In Morning Docket yesterday, we mentioned that Standard & Poor’s has joined the chorus of people who are noticing that stand-alone law schools are shaky investments. When the S&P notices, you can bet that law school administrators feel some heat.
The national trends of declining law school applications and shrinking law school class sizes have now affected S&P’s outlook rating for one stand-alone law school. It’s not a huge shift, but given the trend lines, we have to wonder if we will eventually see some diploma mills actually close down…
The story in the Albany Times Union reports that the S&P downgraded the outlook for Albany Law School from “positive” to “stable”:
Standard & Poor’s said the situation at Albany Law reflected a national trend of law schools losing students and tuition income.
Weakening demand for Albany Law has decreased net tuition revenue and put significant pressure on the school’s operating performance, the report found.
The report suggested that Albany Law is more vulnerable to the national trend of enrollment decline because it is not connected to a larger university. Law schools that are part of a larger university or university system were better able to absorb losses of the last few years. Schools tied to a university also can better attract students amid the shrinking market in the future because they are more able to offer bigger financial aid packages.
Law school enrollment and applications are expected to drop for several more years, so the trend at Albany Law probably not at the bottom yet, the report found.
Oh, yeah, that sounds totally stable to me. Being caught in a vortex of declining demand in a market saturated with law schools, what’s not to like? Man, what do you have to do to get a “negative” rating from these people?
Actually, I’ll let the ABA Journal answer that:
The only stand-alone law school with a downgraded rating was the Thomas Jefferson School of Law in San Diego, given a downgraded BB/negative rating in June 2012. The report for Thomas Jefferson says the law school had nearly $133 million in debt after a move to a new campus. The school’s enrollment had increased in part due to financial aid, creating a “rising tuition discount rate.” On the positive side, the school had a history of operating surpluses and a dean who was professionalizing the institution.
The other stand-alone law schools were also given “stable” ratings.
Earlier this month we talked about Cooley Law considering a formal relationship with Western Michigan University. This S&P report highlights the financial benefit to stand-alone law schools connecting with universities willing to have them. Maybe all of the stand-alone law schools will eventually hook up with larger institutions.
But what happens if the music stops before one of these schools gets a partner? Could we finally see an ABA-accredited law school go out of business?
Right now, I think there are still too many prospective law students willing to make bad decisions to put one of these schools down. But maybe the “new normal” of law school applications will discourage others from opening more law schools and sending more lawyers into this depressed market.
Standard & Poor’s downgrades Albany Law School [Albany Times Union]
S&P revises outlook for Albany Law School, citing enrollment drop [ABA Journal]