THE CHARLOTTE SCHOOL OF LAW AND A WHISTLEBLOWER

The latest developments at the Charlotte School of Law are the culmination of regulatory capture. The last significant ABA task force addressing the crisis in legal education kicked the can down the road, as did all of its predecessors. That came as no surprise because the head of the task force was Dennis W. Archer. He also chaired the national policy board of InfiLaw, a consortium of Charlotte and two other marginal for-profit law schools owned by venture capitalists.

The Persistent Problem

Without the ability to exploit vulnerable prospective law students willing to incur six-figure law school debt in return for limited prospects of meaningful JD-required jobs, the InfiLaw schools—Charlotte, Arizona Summit, and Florida Coastal School of Law—probably would have gone out of business long ago. It’s a safe bet that InfiLaw’s owners would not send their kids to any of them.

Only recently did the ABA take steps to revoke Charlotte’s accreditation. The school lost access to student loan money, and now its doors are closed. In March 2017, the ABA put Arizona Summit on probation for reasons that included a 25 percent bar exam passage rate for its July 2016 graduates taking the test for the first time. Florida Coastal’s 2016 graduates are faring so poorly in the job market that its end may be in sight: only 36 percent of graduates obtained full-time long-term JD-required jobs. Meanwhile, Florida Coastal grads have the distinction of obtaining degrees from a school that is among the leaders in law school debt: almost $160,000. Arizona Summit’s grads are right up there with them.

For years, InfiLaw has been a poster child for a persistent problem, but it’s not the only offender. Ten years after the Great Recession decimated the demand for new law school graduates, the ABA has ignored a perverse incentive system arising from a dysfunctional market. Specifically, marginal law schools lack accountability for their graduates’ poor job prospects. Those schools live on student loans—which is to say that they would die without them. But once students make their tuition payments, their schools have no skin in the game.

Even Archer’s task force report acknowledged that 25 percent of law schools derive at least 88 percent of their revenues from tuition. The overriding goal becomes maximizing revenues by filling classroom seats with tuition-paying bodies. At most marginal schools, that has meant lowering admission standards–an action that later reflects itself in declining bar passage rates for graduates. The result: unemployed law school graduates are burdened with enormous non-dischargeable debt for degrees of dubious value.

What Will It Take?

Perhaps a Charlotte whistleblower will bring change to a profession that has shown a consistent unwillingness to police itself. The allegations from former Charlotte School of Law Professor Barbara Bernier, who filed suit in June 2016 under the False Claims Act, prompted a federal investigation. She alleges that the school defrauded taxpayers of more than $285 million over a five-year period. According to the suit, Charlotte used dubious tactics to shore up the school’s performance numbers, protect its accreditation, and keep federal student loan dollars flowing.

Bernier claims that admissions officers had quotas of students they had to accept to keep their jobs. She alleges that over a six-year period beginning in 2010, 1,355 substandard students were enrolled, resulting in improper government payments to the school totaling $285 million. She asserts that the school discouraged some students from taking the bar exam because it thought they were likely to fail. Even so, the school’s pass rate has dropped steadily and its February 2017 results were the worst in the state: 25 percent. For those repeating the exam, the February 2017 news was worse: 18 percent passed.

How could this happen? A better question is, why wouldn’t it? Bernier’s allegations are consistent with revenue-maximizing behavior that the current law school business model incentivizes without regard to graduates’ outcomes.

“At Charlotte, there was constant talk of investors — referring to the school’s owners,” the Charlotte School of Law whistleblower professor told The New York Times, “and the focus was on the number of students. They were bringing them in and setting them up and then failing them out.”

InfiLaw has until Oct. 20 to file a formal answer to the complaint. Perhaps someday its owners and those who run other marginal law schools across the country will answer to their students who leave such institutions with big debt and limited JD-required job prospects. Every year, the ranks of those alumni grow.

THE ABA’S TERRIBLE, HORRIBLE, NO GOOD, VERY BAD DAY

It’s a mere formality. Every five years, the Department of Education renews the ABA’s power to accredit law schools. The June 2016 session before a DOE advisory committee (NACIQI) was supposed to be just another step in the rubber-stamping process. The NACIQI staff had recommended approval. The committee’s three-day session contemplated action on a dozen other accrediting bodies, ranging from the American Psychological Association to the American Theological Schools. Sandwiched between acupuncture and health education, the agenda contemplated an hour for the ABA.

What could go wrong?

For starters, committee members grilled the ABA’s representatives for an entire afternoon.

Questions About Law Student Debt?

First up for the ABA was the chair of the Section of Legal Education and Admissions to the Bar, Arizona Supreme Court Justice Rebecca White Berch. A committee member asked how the ABA assessed schools based on the interrelationship between student debt, bar passage rate, and graduate placement rates. Justice Berch said the ABA was looking “for a bar passing rate of 75 percent…. [W]as that part of your question?”

Actually, that was just a proposal set for an ABA Section hearing on August 6, but it wasn’t what the NACIQI had in mind.

NACIQI Member: “Sorry, no. I think my question also went to concern related to debt that students incurred while in law school and relationship of that to placement.”

ABA Managing Director Barry Currier tried to field that one:

“With respect to debt, we have been following a disclosure model for a number of years now and a lot of information is disclosed… [W]e collect information about student borrowing, but it is currently not part of the consumer information that schools are required to post with us… [T]here is no standard about how much debt is too much debt at this point in time.”

Let the squirming begin.

“So it may be,” Currier continued, “that as evidence mounts that students don’t shop very effectively and that as uncapped student loans are available, that we need to be more paternalistic, if you will, or more — we may need to make more information required and adopt standards around how much debt is too much debt.”

Placement Rates?

NACIQI: “What would be an appropriate placement rate for a law school?”

Currier: “Well our standards do not require any specific employment…[W]e don’t have a specific standard that a school must achieve in terms of placement.”

NACIQI: “But you are the ones who identified that legal education is very expensive… And if they can’t find a job it wrecks their lives.”

NACIQI: “[Y]ou can tell a lot from some of these low performing schools. And a school that sticks out to me is Whittier Law School in California… [T]he enrollment has dropped 51 percent since 2010, yet tuition has increased 31 percent since 2008.”

He wasn’t finished.

“Over 105 million dollars of Title IV funding has gone into this school. All the while, one in four graduates of this law school has obtained a full-time attorney job within nine months… Appalachian School of Law, University of LaVerne, Golden Gate, all have abysmal placement rates… [S]o I guess my question is specifically related to these low performing institutions: what are you guys doing?”

Then he answered his own question:

“[W]hen we look at these low performing schools, you guys are doing absolutely nothing.”

Can We Talk About Something Else?

Justice Berch’s attempt to change the subject was unavailing.

NACIQI: “We are talking about student debt, right, so — I guess you are not answering my question, and so I would like for us to stay on that… I just want to make sure we are talking about what is your responsibility and your response to these lower performing schools. I mean, have they been put on probation? That’s my first question.”

Justice Berch: You make a valid point. The answer is — has anyone yet been put on probation? No…”

NACIQI: “How many institutions have you denied accreditation to for low pass rates?

Justice Berch: For low pass rates alone, none.”

NACIQI: “Over the past five years how many institutions have you withdrawn your accreditation from?”

Currier: “Zero, zero.”

You Think The ABA Can’t Do The Job?

During the NACIQI’s discussion on the motion to recommend renewal of the ABA’s accreditation power, one member put the problem bluntly:

“I am troubled that the ABA just simply isn’t independent enough for this responsibility… I find it very difficult to think that they are going to be objective enough to continue to carry out this responsibility. And I reluctantly conclude that the ABA is not the appropriate accreditor for our law schools…[T]he crushing debt load on thousands and thousands of students is too serious for us… And I think the debt load is not going to get better if we say yes to this motion.”

Another member added: “I think that objectivity is important as you go through this process, so I would think an independent body that does not have the conflict of interest that the ABA has.”

It’s Worse Than They Thought

The NACIQI didn’t consider a recent illustration of the ABA’s independence problems. Former ABA President Dennis Archer is chairman of the national policy board of Infilaw — a consortium of three for-profit law schools. At those schools — Arizona Summit, Florida Coastal, and the Charlotte School of Law — students graduate with six-figure debt and dismal prospects for a meaningful job requiring bar passage. (Full-time long-term JD-required job placement rate ten months after 2015 graduation: Arizona Summit — 40 percent; Florida Coastal — 39 percent; Charlotte — 26 percent.)

On November 18, 2013, Archer and Infilaw’s chief executive officer co-signed a seven-page tour de force warning the DOE about the perils of applying the “Gainful Employment Rule” to “proprietary law schools and first professional degree schools in general.” The letter (on Infilaw stationery) argued, among other things, that the proposed rule was unnecessary because the ABA — as an accrediting body — ensures that InfiLaw “must offer an education that will help students achieve their goals.”

Six months later, Archer became chairman of the ABA’s Task Force on the Financing Legal Education. A year later — June 2015 — the Task Force acknowledged that 25 percent of law schools obtain at least 88 percent of their revenues from tuition. But it refused to recommend an obvious remedy: financial penalties for schools where students incur massive law school debt in exchange for dismal long-term JD-required job prospects.

The Task Force’s recommendations were embarrassingly inadequate, but the ABA House of Delegates accepted them.

One More Chance?

The ABA’s culture of self-interest and insularity has now created a bigger mess. Some NACIQI members favored the “nuclear” option: recommending denial of the ABA’s accrediting authority altogether. The committee opted to send a “clear message” through less draconian means.

The final recommendation was to give the ABA a 12-month period during which it would have no power to accredit new law schools. Thereafter, the ABA would report its progress in addressing the committee’s concerns, including the massive debt that students are incurring at law schools with poor JD-required placement rates.

As one member put it, “It is great to collect data, but they don’t have any standard on placement. What’s the point of collecting data if you can’t…use the data to help the students and protect the students…”

Another member summarized the committee’s view of the ABA: “This feels like an Agency that is out of step with a crisis in its profession, out of step with the changes in higher ed, and out of step with the plight of the students that are going through the law schools.”

The day of reckoning may not be at hand, but it’s getting closer.

MY OP-ED IN THE NY TIMES — AND A KINDLE BOOK PROMOTION

My August 25, 2015 New York Times op-ed on law student debt, law school moral hazard, and the dysfunctional legal education market appears here: “Too Many Law Students, Too Few Legal Jobs.”

In the winter 2015 issue of the American Bankruptcy Institute Law Review, I published a specific proposal for creating a law school accountability: “Bankruptcy and Bad Behavior – The Real Moral Hazard: Law Schools Exploiting Market Dysfunction.” 

Additionally, Amazon is running a promotion for my novel. From August 25 through August 29, you can download the Kindle version of The Partnership – A Novel.

 

 

THE ABA AT WORK — NOT!

Recently, I suggested that the ABA House of Delegates reject the June 17 Report of the Task Force on the Financing of Legal Education. The Task Force was supposed to tackle the crisis of massive student loan debt that is subsidizing marginal law schools. Its Report not only fails to fulfill that mission, but also ignores the central problem of a dysfunctional legal education market. As a consequence, it offers superficial recommendations that will accomplish little.

Doomed from the Start; Flawed at the Finish

As I observed when the ABA announced the creation of the Task Force in May 2014, no one should have reasonably expected its chairman, Dennis Archer — who is also chairman of the national policy board for Infilaw — to point his group in the direction of true market-based reform that would jeopardize revenues at marginal law schools. After all, Infilaw is a private equity-owned consortium of three for-profit law schools with dismal full-time long-term JD-required employment outcomes: Arizona Summit, Charlotte, and Florida Coastal.

On August 4, the ABA House of Delegates gave the Task Force Report a rubber stamp of approval by adopting five “Resolutions.” Only two are even operative; the remaining three now go the Council of the Section of Legal Education and Admissions to the Bar. Together, they constitute an abdication of the ABA’s role in an important national discussion.

The Details

Let’s start with the two resolutions that don’t require additional action by the Council of the Section of Legal Education and Admissions to the Bar. We’ll call them “urging” and “encouraging,” which means they are essentially toothless.

One asks the ABA to “urge all participants in the student loan business and process, including law schools, to develop and publish easily understood versions of the terms of various loan and repayment programs.”

The other asks the ABA to “encourage law schools to be innovative in developing ways to balance responsible curricula, cost effectiveness, and new revenue streams.”

On to Another Committee…

The remaining three resolutions “encourage” another ABA Committee to adopt equally ineffective measures: “enhanced financial counseling for students (prospective and current) on student loans and repayment programs,” “return to collecting expenditure, revenue, and financial aid data annually for each law school,” and “make public the information on legal education it currently maintains and information it collects going forward.”

It took the Task Force more than a year to come up with its recommendations. Expect another year or more to pass before the Council of the Section of Legal Education and Admissions to the Bar acts on the Task Force’s “encouragement.” If the Council takes up these issues, expect law schools to fight major battles resisting disclosure of their financial affairs. But it doesn’t really matter what the Council does or how long it takes because none of the recommendations will make a difference to the core problem: lack of individual law school-specific financial accountability for graduates’ poor employment outcomes.

One More Thing

On July 29, NPR’s Marketplace ran a brief report on the larger crisis in legal education. In his NPR interview, Dennis Archer defended his Task Force’s Report, saying, “People make choices about their lives. And they make choices every day.”

In the current dysfunctional financing regime that his Task Force refused to confront, law schools make choices, too. However, once students pay their tuition bills, law schools have no financial accountability for what happens next. Stated differently, the weakest law schools have the freedom to make the bad choice of maximizing enrollments, tuition revenues, and student debt, even if most of their graduates have dismal JD-required job prospects upon graduation.

The ABA makes choices, too. In the ongoing debate concerning one of the nation’s most pressing issues, it has chosen to remain silent. The next generation of potential ABA members is taking notice.

NPR’S MARKETPLACE REPORT

I was interviewed for this brief NPR Marketplace Report airing Wednesday, July 29, 2015: “Should Law Schools Pay If Students Don’t Get Jobs?

Listen all the way to the end, when Dennis Archer, chairman of the ABA’s Task Force on the Financing of Legal Education, offers his defense of the Task Force’s non-response to the current crisis resulting from a dysfunctional system.

DEAR ABA…

Dear ABA (especially members of the House of Delegates to the upcoming annual meeting in Chicago):

For years, America’s dysfunctional system of financing legal education has produced too many lawyers for too few jobs — and too many law graduates with too much educational debt. A year ago, the ABA created yet another Task Force to consider the problem. The June 17, 2015 Final Report on the Financing of Legal Education embodies the failure of that Task Force’s mission. It now goes to the House of Delegates for approval.

If the Delegates are interested in rehabilitating the ABA’s credibility and restoring public confidence in the profession on an issue of critical importance to the country, they could take this simple step: reject the Task Force Report. That’s right. Rather than giving the typical rubber stamp of approval amid flowery speeches thanking Task Force members for their time and effort in generating a hollow ABA statement summarizing the obvious, the House of Delegates could just say no.

Round One

Some observers had hoped that the ABA’s previous Task Force on the Future of Legal Education might tackle the daunting issues responsible for our dysfunctional legal education market. After all, the ABA’s leaders promised that the 2012 Task Force would make “recommendations to the American Bar Association on how law schools, the ABA, and other groups and organizations can take concrete steps to address issues concerning the economics of legal education and its delivery.”

To its credit, the 2012 Task Force put its toe in those waters, observing that the “system of lending distances law schools from market considerations and it supports pricing practices that do not well serve either the public or private value in legal education.”

Let’s state the problem more bluntly: Marginal law schools are relying on exploding student debt to produce revenue streams that keep them alive. They get away with it because federal student loans come without school-specific accountability for graduates’ dismal employment outcomes. Schools have no financial skin in the game.

But the 2012 Task Force didn’t go beyond identifying the problem because, it said, “The time and resources available to the Task Force have made it impractical to develop a structure of equitable and effective solutions.”

Round Two

So in May 2014, then-ABA president James R. Silkenat announced the creation of a new Task Force — one specifically devoted to the Financing of Legal Education. It was supposed to pick up where the 2012 Task Force had stalled. It was going to “conduct a comprehensive study of the complex economic and political issues involved and produce sound recommendations to inform policymakers throughout the legal community.”

The 2014-2015 Task Force Report recites that 25 percent of law schools obtain at least 88 percent of their total revenues from tuition and that the average for all law school is 69 percent. It also reports that higher tuition has produced more student debt, even as job prospects for graduates of marginal schools have languished.

Since 2006 alone, average student debt has increased by 25 percent (private schools) and 34 percent (public schools) in inflation-adjusted dollars. Average student debt at graduation from private law schools in 2013 was $127,000; for public schools it was $88,000. Meanwhile, only about half of new law graduates are obtaining full-time long-term jobs requiring a JD.

But the new Task Force didn’t pursue this obvious market dysfunction. Instead, its Final Report offers superficial fixes: better debt counseling for students, better disclosure forms from the Department of Education, more dissemination of how schools spend their money, and continued experimentation with law curriculum. They ignore the core financial accountability problem, rather than confronting and addressing it.

Insularity and Self-Interest

The chairman of the 2014-2015 Task Force was Dennis W. Archer, former mayor of Detroit, former Michigan Supreme Court justice, and past president of the ABA. Did the ABA think no one would notice that Archer also chairs of the national policy board of Infilaw — a private equity-owned consortium of three for-profit law schools — Arizona Summit, Charlotte, and Florida Coastal.

The Infilaw schools feed on the market dysfunction that the current system for funding legal education creates. The job market for law graduates from schools such as Infilaw’s remains dismal. But even in the face of their graduates’ poor full-time long-term JD-required employment results, Infilaw’s schools increased enrollment and have become leaders in creating debt for their students.

Archer wasn’t the only problematic appointment to the 2014-2015 Task Force. Another member, Christopher Chapman, is president and CEO of Access Group — the collective voice of 197 ABA-accredited law schools.

According to the Access Group’s website, “During the course of our 30+ year existence, we became a leading provider of affordable student loans for aspiring professionals in law, medicine, dentistry, health, business, and other disciplines. As such, we served as a national originator, holder and servicer of federally guaranteed and private, credit-based loans, funding more than $18 billion of education loans since 2001.”

Enough said.

Forfeiting The Right To Be Heard

The fact that, as one 2014-2015 Task Force witness said, legal education may be the “canary in the coal mine” on issues relating to student debt and financing higher education generally is no excuse for the profession to refrain from offering potential solutions.

For that reason, at its upcoming August 3-4 meeting in Chicago, the ABA House of Delegates could reject the Task Force Report. It could then reconstitute the Task Force membership with individuals willing to deliver the tough message that the profession needs. It could direct the newly constituted group to develop meaningful proposals that tie law student loan availability to individual law school outcomes. My recent article in the American Bankruptcy Institute Law Review, “Bankruptcy and Bad Behavior,” offers one idea that would force law schools to put some financial skin in the game; others have suggested plans warranting serious consideration.

The ABA describes its mission as “committed to doing what only a national association of attorneys can do: serving our members, improving the legal profession, eliminating bias and enhancing diversity, and advancing the rule of law throughout the United States and around the world.”

In a single vote rejecting the 2014-2015 Task Force Report on the Financing of Legal Education, the House of Delegates could match those lofty words with action.

On this vitally important issue, the ABA leadership has caused many attorneys and the general public to become cynical about the organization’s motives. The House of Delegates has a unique opportunity to prove that the ABA is not just the vehicle whereby an insular, self-interested group seeks to preserve the present at the expense of the future. The House of Delegates can be part of the solution, or it can remain part of the problem.

Which path will it choose? The whole legal world is watching.

THE BATTLE FOR CHARLESTON

On the heels of my post about two struggling law schools, the New York Times published Professor Steven R. Davidoff’s discussion about one of them. Davidoff argues that critics of InfiLaw’s proposed acquisition of for-profit Charleston Law School are missing a key point: Why is it any worse for the private equity firm that owns InfiLaw to operate Charleston School of Law than, say, the current owners who have already taken millions of dollars out of the school?

In fact, he implies, if the school winds up affiliating with the state-run College of Charleston, why would that be preferable? Profit is profit; what difference does it make who gets it?

Here’s Davidoff’s money quote: “Lost among the dispute is the fact that a lower-tier law school like Charleston — whoever owns it — can not only produce capable graduates but help students start careers they couldn’t have without a law degree.”

Really?

As I’ve reported previously, even the dismal market for new attorneys hasn’t slowed the growth of InfliLaw’s three law schools (Arizona Summit, Charlotte, and Florida Coastal) — from a combined 679 graduates in 2011 to 1,191 in 2013. According to the ABA, only 36 percent of the InfiLaw classes of 2013 (including all three of its law schools) obtained full-time, long term JD-required employment.

Disaggregation doesn’t make things look any better for the company, unless you’re one of its private equity owners. For example, Davidoff cites Florida Coastal’s improvement in the percentage of graduates who pass the bar — from 58.2 percent to 76.4 percent as evidence of InfiLaw’s “track record of improving schools.” He’s responding to a “fear about the acquisition — that a private equity firm will lower standards.”

Davidoff doesn’t cite a source for his 76.4 percent number. According to Florida Coastal’s website, only 67.4 percent of first-time takers passed the bar in July 2013 — down from 75.2 percent for the July 2012 test. For February 2014, 72.9 percent of first-time takers passed — down from 79.3 percent in February 2013.

But that’s a minor issue compared to the overriding problem: only 35 percent of 2013 graduates obtained full-time, long-term jobs requiring that degree. The rest are not starting “careers that they wouldn’t have without a law degree.”

Debt

Maybe most InfiLaw graduates aren’t getting full-time, long-term law jobs, but they’re acquiring a lot of educational debt. Annual tuition and fees at all three InfiLaw schools exceed $40,000. At Arizona Summit, median federal law student debt between July 1, 2012 and June 30, 2013 was $184,825. At Florida Coastal, it was $162,549. The Charlotte Law School median was $155,697, plus another $20,018 in private loans.

Davidoff’s defense of InfiLaw ignores the combination of big debt and poor employment outcomes that afflict most of its recent graduates.

His concluding thoughts make a valid point: “Instead of arguing about who will profit from them, Charleston’s students may instead want to ask who will give South Carolina’s residents the best opportunity to succeed as lawyers at an acceptable price.”

Based on its track record to date, the answer isn’t InfiLaw. And I would reframe the question: Why should anyone profit at all when non-dischargeable student loans are the source of those profits?

The new ABA Task Force on the Financing of Legal Education has an unprecedented opportunity to straighten out this mess and take the profession to a better place. But with the chairman of InfiLaw’s National Policy Board (Dennis Archer) chairing that committee, don’t hold your breath waiting for that to happen.