US law school bubble bursts

November 15, 2013 The predicted bursting of the US law school bubble is under way, according to Professor Paul Campos, who estimates that 80 to 85 percent of law school are operating at a loss right now. The significant drop in law school applications means that federally-backed student loan money - which has been propping up exorbitant tuition fees for years - is finally drying up.

As Campos put it in his post on Lawyers, Guns, & Money:

"Over the past couple of year, the disjunction between the cost of law school and the marginal economic benefit provided by a law degree has become sufficiently self-evident that the market for places at ABA law schools has begun to collapse. Schools have slashed both enrollment qualifications and real tuition (via semi-invisible discounts), yet first-year enrollment is down nearly 25% since 2010, and real tuition revenue is down by nearly that much (because over the past three years increases in nominal tuition have, it appears, only slightly outstripped increases in off-sticker discounting).

My survey of law school budgets suggests that, on average, law school revenues will be down this fiscal year by about 15% in real terms from where they were three years ago. Costs, meanwhile, have not decreased by the same amount — if anything, they are slightly higher (as of now the rankings struggle continues unabated). Very few law schools were running 15% operating surpluses three years ago, which means that the large majority of law schools — I estimate between 80% and 85% — are incurring significant operating deficits in the present fiscal year.

Note that this estimate is conservative, in that it treats state tax subsidization at public schools as operating revenue rather than an operating subsidy. It is also conservative in that it assumes that no universities maintain long-term budgetary policies that require their law schools to provide subsidies to the rest of the campus, in the form of significant revenue over expenses (aka, the infamous “cash cow” model of legal education)."

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