I am creating a SaaS software product that targets brand new law graduates. But statistics show that law schools are churning out TWICE as many lawyers than there is demand.
So that means half of the new lawyers are already headed for hard times and unemployment (and thus likely won't be able to spend money on a SaaS product).
Should I completely switch gears and target another niche instead?
It kind of sounds like your target audience is actually new practicing lawyers, not all people graduating with a law degree. As long as you run the numbers on the correct target audience and things still make sense, I don't see a reason to change what you're doing.
It does seem like this presents a possible opportunity though. If you had a product that would give the graduates an advantage in becoming a practicing lawyer, you could target all of them. People are willing to spend some money to get an advantage on the job market, and people going to law school have already shelled out quite a bit of cash to get to where they're at.
If your main product doesn't target these people, perhaps there's a similar secondary product that you could produce for cheap on the side as well. Maybe not today, but some day, when you look to pivot or diversify.
Following robs answer, perhaps a (re-)definition of your target market would help.
For example, what about lawyers who are moving from the corporate space and starting their own practice? I've seen a number of matter management apps that are terrible yet command high annual fees for single seat installation simply because there is no good alternative that meets their needs.