How Is Harvard Law School Spending Your Tuition?

Of all the problems in the world that need addressing, law school tuition hikes at Harvard Law School are perhaps the least pressing (See generally my previous article). As the Good Book says, where your treasure is, there will your heart be also, and since your average HLS graduate leaves with $123,673 worth of treasure outstanding [1], I’d say this is a question near and dear to our hearts.

Increases in law school tuition are by no means news, but after last year’s hikes I was left with a burning question. Where is all of this extra money going? Since 2009-2010, law school tuition has increased from $43900 [2] to $54850 today, an increase of $6179 per student after adjusting for inflation. [3] With a total of 1546 JD students, that works out to at least $8,406,405. [4] So what is Harvard Law doing with the additional $8,400,000? [5]

Gnawed by this aching question, I emailed Dean Minow’s office asking about this year’s tuition hikes. I was directed, quite helpfully to the Associate Dean of Finance, and he and I had a nice one-on-one chat about where the expenses were going. Most of what was said was said in confidence, and will not be repeated here, but one thing he said that I do feel I can repeat is that the Law School’s financials resemble those of Harvard Business School, which does publish its own financial report. [6]

What do HBS’s financial statements say about its expenses? See for yourself:

Expenses (in millions) 2013 2012 2011 After Inflation Annual Increase
Salaries and Benefits 255 241 219 6.2%
Publishing and Printing 67 59 55 8.8%
Space and Occupancy 48 47 44 2.7%
Supplies and Equipment 9 10 10 -6.6%
Professional Services 40 35 31 12.3%
Fellowships 40 37 36 3.6%
University Assessments 18 17 15 7.9%
Debt Service 6 6 7 -8.6%
Other Expenses 59 52 39 23%
Total Expenses 542 504 456 7.4%

See http://www.hbs.edu/annualreport/2013/downloads/HBS-Annual-2013.pdf [7]

As we see, the biggest line by far in the expenses budget is “Salaries and Benefits” which increased from $219 million to $255 million in two years, an increase of 6% per year after inflation. This item alone constitutes some 47% of the entire HBS budget, and a comparable percentage at HLS. The other major increase was in the nebulous “Other Expenses” which increased an incredibly 23% per year after inflation. University Assessments, which include such things as payroll administration and legal services, also grew at a surprisingly fast pace, though accounted for only some 3% of the budget.

Most of the other expenses were relatively flat. Space and Occupancy, for instance rose 2.6% per year after inflation, surprisingly low given HBS’s recent building boom. [8] If Harvard Law follows the same general pattern, it is unlikely that much of HLS’s expense increases are related to paying off the new Wasserstein building, though many students draw a casual connection between their price increases and the monolithic white cube that now dominates our daily life. If HLS follows the HBS model, the new building’s costs were substantially defrayed by donations, and therefore cannot explain the tuition increases.

What’s the big take away from this? Again, the HBS’s financial reports are only a rough proxy of what is happening at HLS, but probably the best proxy we have. If the similarities bear out, then HLS has been putting most of the tuition increases towards increases in salaries and benefits that strongly beat out inflation at a time where there has been virtually no increase in starting salary for lawyers in seven years.

Why is HLS doing this? Are we hiring new professors? That seems hard to believe, since most professors seem to teach only one class a semester. [9] Are we hiring professors to teach zero classes a semester? Alternatively, are we giving large, inflation-bearing bonuses to current faculty?

Perhaps there are other explanations. Perhaps LIPP is paying out more, so in a sense law students are only funding their future selves. Perhaps the increase in salaries is due to increased staffing in the new buildings as opposed to salary increases of current employees. Perhaps we are suddenly splurging obscene amounts on free lunches.

Let’s step back and be realists for a moment. Harvard Law operates as a corporation, charging its students their maximum willingness to pay, and dispersing the surplus to the various interests as the administration sees fit, to employees or to favorite projects or what have you. Only when tuition gets so high as to hurt its yield will the annual 4.6% tuition increases come under pressure. Until then we’ll have to bite the bullet and focus on the problems that we actually can change.

[1] http://grad-schools.usnews.rankingsandreviews.com/best-graduate-schools/top-law-schools/grad-debt-rankings/page+3

[2] http://lawschooltuitionbubble.wordpress.com/2011/01/22/the-law-school-tuition-bubble-data-tuition-increases-law-school-by-law-school-from-2005-to-2011/#MA

[3] http://www.bls.gov/data/inflation_calculator.htm convert $43900 to 2014 dollars.

[4] To arrive at this number, multiply 1546 by $6179, then subtract 12% as Harvard Law pays out no more that amount in grants each year. http://www.law.harvard.edu/current/sfs/policy/packaging.html. I assume that the percentage given out in grants remains steady each year.

[5] It should also be noted that HLS, like the university as a whole, has actually been operating at a budget deficit until recently, with its endowment hardly growing from 1.65 billion to 1.68 billion from 2011 to 2013. Compare http://finance.harvard.edu/files/fad/files/2013fullreport.pdf and http://finance.harvard.edu/files/fad/files/2011fullreport.pdf. This in spite of the fact that the endowment, I believe, has had fairly substantial returns and was well managed.

[6] The Dean of Finance did note some substantive differences, however, especially concerning HBS’ large revenue stream from Harvard Business Publishing. Additionally, I believe the revenue from the Executive Education program is not as high at HLS as it is at HBS.

[7] For your reference, total revenue from MBA Tuition and Fees increased by 3.8% after inflation, compared with roughly 2.5% for HLS students.

[8] http://harvardmagazine.com/2012/10/harvard-business-school-new-chao-building-fellowships

[9] Search professors at random in Helios and see how much the average professor teaches.

Comments