time faculty member. Currently they include places like Stanford and Columbia (each around $1.3 million PFTFM.) Congratulations on having your wedding announcement in the New York Times. Be sure to tip your valet.
The Upper Middle Class. These are schools generating around $800,000 to a million dollars PFTFM. These are places like George Washington, Fordham, and SMU. You’re currently doing fine, but still keep an eye on things, as a reckless administrator or two can mess up a school’s finances at a remarkably fast rate. Speaking of which this is where, as a financial matter, the infamous Thomas Cooley law school was back in the palmy days of 2010, before the questions started getting asked. Since then, Cooley has seen its core revenue decline by 73%, and may well go out of business in the next couple or three years. Yes I know you would never shop in that neighborhood, but still, a cautionary tale.
The Middle Class. These are schools generating around $600,000 PFTFM. This is around the median, very roughly. You are probably more or less OK for the moment, but any kind of downturn and you’re going to be in trouble.
The Working Class. These are schools in the $400K-$550K PFTFM range. You are likely to see some real cuts in the next few years. If you don’t have tenure yet, or have a non-tenure track full time job, I’d be pretty nervous.
The lumpenproletariat. These are schools generating less, in some cases drastically less, than $400K PFTFM. Every one of these schools — and some of them are quite highly ranked — is currently the beneficiary of massive subsidization from its central administration (There are no free-standing law schools in this category because you can’t run an ABA law school at this level of self-generated revenue). If you’re at one of these schools — and I have a list — then you had better pray that your central administration sugar daddy remains satisfied with your current special arrangement for as long as possible, because if he begins to tire of it, you are going to either fire half the faculty or just go out of business altogether, like one of your eleven unfortunate predecessors over the past seven years.
Have a nice holiday break everyone.