Law School Proliferation

The legal education industry is facing a potentially significant expansion of supply. As Leigh Jones at the NLJ reports, up to 10 different universities are investigating adding new law schools. Some of the potential new entrants include:

* Wilkes University, Wilkes-Barre, PA

* SUNY Stony Brook

* SUNY Binghamton

* St. John Fisher University, Rochester, NY

* University of New Haven, CT

* Husson College, Bangor, ME

* Louisiana College, Pineville, LA

* Lincoln Memorial University, Knoxville, TN

* Concordia University, Boise, ID

* University of Idaho, Boise, ID

In addition, the UC Irvine law school is coming online in 2009.

On a current base of less than 200 ABA-accredited law schools, this would represent a 5% growth in the number of suppliers. In terms of actual supply (new seats for law students), the growth will depend on both the number of new seats created by the new schools as well as any changes in the number of seats at existing schools.

At the same time, it’s projected that law school applications will crest in the next few years and then start falling–basically, right around the time that these new schools come online. With the expansion in supply and reduction in demand, the most likely scenario is that some schools will reach deeper into the applicant pool to admit folks who are currently being turned away. However, I also think some (many?) schools–to preserve their US News GPA/LSAT credentials–will reduce their admitted class sizes to avoid dipping deeper into the applicant pool, but it’s also possible that more schools will be stuck with involuntarily unfilled seats. (In theory, price competition may also increase, although to date we haven’t seen much of this). Either way, reduced class sizes means less revenue, potentially making these law schools less profitable ventures or even necessitating cost-cutting efforts to preserve profitability.

So what’s driving the increase in supply? I view this as a classic supply-side dilemma. Universities get marginal private benefit by adding new schools. Law schools increase the overall prestige of the institution and typically add net profits to the institution. Also, local communities like law schools because they are significant economic enterprises and can help supply the local economy with new legal expertise (both from the law school itself as well as from law school graduates who want to stay in the local area). So while each individual decision to add a law school may make sense to the decision-maker on a microeconomic basis, the macroeconomic result can be a prisoner’s dilemma/market oversupply.

Note that the increase in law schools doesn’t mean that law school consumers will actually get new choices about their legal education. In terms of admission, in all likelihood each and every school will still focus on the top X% of the applicant pool bell curve–the X might grow due to increased supply, but the identity of sought-after candidates won’t change so long as US News puts so much weight on matriculant GPA/LSAT. Meanwhile, in terms of pedagogy, consumers using the US News rankings as a principal evaluation tool do not actively demand heterogeneous marketplace offerings, and suppliers have no incentive to diversify their offerings both for fear of spooking consumers and the risk of screwing up the US News metrics and being punished in the rankings accordingly. So in all likelihood, the new law schools will look like the existing law schools, which doesn’t create real marketplace diversity.

(I know that UC Irvine’s law school has been emphasizing a more public interest focus as a differentiator. Let’s check back in 10 years to see how much that rhetoric remains. My guess is that the US News homogenizers will have muted the differences substantially).

As the NLJ article points out, another potential downside of legal education market expansion is that the legal industry may not be creating new jobs as rapidly, resulting in more law school graduates competing for an inadequate pool of law jobs. This could lead to salary deflationary pressure for the “average” law student (the top end for the top students will stay at an eye-popping rate, but only a small percentage of law students get those jobs)–which will be all the more painful as the cost of legal education continues to increase at a rate faster than inflation. So long as the top end of entering attorney salaries remains a huge number, many students will be psychologically biased into thinking they can win that lottery and therefore won’t be dissuaded by the averages. The likely result: lots of law school graduates with huge debts and limited means to meet them, along with the psychological trauma of not winning the lottery and needing to take a suboptimal job to generate immediate cash flow.

UPDATE: The AP explores this topic more.