Dealing with the crash, Pt. 3

This post is part of a series. Earlier installments are here and here.

The first two posts in this series looked at a school (Iowa) that has dealt with the crash in demand for law school admissions by drastically cutting its class size, and another (American) that has reacted by slashing its admissions standards. This post looks at a school that has done both.

Hofstra’s law school is a classic example of an institution whose very reason for being has become at the least highly questionable. Located in the hyper-saturated New York City-area legal market (there are about 15 law schools within 100 miles of its campus), Hofstra nominally charges a preposterous $49,500 in annual tuition and fees, even though half of the 2012 graduating class didn’t get legal jobs, and a grand total of 17% of graduates reported salaries of $55,000 or more nine months after graduation.

The 78% of the class that incurred law school debt had average loan balances of approximately $150,000 six months after graduation. That more than one in four graduates had no law school debt at all at a school with a nominal annual attendance cost of more than $70,000 says a great deal about the SES of the nearly one quarter to of the class that is paying — or more accurately whose families are paying — cash on the barrel for the privilege of attending the nation’s 89th-ranked ABA law school (out of 202).

Over the last three years Hofstra has, even more than American, defenestrated its admission standards. Three years ago the entering class’s median GPA was 3.58; this fall it is 3.14 (This latter figure is now lower than that of all but a handful of bottom-tier law schools with frankly quasi-open admissions policies). Over the past two years the entering class’s median LSAT has gone from 159 (77.6th percentile) to 154 (59.7th); a quarter of the new entering class has LSAT scores lower than those of the average test-taker.

None of this has stopped the school’s matriculant numbers from cratering — from 370 1Ls in 2011 to 320 in 2012 to 215 this fall. Apparently Hofstra has been losing out in the transfer game as well, with the result that total JD enrollment has fallen from 1,074 two years ago to 850 today.

As for actual tuition revenues, Hofstra is notorious for giving “scholarships” to about two-thirds of students who matriculate — actually straight discounts on nominal tuition — that more than half of these recipients lose, because retention requires remaining in the top 40% of the class.

Some back of the envelope math, taking into account nominal tuition, tuition discounts, scholarship retention rates, and overall enrollment, indicates that over the past two years Hofstra’s tuition revenue has fallen from approximately $37.5 million per year to $28.05 million. Because law schools like Hofstra tend to depend on tuition for around 80% of their operating revenue, (the rest comes from endowment income, annual fundraising, grants, and various subsidiary income sources such as building rental, CLE programs, parking and other vending etc.) this suggests that, keeping the ratio between other law school revenues and expenses constant, over the past two years the annual gap between Hofstra’s tuition revenue and its total operating expenses has increased from around $9.5 million to about $19 million.

The $47 million question, of course, was whether and to what extent Hofstra was running an operating surplus (i.e., to what extent if at all it was a “cash cow” that cross-subsidized other university operations) before its tuition revenue crashed. If the school was kicking ten million per year to central way back in 2011 (possible, but unlikely, from what I’ve seen of recent law school budgets) then it’s breaking even now, which is something central is no doubt quite unhappy about, but which doesn’t count as a major crisis — probably — for the school, at least in the short run. On the other hand, if Hofstra’s law school has, like so many other schools, engaged in profligate spending over the past few years while playing the rankings and prestige game, and was therefore only more or less breaking even or already running a deficit a couple of years ago, then . . .