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Thursday, May 8, 2014

Moody's: Standalone Law Schools Without 'Premier Brands' Face Credit Stress

Moody's Investors Service, Law Schools Challenged to Adapt to Fundamental Changes in the Legal Industry:

Moody'sDeteriorating student demand for law schools reflects a structural shift in the legal industry, not just cyclical trends. Enrollment declines and heightened price sensitivity reflect reduced job opportunities and income expectations in the legal field, driven by new technologies, increased globalization and a movement to flat-fee contracts from billing for time spent. As students evaluate the return on investment for a high-priced professional degree, law schools without premier brands or the resources of a comprehensive university will face greater credit stress and risk of closure, requiring leadership teams to reevaluate business models and strategies.

  • Fundamental shift in the legal industry contributes to shrinking applicant pool and heightened competition. The current decline in demand reflects a fundamental shift in the legal field, rather than the typical cyclical rise and fall in demand.
  • New tuition pricing strategies provide short-term solutions, but don’t alter cost structure. There may be a short-term enrollment boost, but new pricing schemes do not provide a fundamental change in the cost students are paying for legal education and are therefore unlikely to increase long-term demand.
  • Business model changes will be essential for long-term sustainability, particularly for standalone law schools and those without strong brands. Top-tier schools face significant challenges but benefit from being part of a strong university, shown by higher job placement rates and greater availability of merit-based aid. Demand for lower-tier law schools will remain depressed due to lower job placement rates, while standalone law schools are most at risk in this environment.

http://taxprof.typepad.com/taxprof_blog/2014/05/moodys.html

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Comments

"Deteriorating student demand for law schools reflects a structural shift in the legal industry, not just cyclical trends. "

Well, I guess Moodys didn't read that *paper* by the one-year-in-private-practice junior professor that assures us that the legal sector is not undergoing structural changes because, well, assume a can opener.

Posted by: Unemployed Northeastern | May 8, 2014 9:12:56 AM

Maybe they read the other one that concluded that changes to Biglaw are structural (meaning the jobs won't just come back when the economy recovers) and that reduced job opportunities has lead to reduced demand?

Posted by: Former Editor | May 8, 2014 12:59:31 PM

So, in Moody's mind "globalization" is killing legal demand and American legal labor is priced out of the market? Automation is cheaper than paying a human?

How do you get cheaper than free?

There are plenty of new attorneys working for free. Oh worse than that, there are plenty of new attorneys whose tuition dollars are being recycled to them as post-graduation "wages" for "employment". Maybe the question is how do you get more negatively convex than debt-financed with tuition dollars and then taxed as wages?

There's an over supply of cheap labor, not a lack of cheap legal labor. And won't it just be a shock to the industry if the supply of labor drops and municipalities have to start paying deputy district attorneys, law firms can't get free interns, and judges can't get free externs?

If you have to pay your farm workers, you should have to pay your attorneys.

Posted by: Globalization? Automation? | May 8, 2014 1:25:38 PM