A scholarship to avoid law school

December 3, 2013: 5:00 AM ET

Personal injury lawyer Matthew Willens says he will pay $1,000 to a recent grad who comes up with the best reason to skip law school.

By Elizabeth G. Olson

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FORTUNE -- Outwardly, law schools are resolutely going about the business of educating America's attorneys. But no one can ignore the cracks spreading though the legal world's foundations as a smaller number of students are applying to earn legal degrees, and fewer graduates are finding law-related jobs.

Legal hiring woes are so widespread, in fact, that they prompted a Chicago attorney to offer in early November an "anything but law school" scholarship to encourage college students to think twice about pursuing a legal degree.

Personal injury lawyer Matthew Willens says he will pay $1,000 to a college graduate who comes up with the best reason he or she will bypass law school and head to graduate school in another profession. He's making the offer, he says, because too many graduates are choosing law school reflexively without thinking about the consequences.

"There are jobs for the top graduates of the top schools," says Willens, "but thousands more are graduating each year and scrambling for any kind of job. I've had calls from lawyers who were laid off from law firms, and now they want to do $10-an-hour legal work because they can't find a job."

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Willens may be searching for the converted since there are notably fewer people lining up to enter law school. Applications in 2013 declined by 10% compared to the previous year, marking a continuation of the downward trend in applicants across most of the country's 202 accredited legal institutions. As a result, a majority of law schools, according to a new study, are operating at a deficit, paving the way for some to even close down as a clutch of dental schools did in a previous tough economy.

While the notion that a professional degree like the JD confers prestige on its recipients is still powerful, prospective students are increasingly aware of soaring debt and shrinking legal openings. Overall, the law school enrollment drop is even steeper, more than 20%, according to data over the past three years since 2010.

The number of those awarded a juris doctor diploma was up slightly in 2012 (because those graduating classes enrolled in 2009), according to the American Bar Association, to 46,478. But jobs and debt pressures are expected to lead steadily falling enrollment, perhaps to as little as 34,000 in four to five years.

The jobs squeeze for recent graduates is harsh, particularly because the six-figure debt load that almost all graduates shoulder makes a decent-paying job with a future more imperative. The National Association of Legal Professionals, which follows placement and salary outcomes for law graduates, says that slightly less than 85% of 2012 law graduates had full-time jobs requiring a legal diploma at the official reporting date, which is nine months after their graduation date. That rate that is more than seven percentage points lower than 2007, when almost 92% of graduates found employment requiring a legal degree.

Underscoring the unsettling decline, only about two-thirds of 2012 graduates landed a job that required passage of the bar exam. As recently as 2008, it was almost 75%, a full 10 percentage points higher.

Law School Cafe, a website that tracks law school developments, points out that the number of actual jobs requiring a juris doctor degree may only be 31,606 by 2016, a number that "won't be enough to satisfy projected graduates in either 2016 or 2017" -- and that the actual number of those jobholders may be even lower.

On the other side, fewer law students means a smaller inflow of tuition for law schools, with an estimated 175 of the country's law schools currently operating at a deficit. Paul Campos, a University of Colorado law professor, recently gathered data on 31 law schools, 23 of which are private, and concluded that, on average, law school revenues are down 15% this academic year.

According to Campos, between 80% and 85% of accredited law schools are incurring losses, as tuition, one of the two largest income sources in addition to gifts, continues to fall not only because schools are enrolling fewer students but also because they offer what he calls "semi-invisible discounts."

"The elite law schools are fine," he says, "but private law schools and schools operating with state funding are going to fare worse."

Most law schools keep their financial ledgers under wraps, so Campos made his calculations based on an examination of tax filings, open records requests, and private communications with law school employees.

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While Campos paints a bleak picture, it seems unlikely that the current turmoil will change much on campus. Law schools are opting to let go support staff, limit hiring, and employ adjunct professors to save money. But tuition itself is going strong. Law School Tuition Bubble, a blog published by lawyer Matt Leichter, projects that tuition at an elite school like Harvard will cost $50,000 per year by 2017. (That is up from $13,150 per year in 1971, he says.)

Campos, who publishes the blog Lawyers, Guns and Money, attributes much of the problem to the sizable increase in faculty ranks, with the ratio of students to faculty declining from 30 to 1 in the late 1970s to about 14.5 to 1 today. Top-flight schools have even lower ratios, a development, he says, that has been driven by jockeying for position on the annual law school rankings list.

To assure a top ranking, law schools have added more faculty for smaller classes, more clinics, and built nicer facilities to attract students.

For those who find the law school price tag too high and the job prospects too dim, Willens Law Offices is accepting applications from college graduates bound for another line of work. The recipient, who also must include in a one-page essay the job prospects for his or her chosen profession, will be announced next year.

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