Law Schools Cut Back to Counter Tough Financial Times

Washington and Lee U.

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.

First-year enrollment at the 204 J.D.-granting law schools accredited by the American Bar Association has fallen 30 percent from its peak six years ago. It’s slumped to its lowest level since 1973, when there were only 151 schools.

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.

Some see signs of hope on the horizon, with applications inching up 1 percent this year, according to the Law School Admission Council.

A number of schools have made cuts that they expect will have them in the black within a few years.

The cuts have been particularly severe at lower-tier, freestanding schools like Western Michigan University’s independent Thomas M. Cooley Law School and the Thomas Jefferson School of Law, which have no universities to turn to for support.

Those that are affiliated with universities are hoping their parent institutions won’t forget the not-too-distant past, when they not only paid their own way but had money to share.

Among the highly ranked law schools now grappling with deficits, the University of Minnesota Law School 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.

That allowed the school to maintain the same high caliber of students and prevent its ranking from tanking, but the loss of tuition revenue plunged the school into a deficit. Minnesota, like many other law schools, has also left faculty vacancies unfilled, cut enrollments and staff, and reduced research support for the faculty. The school has projected it will break even in 2019.

Schools that dipped deeper into their shrinking applicant pools to maintain the same class sizes risked taking a hit in the rankings if Law School Admission Test scores and bar-passage rates dropped.

“At first, it seemed like a very short-term problem. Maybe applications would go back up,” said Deborah J. Merritt, a professor of law at Ohio State University who blogs about changes in legal education. “Now people are realizing it’s a longer-term issue.”

Fewer Grads, Less Competition?

Law-school graduates continue to face a tough job market; big firms still are hiring far fewer associates, and legal work continues to be outsourced and automated. But shrinking enrollments mean that fewer law-school graduates are competing for those jobs, and that prospect makes law school seem less risky to some prospective students.

Still, law schools are having to shell out millions of dollars more in financial support to persuade students to enroll.

The University of Florida’s law school recently announced that it had seen a gravity-defying 84-percent leap in applications this year. Much of the increase was attributed to the law school’s decision to award about $3 million in merit scholarships — more than triple the amount awarded last year to first-year students. Scholarships cover up to three quarters of tuition and fees for a student in good academic standing for three years.

Another law school that is making tough financial decisions is Washington and Lee University’s School of Law, 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.

Brant J. Hellwig worked on the plan as a faculty member and took over as dean shortly after it was enacted last year. He said the school is slightly ahead of schedule, in part because it was able to enroll slightly more students than expected without reducing its standards.

The plan will allow the law school to continue focusing on factors that make it distinctive, including its emphasis on experiential learning, Mr. Hellwig said.

“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.

That’s because the more money they brought in with steadily rising tuition, the more they spent on libraries, fancy buildings, and faculty members to maintain their position in all-important national rankings.

“Prestige-chasing leads to massive spending, which is sustainable as long as revenue is coming in,” said Mr. Campos. “But then you have a downturn, and all of a sudden, everyone’s bleeding red ink.”

Even before the downturn, many law schools were struggling to hang on to revenues that universities were eager to tap into.

Reversal of Fortune

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 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.”

Katherine Mangan writes about community colleges, completion efforts, and job training, as well as other topics in daily news. Follow her on Twitter @KatherineMangan, or email her at katherine.mangan@chronicle.com.