Indie Law Schools Facing Debt Rating Issues; Legal Jobs Decline

It's not a happy Monday for our nation's law schools. The news, across the board, appears to be negative, both in terms of schools' financials and their graduates' job prospects.

Back in October, we reported that Standard and Poor's was close to downgrading Brooklyn Law School's debt rating. It seems they aren't the only law school in trouble, however. According to the Wall Street Journal, a new report from Standard and Poor's offers a grim outlook for standalone law schools, with at least one school reaching "junk bond" status.

Meanwhile, the cause of the collapse -- decreased demand resulting from a lack of jobs for graduates, may not be improving in the near future. According to the Department of Labor's most recent report, after a steady period of recovery, the legal sector lost 1,100 jobs in November, the second straight month of decline.

Debt Crisis

Much like law graduates, law schools outside of the prestigious top-15 are facing their own debt crisis, more so if the school is independent of a larger university.

Standard and Poor's new report on the state of law schools spends the first few pages rehashing what is common knowledge for followers of this blog: there are fewer test-takers, applicants, and students clamoring for our nation's law school seats. It then jumps into the credit ratings.

A sample size disclaimer is necessary here -- only five ABA-accredited standalone schools, out of 26 such institutions, are rated by Standard and Poor's. Nonetheless, the data for these schools, which lack the financial support from being part of a larger university, is grim:

• All five schools have an A- or worse rating, and four of five have a negative outlook;
• No school has a positive outlook (one, Albany Law School, is currently rated at stable because it has cut expenses along with enrollment);
• Thomas Jefferson School of Law, in San Diego, is currently rated at B+/Negative (junk bond status) due to its hefty debt burden (the school opened a new campus in 2011) and poor financials, despite steadily increasing enrollment until Fall 2013;
• Thomas M. Cooley (dependence on student fees, risky expansion to Tampa Bay, Fla.) also has a negative rating, despite a strong history of operating margins in excess of 10 percent;
• Brooklyn Law School and New York Law School are each reportedly in the red, facing deficits caused by a high dependence on student fees and declining enrollment and demand.

The report also mentions a few small regional universities, with dependent law schools, where the crisis might be affecting the university as a whole (Widener University, Pace University, Regent University, and others).

Jobs Decline

Of course, the biggest key to recovery for the schools is increased demand, which will only come when there is a reason (job prospects) to go to law school.

Unfortunately, the data doesn't look good. The Department of Labor's newest report shows a second straight month of decline, after the number of jobs in the sector peaked in September at the highest number since 2009.

It's not all half-empty. Year-over-year, the industry has gained 2,500 jobs, however. It's just not the sustained growth that many of us were hoping for.

Related Resources:

• Are 85 Percent of Law Schools Really Losing Money? (FindLaw's Greedy Associates Blog)
• 'White Flight' Hitting Nation's Lesser Law Schools? (FindLaw's Greedy Associates Blog)
• The Argument Resurfaces: Buy Low on Law School? (FindLaw's Greedy Associates Blog)