Thursday, May 8, 2014
Moody's Investors Service, Law Schools Challenged to Adapt to Fundamental Changes in the Legal Industry:
Deteriorating 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.