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Here’s How the Law School Crisis Is Hitting Harvard

Jan. 29, 2016, 2:27 PM

Editor’s Note: The author of this post is the head of an organization aimed at making law school more transparent and affordable.

By Kyle McEntee, Executive Director, Law School Transparency

Is the law school crisis affecting Harvard? Probably not. The school did choose to take 55 transfer students last year, the fourth largest transfer class in the country. In the prior four years the school took between 30 and 34 transfers each year. Its higher than usual acceptance of transfers has fueled speculation that it was compensating for an original applicant pool that wasn’t strong enough. Whether that’s so or not, several indicators that may show a school faces financial duress have each remained steady at HLS between 2011 and 2015.

• First-year enrollment: enrollment ranged from 555 to 568 over the last five years. Applications were down 18 percent and yield declined from 66 percent to 60 percent, which indicates that several peer schools are making more competitive offers . Still, the school netted just one fewer first-year student this year compared to last and three more than in 2011.

• Admissions credentials: the median LSAT score did not change from 173 (99th percentile) and the median undergraduate GPA declined just .03 from 3.89 to 3.86.

• Tuition increased an average of 4.6 percent each year. Scholarship increases did not keep pace with tuition increases, indicating that the school took in more money each subsequent year.

• There’s no talk about trouble with Harvard’s endowment, or any indication that Harvard Law has liquidity issues.

It is still possible that the school needed short-term liquidity and that it was not willing to take a hit on first-year admissions numbers due to the U.S. News law school rankings. But, if the school were struggling, we would expect at least some evidence from these metrics. According to Jessica Soban, assistant dean of admissions at Harvard Law School, the school had a stronger pool of transfer applicants this year and the yield from transfer offers exceeded expectations. Dean Soban resisted speculation, but it certainly appears that the Harvard Law transfer class was getting out of dodge . This is a far more tenable explanation than the school needing an extra $1 million from 20 more transfers.

Three law schools face heightened cash monitoring from the federal government . New York Law School’s bonds barely make investment grade . California Western sees its bond-rating plummet .

Ave Maria School of Law (Florida), Thomas Jefferson School of Law (California), and Charleston School of Law (South Carolina) each face additional oversight of cash management. The U.S. Department of Education updates the list every three months. This is Charleston’s and Thomas Jefferson’s first appearance. Ave Maria has been on the list since the Education Department first began making the list public in March 2015. If these schools continue not to demonstrate financial responsibility, these schools will need to find short-term liquidity “to front student loan payments before receiving a reimbursement from the federal government.”

New York Law School and California Western face a different type of trouble stemming from debt issuances. While Moody’s did not downgrade NYLS’s bonds last week, the outlook is negative for the school:

“The negative outlook reflects significant instability in the school’s operating environment that could result in larger deficits than currently anticipated. The school’s significant financial reserves are the fundamental underpinning for the rating, so a material market correction could also result in rating pressures.”

California Western, on the other hand, received a Baa3 bond rating from Moody’s, down from Baa1. The rating is the lowest investment grade and the outlook is negative due to “weak prospects for net tuition revenue growth.”

In 2010, the market for enrollees was quite favorable for law schools. They enrolled more students than ever before that year. Following higher education norms and competitive pressure, schools accumulated greater fixed costs from tenured faculty and shiny new buildings. However, word began to spread that law school enrollment had exploded without any regard to the job market, interest in law school declined , and just about every law school faced financial pressure.

[Image “enrollment change” (src=https://bol.bna.com/wp-content/uploads/2016/01/enrollment-change.jpg)]

Naturally, financial pressure varied and schools took a variety of approaches to falling demand.NYLS cut admissions standards in 2011 -- not to an unreasonable level -- in addition to cutting enrollment 24 percent. The school could have cut further that year and maintained its enrollment, but it responsibly chose against that. The next year (2012) the school cut its standards again and they have more or less remained steady for the last four years. Meanwhile, enrollment declined each year until 2015, when the school increased enrollment almost 25 percent.

Operating deficits at a school with high fixed costs and a diminishing student body are no surprise. Neither is the fact that the school’s consistently declining bar passage rates reflect its falling admissions standards. Students who entered in 2010 achieved an 83 percent pass rate on the July 2013 New York bar exam. The two subsequent classes declined about 10 percent. Students who entered in 2012 had a 60.4 percent pass rate on the July 2015 New York exam.

With the ABA taking steps to tighten bar passage standards in response to schools’ cash grabs, NYLS will likely need to improve its admissions standards to improve its bar passage rates. Insofar that this means cutting or even maintaining enrollment, it’s at odds with a path to stable financial standing. Additionally, the school will need to continue its efforts to improve academic performance (to reduce attrition) and bar success, though these support systems can be pricey.

The other four schools each took a different path than NYLS. Charleston hung on to its standards a bit longer, but it eventually joined California Western , Ave Maria , andThomas Jefferson irresponsibly throwing standards to the wind to maintain financial stability. In July 2015, each of these schools had a bar passage rate below 60 percent in their home state. Ave Maria and Thomas Jefferson were below 50 percent. To its credit, Ave Maria drastically improved its standards in 2015. Unfortunately, the class is still weaker than the class that achieved a first-time pass rate of 47.8 percent on the July 2015 bar exam.

These schools are barely holding on, and the third parties holding the purse strings have noticed.