The National Law Journal suggests that, in light of a decline in applications, law schools might be reducing class sizes. Unfortunately, the story provides little evidence of this shift - beyond the example of Albany reducing its entering class from 250 to 240. It certainly would make sense, if schools can afford the loss of revenue. But as the article points out, Albany is raising tuition and cutting the budget - and that won't fully recover the lost tuition dollars. For a school charging $40K tuition (and even imagining a 20% discount rate), the total cost of a one-time ten student reduction is a million dollars (over three years). Of course elite schools have been toying with 1L class size for years in order to game US News - but they recover revenue through transfers...a strategy that doesn't work nearly as well for non-elite schools.
The question is whether such reductions are essential to the survival of a law school. The truth is that, given the current applicant pool, relatively few schools will be put at accreditation risk if they maintain class size and simply admit students with weaker predictors. After all, how many accredited law schools are sitting near that 75% bar passage line set out in ABA Interpretation 301.6? And if everyone maintains class size, schools won't lose their relative place in the rankings line. If everyone's LSAT median drops, nobody loses ground.
This is not to suggest that downsizing isn't a good idea or that, at some point, the market of qualified students might no longer fill the existing number of seats. Whether seats then disappear because of class downsizing or, just as likely, the closing of a few law schools, remains to be seen.
Update: Brian Leiter points out that back in 2008, both he and Bill Henderson discussed the related issue of schools highly reliant on transfer students. While it turns out that many tranfer-heavy schools are elites, several are simply strong public schools which (presumably) can attract solid transfer students seeking a tuition break.