March 19, 2012 4:31 PM

U.S. News Data Show 2011 May Be Beginning of End for Law School Tuition Bubble

Posted by Matt Leichter

Most people look at U.S. News & World Report's annual rankings to see how the magazine treated their (dis)favored law school. Before pleading, "But do they really matter?" it's important to point out that U.S. News is the first organization to publish standardized data on American Bar Association–accredited law schools each year.

Specifically, the U.S. News tuition data are accurate when compared to the ABA-LSAC Official Guide to ABA-Approved Law Schools (Official Guide), which comes out in June of each year, and offer tuition-watchers an opportunity to see how much law school tuition increased in the 2011–12 academic year.

When adjusted for inflation, the answer is a surprise: average full-time tuition at private law schools grew less than 1 percent, with most of that growth occurring at the country's more expensive schools. This is a significant break from previous years, and indicates that down-market law schools are responding to the decline in applicants. In other words, 2011 may be the beginning of the end of the law school tuition bubble.

First, a caveat about the data. Not all law schools reported their tuition data to U.S. News and some reported it on a per credit basis. For the latter, I multiplied the number by 30 (though the correct number of credits might be 31). For law schools that didn't report, I found the relevant data on their Web sites and then added the fees. If they had already posted their 2012–13 tuition, I took the average of that and the 2010–11 tuition from the Official Guide. I omitted the three law schools in Puerto Rico.

Finally, I'm once again using "adjusted" public and private law school tuition, which means public law schools whose resident tuition is higher than what the average private law school charges are counted as private law schools. In practice, this means Michigan, Virginia, and the California schools (except UC-Irvine) are counted as private law schools while Illinois, Colorado, and Penn State are just very expensive public law schools. The logic behind this is that tuition increases over the inflation rate at public schools are partly due to lost state subsidies, but once those subsidies are gone, the additional tuition almost certainly goes to increased spending. When nonresident tuition goes above the average private law school tuition's, then I don't count it.

Here's real adjusted law school tuition from 2004–11. For fun, I've included U.S. News's immutable top 14 law schools.

If you look carefully, you'll see that the T-14 law schools' average tuition increased faster than the average private law school's in 2011. You might think this is normal, but it's actually unusual. Typically, as private law school tuition increases, the dispersal (measured in average deviations) shrinks, meaning cheaper law schools are becoming more expensive faster than those that are already expensive.

Except this year.

Digging a little deeper, we find that in 2011, 29 out of the 122 "adjusted" private law schools saw real tuition deflation. Here's what it looks like over time.

Yes, in 2009, law schools turned to their students to recover income due to endowment losses caused by the financial collapse, except Albany Law School. The action, though, is in the lower right corner. About half the law schools increased their tuition by 1 percent or less over the inflation rate, which has never happened in previous years.

The question, though, is which private law schools in the distribution are increasing their tuition. To come up with the answer, I've divided them into quintiles. They're not very fluid, unlike the U.S. News rankings, so most law schools stay in the same quintile or only move once at most. And yes, law schools in the highest quintile, the fifth, correspond to those that consistently rank high in U.S. News or are in New York. Here they are for this year and since 2004:

Looking at the average tuition growth rate in each quintile, we find that 2011 differs substantially from previous years.

In 2011, the schools in each quintile increased their tuition at a slower rate than in previous years, and this year's distribution looks more like 2005's than in the other years. What caused such a change?

Last June, Brian Tamanaha wrote an article for Balkinization titled, "The Coming Crunch for Law Schools," in which he argued that the less-prestigious law schools would face the fiscal consequences from over-expansion and applicant declines first. Thus, it's almost certain that the slower tuition growth, weighted down-market, reflects the impact of an applicant nosedive. In the past, some law schools reacted to these situations by increasing tuition to cover the shortfall, e.g. Albany Law School, as shown above. It appears this option is no longer available. Schools that have fewer applicants have less of a reason to invest in new faculty and new buildings, preferring to wait out the storm caused by scambloggers and the media.

However, the storm is worse than it appears.

There's no good way (yet) to measure the "coming crunch." According to the LSAC's Web site, there was a 9 percent drop between the "preliminary end-of-year" applicants in 2011 (78,900) and the "final end-of-year" applicants in 2010 (87,900). The 2011 number will probably be revised upward by about 1,000 applicants. Tamanaha makes his case by comparing the number of applicants to entering 1Ls. Here's the ratio, along with the employment population ratio to show just how cyclical law school applications are. I held the number of 1Ls constant for 2011:

The projected low for 2011 is only slightly higher than the record low in 1985 when the economy was a lot healthier than it is today. People aren't applying to law school despite the disaster, which is unprecedented. Note also that by this measure law schools absorbed the entire applicant increase in recent years.

What do we know about 2012 so far? According to the ABA Journal, as of January the number of law school applicants had dropped to 31,815, which corresponds to 48 percent of the expected total of 66,281. Since we have that number, another, hopefully better way of measuring interest in legal education is dividing the number of applicants by the number of accredited law schools. This measure is crude to the extent that it doesn't distinguish between full-time and part-time applicants even though some schools lack part-time programs, but that can be fixed when the Official Guide comes out in June. The result is dramatic:

You read that right. The number of applicants per law school is projected to reach a record low, and given the structure of tuition increases (and decreases) in 2011, law schools will continue to diversify based on the interest people are showing in their programs. Also note that contrary to popular belief, the number of applicants did not grow nearly as much due to the financial meltdown as in previous recessions, and more profoundly, the 2011 and 2012 application years break the countercyclical trend of law school applications. People who normally would've applied to law school are either choosing other graduate-level programs or none at all instead of law school. This is an unprecedented event facing the legal academy, and it is very likely to continue.

The real question is at what point law programs will start retrenching by excusing staff, cutting salaries, and reducing tuition, or when universities begin shutting them down.

Matt Leichter is an attorney licensed in Wisconsin and New York, and he holds a masters in International Affairs from Marquette University. He operates The Law School Tuition Bubble, which archives, chronicles, and analyzes the deteriorating American legal education system. It is also a platform for higher education and student debt reform.

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