Thursday, April 19, 2012

What is Going On at Law School Admission Council (LSAC)?

Brian Tamanaha

The LSAC administers the LSAT as well as the applications of students to law school. Anyone who wishes to attend law school--tens of thousands of people every year--must go through LSAC. The monopoly position it holds makes it a reliable money producing machine. From 2005 to 2009, income from test and application fees generated a total of $230,000,000 (By year: $41,500,000; $43,000,000; $43,5000,000; $47,900,000; $53,900,000; and 2010 fees will exceed $55,000,000).

Setting aside 2008 and 2009, when it suffered substantial losses in the market, LSAC's revenues exceed its liabilities by a significant margin every year. That's because it earns much more on fees than it costs to administer the tests and applications. At the end of the 2010 fiscal year it was up by $17,500,000 from its starting balance.

Given this money making capability, it is not surprising that LSAC has assets of $191,000,000--including cash and securities of $170,900,000--which produces millions more in annual investment income.

This is relevant because LSAC President Dan Bernstein just announced that the fee to take the exam is going up by 15 percent. Application fees are going up as well. With these price hikes, an applicant who takes the LSAT and applies to six law schools will pay LSAC about $450. That's no small amount.

Law schools cannot view this as good news, since they are already dealing with a sharp decline in applicants.

Bernstein explained that the increase in fees is necessary because the fall in applications of the past two years has cut into revenues.
"It is now time for us to correct our fees in light of new volume realities, and to align them more closely with the true value of those services to law schools and their applicants," Bernstine wrote. "We sincerely hope that this will be the only correction to our candidate-fee levels, and that the 'new normal' will identify itself in the next couple of years."
By mentioning true value, what he means is that "the level of service provided to applicants has grown over time — making the process more convenient and worth the extra money." That is, they are getting more so they should pay more.

What Bernstein doesn't state in his explanation for the fee increase is that LSAC will lose money on its operation without the hike. That would be hard to imagine given that the fees generated appear to exceed the costs of running the tests and processing the applications, much of which is computerized.

When a business is faced with declining demand, the usual course is to cut price (and reduce expenses), but LSAC is doing the opposite. LSAC is not a "business," of course. It is a non-profit organization that was created by law schools to administer the LSAT--with equal voting shares held by every ABA accredited law school. It doesn't need to cut price because it holds a monopoly, and the decline is not owing to the price of its service but to a dampening of interest in attending law school. There is no point in cutting price, they probably reason, because that won't lead to more applicants.

That's true enough, but it still doesn't explain why fee hikes are necessary given that LSAC is sitting on nearly $200 million in assets, and revenues exceed expenses.

Here is another curiosity: the officers of this non-profit are extremely well compensated. In 2009, the President earned $635,000 (with what looks like a $200,000 forgivable loan upon hiring)--compared to the previous president who earned $442,000 in 2007. The next highest officers earned $375,000, $322,800, $299,2000, $282,000, $252,500, $237,400, $231,912, and so on. In 2008, the four highest officers below the President also received one time supplemental payments of $100,000, $100,000, $85,000, and $70,000.

This a lot of money to pay people for what amounts to running a money machine. They do not engage in any fundraising. Their income stream is unrelated to anything they do: revenue goes up when more people apply to law school and goes down with the reverse.

I have previously raised questions about LSAC and its role in connection with law schools. There is no doubt that it can provide a much better service--in particular by supplying the ABA the data on LSAT and GPA medians for every law school. It has this information in its data bank and providing this directly to the ABA would avoid errors as well as false reporting.

Law schools elect the Board of Trustees that oversees LSAC. It is time to elect people who will take a hard look at its operation. What are LSAC's priorities? Why is it amassing a huge pile of money? Why is it raising fees when it is not losing money? Why are the officers paid so much? Why is there a general counsel and assistant general counsel, with a combined salary of half a million dollars, along with legal fees to outside law firms totaling another half a million dollars? Why is a million dollars spent each year on lobbying? Why does LSAC pay for "guests" to accompany staff members to two board meetings a year? (All of this information is available on Guidestar).

I am not saying that there is anything wrong with LSAC. There may be good answers to all of this. But it doesn't hurt to ask.


These are very good questions. Maybe someone in Congress should ask them.

If I were you, I'd forward what you've found to the Attorney-General of whatever State LSAC is registered in (I think its HQ is in Pennsylvania). Inexplicable wasteful spending seems a breach of trustees' duties of care, and assuming that LSAC is a charity, it's up to the A-G to supervisze them.

A pre-law student of mine pointed out this line from the article reporting the higher fees:

"At the same time, the council has expanded its services, while some of the costs for law schools to attend meetings and workshops have gone down." (Emphasis added.)

Which raises one more question in addition to the very good ones you ask: Why is LSAC shifting more costs away from law schools and to prospective students?

Of course, the answer is clear -- as a membership organization made up of law schools, its very point is to represent the interests of law schools, not students.

If they charged less for their services, they would be accused of trying to lure in unsuspecting students
even as the job market shrinks. If this move discourages people who are really just thinking of going to law school because they do not know what else to do from applying, why is this a bad thing?

This comment has been removed by the author.

BH--As always with financial barriers, the hike in fees will only dissuade people who have less money. Although I have consistently argued that law schools must dramatically reduce the number of students they enroll, this is not the right way to limit access to law school.

Mis--You made the same point when you commented on the previous post about LSAC. I agree.

Diane--You are right that LSAC thinks more about member law schools than students, and I agree that students should not bear this burden. But neither law schools nor students want these hikes. In raising fees under these circumstances it looks like LSAC is thinking only about itself--about building its treasury.

People who are truly needy can get fees waivers. I think their explanation for the hike is plausible. Even if one disagrees, it does not rise to the level of something that requires an investigation. Again, if they lowered the price they would be criticized, too.

Since the $200mm is money paid by students that was not used in the provision of the exempt services, then it should benefit students: scholarships, loan assistance, contests, grants ... .

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That would be hard to imagine given that the fees generated appear to exceed the costs of running the tests and processing the applications, much of which is computerized.

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