Law School Deans, Law Schools, Money, Student Loans

The Law School Bubble Is Bursting: Over 80% Of Law Schools Estimated To Be Operating At A Loss

Someday James Cameron will make an epic movie about law schools.

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Do you hear that sound? It’s the sound of the music stopping. It’s the sound of a tap running dry. Law schools are living in an F. Scott Fitzgerald novel, and the party is wrapping up.

Professor Paul Campos estimates that 80 to 85 percent of law school are operating at a loss right now. Cratering law school applications put a stop on federally backed loan money that has been used to prop up outrageous law school tuition for years. In most industries, such realities would spur creative and substantive reform. Smart people would try to do something to fix the industry. Instead, people running law schools don’t think like that even when they have an opportunity for clarity.

As Fitzgerald writes: “arid for a moment people set down their glasses in country clubs and speak-easies and thought of their old best dreams. Maybe there was a way out by flying, maybe our restless blood could find frontiers in the illimitable air. But by that time we were all pretty well committed; and the Jazz Age continued; we would all have one more.”

Maybe all deans can do now is to play it out to the bitter end….

Here are the top-line numbers from Paul Campos’s post on Lawyers, Guns, & Money:

Over the past couple of year, the disjunction between the cost of law school and the marginal economic benefit provided by a law degree has become sufficiently self-evident that the market for places at ABA law schools has begun to collapse. Schools have slashed both enrollment qualifications and real tuition (via semi-invisible discounts), yet first-year enrollment is down nearly 25% since 2010, and real tuition revenue is down by nearly that much (because over the past three years increases in nominal tuition have, it appears, only slightly outstripped increases in off-sticker discounting).

My survey of law school budgets suggests that, on average, law school revenues will be down this fiscal year by about 15% in real terms from where they were three years ago. Costs, meanwhile, have not decreased by the same amount — if anything, they are slightly higher (as of now the rankings struggle continues unabated). Very few law schools were running 15% operating surpluses three years ago, which means that the large majority of law schools — I estimate between 80% and 85% — are incurring significant operating deficits in the present fiscal year.

Note that this estimate is conservative, in that it treats state tax subsidization at public schools as operating revenue rather than an operating subsidy. It is also conservative in that it assumes that no universities maintain long-term budgetary policies that require their law schools to provide subsidies to the rest of the campus, in the form of significant revenue over expenses (aka, the infamous “cash cow” model of legal education).

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Campos cobbled together a sample size of law school budgets through “asking schools for them, open records requests, tax filings, and private communications with individuals.” As you can imagine, law schools aren’t eager to point out that they’re losing money. But Campos’s approach seems sound.

More importantly, Campos argues that the overdraft on law school budgets is really a problem of the schools’ own making. Constantly spending more money, primarily on faculty costs in an attempt to satisfy U.S. News, has brought us to a point where the schools don’t seem to know how to do anything other than raise tuition and hike expenses.

And that’s fine as long as law schools are putting butts in the seats. But with the overwhelming evidence that the cost of law school has outstripped the value of the degree, it’s harder and harder for law schools to take advantage of low-information potential students. The ones that do apply expect significant discounts. And yet law schools still compete for U.S. News approval — in some ways U.S. News is more important now than ever, as a high ranking appears to be a crucial way to attract the dwindling pool of applicants.

And around and around we go. Law schools continue to spend their money on faculty they can’t afford, while students continue going into debt for a degree that doesn’t get them good jobs.

Law deans should take note of an old saying: it’s not the fall that kills you, it’s the sudden stop at the end.

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80% to 85% of ABA law schools are currently losing money [Lawyers, Guns, & Money]

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