The recent decision to trim staff and lecture faculty at Northwestern University Pritzker School of Law amid a budget shortfall illustrates that even elite law schools are subject to the financial pressures of staying competitive in a soft legal education market.

But make no mistake: Name-brand law schools on the whole are faring better than their counterparts further down the legal education food chain.

That's according to experts who have studied the changing economics of law schools and deans at several schools within U.S. News & World Report's top 20, who say that fundraising has been strong and that the financial shortfalls that emerged in the midst of the so-called crisis in legal education have largely been addressed. Put another way, don't expect top law schools to announce drastic cuts any time soon.

Even Northwestern's cutbacks are relatively modest, according to Dean Kimberly Yuracko, who declined to specify the amount of the school's funding shortfall except to note that its operating expenses are projected to outpace revenue this year. Still, she characterized the school as being in a “challenging financial position” in a message to faculty in September.

The school has opted to eliminate some vacant staff positions and not renew the yearly contracts of certain clinicians and lecturers, she said, positioning the reductions as a routine adjustment amid her new leadership. Yuracko assumed the deanship in September. (No tenured positions are being cut.)

At the University of California, Berkeley School of Law, the books are looking better than they have in years, with the wider campus recovering from a $125 million deficit several years ago, according to Dean Erwin Chemerinsky.

Erwin Chemerinsky.

“The bottom line is that we are in very good financial shape,” Chemerinsky said. “We had no cuts for the current fiscal year and had some increases—we hired four new academic tenure track faculty, a new clinical professor, a new legal writing professor, and some new staff. We have created a number of new programs since I arrived last year. I expect for next fiscal year that we will be hiring about six new faculty and do not expect any budget or staff cuts.”

Law deans are generally loath to discuss their finances publicly—a number of deans at top law schools declined to comment on their funding outlooks for this article—but new research from a pair of legal academics and an economist offers some insight into how elite schools have fared in comparison to lower-ranked schools.

Former University of North Carolina law professor Bernie Burk and University of St. Thomas School of Law professor Jerome Organ examined enrollment, tuition and scholarship trends in legal education from 2010 to 2016 to conclude that the nation's law schools are collectively losing $1.5 billion annually due to lower enrollment and lower actual cost for students.

But their paper highlights the fact that not all law schools are feeling the pain equally. They found that the top third of law schools on average are forgoing $5.9 million annually in tuition, compared with an average $11.6 million for the middle third and an average $12.2 million for the bottom third.

Moreover, the average first-year class at those top schools fell 13 percent—much less than the 35 percent and 46 percent in the second and third cohorts of schools. In short, top law schools haven't reduced their class sizes or upped their scholarships to the degree that lower-ranked schools have; hence, they haven't taken as big of financial hits.

However, different law schools within the top tier face different circumstances, Burk noted in an interview this week.

“Generally speaking, the most prestigious law schools have been the least affected by the change in circumstances,” he said. “But there are a couple in the top 20 that have found themselves required to discount their tuition fairly substantially in order to maintain the profile of the student body they want to have, and Northwestern was one of them. Washington University in St. Louis also discounted heavily.”

Washington University Law Dean Nancy Staudt said in an interview Wednesday that her school's finances are solid and that no cuts are planned.

“We're great,” she said. “We're in an operating surplus. There is no problem at all in our finances. I was a little surprised by Northwestern's move. Between five and seven years ago, virtually every school and dean I talked to had some financial difficulty. But for the most part, those financial difficulties have been addressed. I just know our finances and we're in a building mode—certainly not a cutting back mode.”

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Organ, at St. Thomas, theorized that Northwestern's financial problems may be the result of fierce competition for highly qualified students among highly ranked law schools in the Midwest—at least partially. Not only is the school in competition with the No. 4-ranked University of Chicago Law School in town, but it's also competing with the relatively close University of Michigan Law School; Washington University in St. Louis School of Law, the University of Notre Dame Law School; the University of Iowa College of Law; the University of Wisconsin Law School; Indiana University Maurer School of Law; and the University of Illinois College of Law. Illinois and Indiana in particular have been generous with scholarships, which may have helped lure applicants away from Northwestern despite its higher ranking, Organ said.

“Even a school like Northwestern has to fight with its competitors to attract the students it wants,” he said. “Harvard and Yale and Stanford, largely, are in their own world. But Duke, Northwestern, Virginia, Chicago—they've all taken slightly smaller classes, and I think they've all increased either the number of people receiving scholarship or the size of scholarships. They'll all in a competitive fight for that certain profile of student.”

The case of the University of Minnesota offers further evidence that some top law schools have financial issues. The central university has pumped nearly $40 million into its law school since 2012 to make up for revenue lost due to smaller enrollment. That move has allowed to school to maintain its No. 20 ranking, but it is costing the university $7.5 million a year.

Organ and Burk's research doesn't address one key issue, however, which is the non-tuition revenue sources that each law school has. That includes subsidies from central universities, fundraising and endowments. But elite law schools in general enjoy larger endowments and a higher capacity to fundraise, Burk said, which can help insulate them from financial woes.

“In general, the more prestigious you are, the more you are inherently likely to attract students who prove to be successful in the world, financially, and the more alumni you have that really hit it big,” he said.

Even so, fundraising success can't necessarily stave off operating shortfalls. Northwestern has raised nearly $250 million in its latest capital campaign, but Yuracko said much of that funding is earmarked by donors and can't be used to fill in holes in the operating budget.

The good news for top law schools is that last year's 8 percent increase in the national applicant was concentrated among those with LSAT scores of 160 and higher—the students they aim to attract. Organ predicts that increase will translate not only into more students at elite schools, but a reduction in the scholarships schools have been using to lure highly credentialed applicants. And that, in turn, should ease any budget strains.

“My guess is that with an increase in supply, the competition for students goes down and not as much scholarship money is on the table,” he said.

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