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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, July 2, 2016

Chronicle:  Highly Ranked Law Schools Like Minnesota, Washington & Lee Cut Enrollments, Costs To Survive

MinnesotaChronicle of Higher Education:  Law Schools Cut Back to Counter Tough Financial Times, by Katherine Mangan:

For years they were considered the cash cows of academe, spinning off profits that could keep money-losing parts of the university afloat.

But most law schools today are struggling to break even, buffeted by plummeting applications, a shrinking job market, and the constant pressure to avoid slipping in national rankings. ... Because they rely so heavily on tuition and face a variety of other cost pressures, many and possibly most of those schools are operating at a deficit.

The growing number of universities that are subsidizing struggling law schools "are certainly not happy about the money running the other way," said Paul F. Campos, a professor of law at the University of Colorado at Boulder whose biting critiques of law schools in blogs and books have made him a polarizing but influential figure in legal education. He estimates that at least 80 percent of law schools are losing money — a figure that an ABA spokesman said could not be confirmed.

"The attitude of a lot of the universities is, OK — we’re willing to carry you guys for a while, but you have to shed a lot of costs or come up with other sources of revenue because we’re not going to subsidize you forever," Mr. Campos said. ...

Among the highly ranked law schools now grappling with deficits, the University of Minnesota Law School [#22 in U.S. News] has received subsidies from the university that are expected to total $16 million by 2019, according to a report the law school presented to university regents in 2014, two years after the subsidies began. Faced with a 49-percent decline in applications from 2010 to 2015, the law school trimmed its enrollment by about a third of its 2010 level. ...

Another law school that is making tough financial decisions is Washington and Lee University's School of Law [#40 in U.S. News], which last year announced a transition plan that would allow it to shrink its first-year class, reduce faculty and staff positions through retirements and attrition, and tap into its portion of the university endowment. The goal was to balance its budget by 2018-19.

[Tax Prof] Brant J. Hellwig worked on the plan as a faculty member and took over as dean shortly after it was enacted last year.  ... "I feel like we addressed the difficult questions early and head-on, and made the adjustments we needed to," he said.

As a small school at a private liberal-arts university, his was never a big moneymaker for the university. And some legal-education experts say it’s been a long time since law schools could be counted on to fork over big profits to their universities. ...

Universities often required law schools to hand over 25 percent or more of their revenues, a portion of which covered the cost of maintaining buildings and providing common administrative services. But the days when law schools had healthy coffers to raid have long since passed. The flow, in many cases, is going in the opposite direction. Some schools are having to shower incoming students with scholarships that take some of the financial pressure off of the students but dig the schools deeper into debt.

"When a law school loses money, you’re asking parents of undergraduates to subsidize six-figure law-school professors," said Dorothy A. Brown, a [tax] professor of law at Emory University. "That’s a hard sell."

She predicted that in the next three to five years, "some university is going to pull the plug and say, ‘Enough.’"

So why hasn’t that happened yet?

Prestige is one reason. Having a law school gives a university cachet that it’s reluctant to lose. Closing a law school would diminish the value of degrees earned by law graduates who serve on university boards and are often big donors.

No one wants to be the first to close a law school.

And some universities do believe that the enrollment decline has hit rock bottom. With many of their highest-paid professors nearing retirement and applicant pools showing hints of a recovery, some are cautiously optimistic that they’ll be at least breaking even soon.

In the meantime, they’re branching out. Many are expanding their LL.M. — an internationally recognized advanced law certification that provides lawyers with additional expertise in a specialized area.

Others, like Washington and Lee, hope that by shrinking their footprints and being upfront about their challenges, they’ll get back on solid financial ground. By posting the school’s transition plan on its website and involving faculty members, administrators, and alumni, "we’re conveying that we’re going to be fiscally responsible and financially sound going forward," Mr. Hellwig said. "That’s something that should matter to students."

https://taxprof.typepad.com/taxprof_blog/2016/07/chroniclelaw-schools-like-minnesota-washington-lee-cut-enrollments-costs-to-survive-tough-financial-.html

Legal Education | Permalink

Comments

Looks like the long-awaited shakeout has begun as some schools no longer can buy their way out of the over-capacity problem.

Posted by: Old Ruster from JD Junkyard | Jul 2, 2016 11:48:53 AM

This story could equally read, "law schools move money around to preserve inflated ratings that they would not otherwise be entitled to"

Posted by: mike livingston | Jul 3, 2016 5:06:59 AM

As a 1999 graduate of W&L, I would highly recommend this school for future lawyers. The school is being smart by staying small - their strength. If you are going to spend time and money to go to law school, you are much better off at a school that cares about every individual student like W&L. It is also not steeped in political correctness. A rarity in today's educational environment.

Posted by: Steven | Jul 3, 2016 3:43:59 PM

This ain't gonna save a good number of them. Reducing tuition might help attract students.

Posted by: anymouse | Jul 3, 2016 4:17:22 PM

Liberal universities counting pennies! Hey bro, just put it on the tab. Oh, forgot, this is YOUR tab!

Posted by: moron | Jul 3, 2016 4:20:35 PM

I would be very curious to understand more about law professor compensation trends over the last 20 years. How can it be that against a background of skyrocketing tuition, law schools lose money?

Posted by: Brendon Carr | Jul 3, 2016 4:43:26 PM

These laws schools might shake down their more successful alumni. It's doesn't look good to be a graduate of a law school that's gone out of business.

Posted by: Michael W. Perry | Jul 4, 2016 7:59:37 AM

Most law schools do not lose money. They are only in the red AFTER the universities of which they are a part take their cut. That cut is largely free cash flow to the universities. And that's why law schools are not closing - because universities cannot make the case they are genuinely in financial trouble. Of course the universities want their 25-30% off the top so they can continue with all sorts of other programs that have nothing to do with law schools. They don't like the idea of foregoing that money so some of them are putting pressure on the law schools. In turn law schools are seeing weaker demand for law school as opportunities for BA's have improved. In the face of weaker demand law schools either lower enrollment standards (at universities that refuse to give back some the tax revenue they have been collecting) or lower class size (at more principled universities that are willing to forego some of the tax they have been collecting.)

Posted by: anon | Jul 4, 2016 11:36:59 AM

Michael Perry -- YES!!
Locate the successful, well-off alumni and shake their money trees! And listen to alumni concerns while at it!
Alumni don't want their school closed or the value of the degree they hold diluted! At the same time, law schools should not be so dependent on tuition as most schools are.

Posted by: Old Ruster from JD Junkyard | Jul 5, 2016 8:32:18 AM

Brendon Carr - FWIW, I believe that your premise is incorrect. Nominal tuition has increased dramatically but that is largely offset (from the school's point of view) by tuition discounting. Effectively, tuition revenue has been largely flat. see, e.g., http://www.npr.org/sections/money/2012/05/11/152511771/the-real-price-of-college.

Of course, from the student's point of view, things are very different. Many students are paying full freight and so have witnessed huge tuition increases. But others have also benefited from tuition discounting. But you didn't ask about that.

Posted by: Matthew Bruckner | Jul 5, 2016 11:58:32 AM

@Matthew Bruckner,

New America (which I admit is a fairly neoliberal place with its own agenda re: higher education) has estimated that the average law school loan debt has jumped from $90,000 in 2008 to $130,000 in 2014. During that time, the NALP median starting salary dropped by about $10,000. And if you look at the top two 'big' law schools in terms of student population - Harvard and Columbia - you'll see that about 2/3 of each student body pays sticker; a figure that nearly tops $90,000 per year with living expenses.

Posted by: Unemployed Northeastern | Jul 5, 2016 12:26:29 PM