Will the Competition Close?

As law school enrollment continues to fall, industry experts have started to speculate about how many schools will–or should–close. Law schools themselves have a great interest in this. Some are worrying if it will happen to them. Others wonder whether the closure of competitors will ease their own distress.

The latter line of reasoning concerns me. Over the last few years, I’ve heard both academics and practitioners suggest that, once the market closes the weakest law schools, all will be well for the remaining 50, 100, or 150 schools. This analysis, I’m afraid, is too simplistic for the market we face.

As I explain below, at least five forces will keep most law schools in business. Many of these schools will be smaller than they were in 2010, with fewer students and smaller faculty/staff rosters. They will, however, survive–and will compete aggressively for students, employer connections, and new resources. That outcome offers mixed comfort for law schools. Some will do relatively well in this new competitive environment; others will limp along in a much leaner state.

For students, employers, and clients, this outcome is promising–more positive, actually, than the prospect of wholesale law school closures. The competition among law schools will make them much more responsive to students and the workplace. Over the last two years, many schools have already lowered effective tuition, changed curricula, and cultivated stronger relationships with employers. These changes, I predict, will not be short-term solutions that we discard “after the market shakes out.” Instead, they are the beginning of a fundamental shift in legal education that will be fueled by ongoing competition among schools.

The market works, but it will follow a peculiar path in legal education. Rather than closing a large number of law schools, the market will incite aggressive competition among schools that have been told by their universities: “We’re not going to close your doors, but you have to sustain yourself financially.”

Why Won’t Law Schools Close?

Law schools undoubtedly have been graduating more JD’s than the US economy needs. Students have gotten wise to that fact, and law school applications have plummeted. Why, then, won’t the weakest fifty–or one hundred–law schools simply close? That’s what would happen in many industries. Higher education, however, has several features that will keep most law schools alive.

1. It’s very hard to close a public law school. Most observers agree that each state will want to preserve at least one public law school. Those schools offer access to legal education for state residents, a supply of locally trained legal talent, and a certain measure of prestige. Very large states might rationally maintain a few public law schools to fill those needs.

What about all of the other public law schools–the second, third, or fourth schools in a state? A rational legislature might close some of those schools in response to dwindling demand for JD’s. Most of these schools, however, reflect strong regional interests within the state. Some reflect differing racial or ethnic populations. Do you think Ohio will close its law schools in Cleveland, Toledo, and Akron, telling those students to apply to the higher ranked public schools in Columbus or Cincinnati? That command would elicit the same reaction as Marie Antoinette’s famous exhortation to let the peasants eat cake.

If a public law school exists, it has strong political forces behind it. Public law schools, I predict, will close only if the political dynamics of a state have changed so much that its constituency no longer enjoys political clout. They will not close simply because the demand for JD’s has declined.

2. Law schools have powerful alumni. Recent graduates may be suffering in the marketplace, but most schools have at least a handful of wealthy and/or politically connected alumni. At both public and private schools, these graduates will pressure the board of trustees, president, provost, development office, and others to maintain the law school. At public schools, these alumni will also weigh in with the legislature and higher education system.

It won’t take many alumni to keep a law school open–especially since these alumni often matter to the full university. Some of them contribute money to other departments; others have careers that reflect well on the university as a whole. Still others are connected to community leaders, government officials, and business moguls who matter to the university. Universities will not want to alienate these alumni.

3. Law schools are part of a product line. Businesses sometimes maintain an unprofitable product as part of an overall marketing strategy. A product may build brand loyalty, or complete a product line, even though it does not generate profits of its own. Drugstores, for example, sell a full range of medications–not just the most profitable ones.

No university teaches every subject, and there are many superb universities without law schools. The universities that already have law schools, however, think of them as part of the product line. Top research universities (those ranked very high or high in the Carnegie classification) pride themselves on their comprehensive research programs. Those universities are likely to maintain existing law schools as part of their commitment to comprehensive research.

Law schools located at other universities, ironically, may be even less likely to close. At those universities, which grant fewer doctorates and attract less research funding, the law school may represent a larger percentage of the university’s research activity and academic reputation.

4. Law schools are cheap academic units to operate. The first three forces would have limited impact if law schools were expensive to maintain. No university will hemorrhage dollars to sustain a law school. Law schools, however, are remarkably cheap academic units.

We don’t require laboratories or expensive equipment. Our students use simple classrooms, and our faculty conduct their research with desks, modestly powered computers, and an internet connection. Our faculty earn high salaries, but they are no longer soar as high over the rest of the university; check out medical, business, and engineering salaries–as well as the ones paid to star professors in the arts and sciences.

We offer sizable scholarships to attract top students, but we rarely offer full tuition waivers plus living stipends–the gold standard demanded by top graduate departments. We employ some writing instructors and clinical faculty, but those numbers are tiny compared to the armies of composition instructors, math instructors, lab supervisors, and other teaching assistants required in other parts of the university.

Even our clinical education is cheap. Colleagues from Dentistry and Veterinary Medicine visited me recently and were puzzled when I told them that my office was located in the law school’s clinic. “This can’t be a clinic,” they exclaimed, as they looked at a few offices, computers, tables, and a conference room. I reminded them that lawyers don’t need x-ray machines, MRI’s, or sanitizing equipment–much less stables, food, and handlers to care for our clients.

We think of law schools as expensive because we have set our tuition so high. And, of course, we are more expensive than other units in some ways: we usually don’t charge for our clinical services, and we don’t attract the multi-million-dollar grants and contracts that grace other departments. On balance, however, we are very cheap departments for a university to maintain.

5. Law schools can reduce their costs. As icing on the cake, there is still plenty of room for law schools to reduce their costs. Other parts of the university–particularly the arts and sciences–have been cutting budgets for a long time. Most of their doors remain open, and law schools have a long way to go when it comes to trimming budgets in the face of market pressure.

Tenured faculty are expensive, but they retire or take other positions. Some public law schools are benefiting from state-wide pension changes that are luring faculty into retirement. Schools don’t have to replace all of these departing faculty–especially if enrollments fall–and they won’t. For the faculty who remain, salary increases will be lower and teaching loads may increase.

Law schools will also discover that they can make do with fewer staff, fewer conferences, less travel money, and smaller libraries. Expenses that once seemed essential to satisfy faculty, secure prestige, and fight for US News rank will seem less essential when schools have to meet reduced budgets. Extras don’t matter as much when the first priority is to stay in business.

Budget cutbacks won’t affect a few highly ranked schools, which may be able to continue business as usual. But cutbacks will occur at schools throughout most of the law school hierarchy. My point here is that there is plenty of room to cut law school budgets, and that our competitors will choose that course rather than quietly go out of business.

The Bottom Line

A few law schools, especially stand-alone ones, may close their doors in the coming years. Most law schools, however, will remain open. Their universities will tell them: “Stay in business, but cover your costs.” This will be tough to do at a time when applications are declining and students are increasingly price sensitive. To balance budgets, schools will cut costs, modify curricula in ways that appeal to students and employers, build stronger relationships with employers, and seek new sources of revenue. All of this will happen, not in a stop-gap manner while we wait for the old days to return, but as part an ongoing, highly competitive environment. Most schools will survive, but the happiest and most prosperous ones will be the ones that appeal most to students and employers. In its own way, the market will speak.

  • Benjamin Barros

    Debbie, I think that this is exactly right. I’ve been skeptical of the argument that a significant number of law schools will close. Your post captures the reasons for skepticism very well. I could see one or two closing, or, in the right circumstances, one or two merging. Beyond that, schools will shrink and survive. As painful as it might be, the process of shrinking and becoming more cost conscious might be healthy in the long term.

    I’d add a sixth reason – law schools are very profitable in the good times, and it makes very little sense to close down a school that it experiencing a cyclical downturn in enrollment. I know that I am much more in the cyclical camp than you and others. Universities, though, think in the long term. If the time horizon is long enough, a University can be reasonably confident that its law school will become highly profitable again, especially if it gets its costs under control now.

    Ben

    • Barry_D

      ” If the time horizon is long enough, a University can be reasonably
      confident that its law school will become highly profitable again,
      especially if it gets its costs under control now.”

      BTW, this is also an argument for a university imposing (and I mean ‘imposing’) some rather harsh discipline on its law school. And I believe that there are many ‘universities’ which are really colleges, which simply can’t afford a money-losing law school.

      Remember, it’s not Ohio State here that’s under discussion, it’s the bottom half.

      What I do expect, however, is an almost literal life-and-death desperate struggle to survive. As I’ve said above, professors tossed out into the cold are in a very bad situation, as would be the administration of a closed law school. Heck, those administrators might not even get 10% annual raises, no matter what the Geneva Convention says!

      • Barry_D

        In addition, Benjamin, I have yet to see any data backing the cyclical theory. This data would have to include grads:legal jobs ratios, legal job placement rates and salary:tuition ratios. And the job figures would have to be reliable; no counting all jobs for employment percentages, but only sone jobs for salary stats.

  • Paula Marie Young
  • kindasorta

    My point here is that there is plenty of room to cut law school budgets, and that our competitors will choose that course rather than quietly go out of business.

    What you describe as “plenty of room to cut” may be plainly unacceptable to the faculty and staff at schools where the effective tuition yield is not likely to match expenses left after endowments and revenue sharing within a parent institution are considered. These schools are nearer the bottom of the hierarchy, and the need to cut labor costs will fall disproportionately on them.

    At Ohio State-Moritz, you work for the flagship state university with an endowment of $7B. Your U.S. News rank is usually in the high-30s to low-40s (mentioned only because it still has some weight as a marketing tool to prospective students). I would imagine that your school’s effective tuition yield is still high, and if economies are forced on the law school, they will probably take the form of buyouts on amicable terms, fewer to no sabbaticals, less library resources, etc. – but few salary cuts, few staff reductions. Teaching load might creep upwards with attrition, but only slightly and to an extent not noticed by most professors.

    A little further down the food chain, you have the University of Dayton. The law school has only been effectively open for the last 40 years (after a long post-Depression hiatus), and the university as a whole has an endowment of $400M. Its U.S. News rank is sub-100, at best. These are the faculty and staff on whom the truly harsh cost-saving measures will fall – buyouts on unfavorable terms, across-the-board salary cuts, layoffs and doubled teaching loads for the remainder. The latter part will sting the worst for ambitious young professors, because it will steal time from producing the kind of scholarship that will allow them to get noticed and hired out of their current positions. These professors will try to find a position at a school with fewer market pressures, or may find it worthwhile to return to practice depending on how deep the pay reductions are.

    A Harvard JD is worth more than an Ohio State JD, and an Ohio State JD is worth more than a Dayton JD. I feel good about Ohio State being able to find a price point for its product that meets its costs, but I’m much less sure about Dayton.

    • Barry_D

      “The latter part will sting the worst for ambitious young professors,
      because it will steal time from producing the kind of scholarship that
      will allow them to get noticed and hired out of their current positions.

      From what I understand, at this point the hiring market is ‘superstars only’. It’s going to get worse as schools slash untenured/not yet tenured faculty, and refrain from hiring for the indefinite future. In general, people will not be hired as law professors.

      ” These professors will try to find a position at a school with fewer
      market pressures,…”

      That means breaking into the top 25(?), which will be the only schools hiring at all. The ratio of only the most highly qualified applicants to positions will be high (will it break 10:1?)

      “…or may find it worthwhile to return to practice
      depending on how deep the pay reductions are.”

      Let’s see – a young law professor has been out of practice for a couple to several years. He/she didn’t make partner. Their ‘earn money this quarter’ skills are zero, as are their in-business connections (both to law firms and clients). They have no client book. They have demonstrated that they’d rather be law professors than lawyers.

      Meanwhile, law firms are cutting their associate to partner percentage to almost zero, are shedding partners, and cutting chunks of their practices, and sometimes going out of business. This means that the supply of competent, experienced, connected, desperate and up-to-the-minute practice-ready lawyers is really, really high.

      Any law professor who is cut or not renewed or not hired is in really bad shape. BTW, this also means that schools will be able to inflict seriously painful cuts on their professors. Given a 50% pay cut + doubled class load vs. unemployment, almost all will opt for the former. The few who opt for the latter just help cut the headcount, as do people retiring.

  • Orin Kerr

    I’m not sure I agree. Doesn’t this depend on how far enrollment drops? If a school was set up have an entering class of 300, I can see that it won’t close if enrollment drops to 200. But how about an entering class of 100, or 50? How about with effective enrollment discounts of 20-30% for “merit” scholarships? I don’t know how long a school can maintain that.

    Also, while faculty do retire, that can take years or even decades. If a law school has enrollment drop from 300 to 100 on an apparently ongoing basis, the fact that senior faculty will retire within 10 or 20 years isn’t going to help the school cut costs . And packages to encourage senior faculty to retire cost more upfront than keeping them.

    • Barry_D

      Seconding Orin here. Take a 25% enrollment cut, multiply it by a 25% (actually charged) tuition cut, and the result is 56% of pre-Crash revenue.

      Assuming no endowment and/or the parent institution will not subsidize the law school, what’s the result?

      And IMHO, that’s probably a better-case scenario for the bottom half of law schools. The ones in the top half will take students from the bottom half. A 35% enrollment cut x a 35% tuition cut results in 42% of pre-Crash revenue.

    • Barry_D

      Orin: “I’m not sure I agree. Doesn’t this depend on how far enrollment drops?
      If a school was set up have an entering class of 300, I can see that
      it won’t close if enrollment drops to 200. But how about an entering
      class of 100, or 50? How about with effective enrollment discounts of
      20-30% for “merit” scholarships? I don’t know how long a school can
      maintain that.”

      0.66*0.70 = 46%of pre-Crash revenue.

      Serious question – can *any* free-standing law school survive that? Even with the most radical cuts? In addition, the school’s going to have major reputational problems, it’s still got to meet ABA requirements for bar passage rates, and it’s got to maintain a functional credit rating.

  • Barry_D

    Two comments:

    (1) ” Do you think Ohio will close its law schools in Cleveland, Toledo, and
    Akron, telling those students to apply to the higher ranked public
    schools in Columbus or Cincinnati?”

    Given dropping enrollment, reduced willingness to pay sticker, a need to maintain bar passage rates, low endowments, parent institutions which can’t take a loss, and a state legislature which is looking to cut the education budget, closing Toledo and Akron would make very good sense.

    (2) “Law schools have powerful alumni. Recent graduates may
    be suffering in the marketplace, but most schools have at least a
    handful of wealthy and/or politically connected alumni. At both public
    and private schools, these graduates will pressure the board of
    trustees, president, provost, development office, and others to maintain
    the law school. At public schools, these alumni will also weigh in with
    the legislature and higher education system.”

    From what I understand, the lower-tier law schools don’t have that many wealthy alumni willing to donate large sums of money. See ‘endowments, miniscule’ :) As for political connections, the higher-ranked schools will probably have far more connected alumni, and if push comes to shove, they can shove harder.

  • Fordy

    What do you think about Appalachian School of Law closing? VA is so over saturated.