Tag Archives: InfiLaw

THE CHARLOTTE SCHOOL OF LAW AND A WHISTLEBLOWER

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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 IS RAISING THE WRONG BAR

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

So said a member of the Department of Education’s National Advisory Committee on Institutional Quality and Integrity last June. I wrote about the painful session in August. The question on the table was whether the American Bar Association should lose its power to accredit law schools. The ABA leaders on the receiving end of that stinging rebuke had expected routine approval. What they got instead was a three-hour thrashing.

Disaster Avoided

The ABA beat back the committee’s recommendation of a 12-month suspension of its accreditation power. Even worse, it learned nothing from the episode. That became apparent in October, when the ABA’s Section of Legal Education and Admissions to the Bar recommended a rule change that it thought was monumental. It’s actually far too little coming far too late.

The new rule would require at least a 75 percent of a law school’s graduates to pass a state bar exam within two years of receiving their degrees. The current standard requires a 75 percent pass rate within five years. Since 2000, only four law schools have faced difficulty under the current standard, and all were restored to full accreditation.

Looming Disaster Remains

The Department of Education’s heat directed at schools taking advantage of their students could cool significantly under President Trump, who recently paid $25 million to settle former students’ fraud claims against Trump University. The troubling law school backstory is a less dramatic variation on the same theme.

Plummeting national bar passage rates coupled with growing student debt for degrees of dubious value are the culmination of a dysfunctional market in legal education. That dysfunction is taking a cruel toll on a generation vulnerable to exploitation by elders who know better. Sooner or later, we’ll all pay the price.

The ABA’s latest misfire toward a remedy misses the key point: even passing the bar doesn’t mean getting a law job. Within 10 months of graduation, fewer than 60 percent of 2015 graduates obtained full-time long-term employment requiring bar passage. Compared to the class of 2014, the number of such positions declined by 10 percent (from 26,248 to 23,687). The total number of 2015 graduates: 40,000.

Students attending marginal schools bear the greatest burden. Their schools use a business model that relies on federal student loan dollars to fill classrooms. Because schools have no accountability for their graduates’ poor employment outcomes, they are free to dip ever deeper into the well of unqualified applicants. Prospective employers have noticed.

Disaster For Many Students

The ABA’s persistent refusal to confront the employment rate problem brought the Department of Education into the picture. At the June hearing, committee members posed tough questions that ABA Managing Director Barry Currier had a tougher time answering. As some marginal schools received huge federal dollars, the committee noted, the vast majority of their graduates couldn’t get law jobs.

Now the ABA proposes tinkering at the edges. Even at that, based on the outrage generated from some inside the professorial ranks, you’d think it was trying to do something truly revolutionary. Some educators complained that shortening the 75 percent bar passage rate period from five years to two would discourage schools from admitting minority candidates, thereby leading to a less diverse profession.

That’s a non sequitur. If an additional three years after graduation is needed for some graduates to pass the bar, whatever they’re learning during that post-graduate period can’t be coming from their former classrooms. And, of course, nothing in the ABA proposal solves the employment problem.

Disaster Rewards a Few

As educators rely on student debt to keep their law schools operating, they’re getting paid, regardless of how their graduates fare in the job market. That frames the issue with which the ABA should be grappling but continues to dismiss: Marginal law schools are unable place most of their graduates in full-time long-term bar passage-required jobs.

Solving that problem requires schools to have financial skin in the game. Here’s one suggestion: tie the availability of a student’s federal loan dollars to a law school’s employment outcomes. That would create accountability that no dean or administrator currently possesses. And they sure don’t want it.

The ABA is institutionally incapable of embracing the change required to create a functional market in legal education. Vested interests are too embedded. The clout of the marginal schools is too great.

For example, the head of the ABA’s last “task force” on the challenges of financing legal education was also serving as the chairman of the national policy board of the Infilaw consortium of for-profit law schools, including the Charlotte School of Law. In fact, Dennis W. Archer still chairs the Infilaw national policy board. On November 15, Charlotte was the subject of a rare event: the ABA placed the school on probation because of its admissions practices. The ABA also ordered public disclosure of its bar passage rates.

But the ABA didn’t address the bigger problem with Charlotte that afflicts students at similar schools: dismal full-time long-term bar-passage required employment rates. Charlotte’s rate for the class of 2015 was 26 percent — down from 38 percent in 2012. Here’s the real kicker: from 2011 to 2015, the number of graduates at Charlotte increased from 97 to 456.

Growing supply in response to shrinking demand. That’s what happens when the people running law schools view students as revenue streams for which the schools will never have any financial accountability. The federal government backs the loans; educational debt survives personal bankruptcy; many in a generation of young would-be attorneys begin adulthood in a deep, six-figure financial hole.

Perhaps President-elect Trump will identify with the plight of the student-victims of this continuing disaster. Where would he be today if he had not been able to discharge his business loans through a string of bankruptcy filings? Not in the White House, that’s for sure.

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

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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.

THE CRISIS IN LEGAL EDUCATION IS OVER!

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[NOTE: The trade paperback edition of my book, The Lawyer Bubble – A Profession in Crisis (Basic Books) — complete with an extensive new AFTERWORD — will be released on March 8, 2016. That’s just in time to put in proper perspective the latest annual rankings from U.S. News & World Report (law schools in mid-March) and Am Law (big firms on May 1). The paperback is now available for pre-order at Amazon and Barnes & Noble. Now on to today’s post…]

Wishful thinking is never a sound strategy for success.

“I don’t see legal education as being in crisis at all,” said Kellye Testy, the new president of the Association of American Law Schools and dean of the University of Washington Law School. She made the observation on January 5, 2016 — the eve of the nation’s largest gathering of law professors.

Perhaps her declaration made attendees more comfortable. Unfortunately, it’s not true.

The Trend! The Trend!

Law deans and professors cite the dramatic declines in applicants since 2010 as proof of law school market self-correction. Dean Testy echoed that approach: “I think there is a steadying out now after quite a crash in the number of students our schools are admitting….”

Two points about that comment. First, the decline in the number of applicants since 2010 is real, but that year may not be the best baseline from which to measure the significance of the drop in subsequent years. From 2005 to 2008, the number of applicants was already declining — from 99,000 to 83,000. But the Great Recession reversed that downward trend — moving the number back up to 88,000 by 2010 as many undergraduates viewed law school as a place to wait for three years while the economy improved.

Viewed over the entire decade that began in 2005, the “drop” since 2010 was from a temporarily inflated level. If the roughly four percent annual reduction that occurred from 2005 to 2008 had continued without interruption to 2014, the result would have been about 65,000 applicants for the fall of 2014, compared to the actual number of 56,000. That difference of 9,000 applicants doesn’t look like a “crash.”

A More Troubling Trend

Second and more importantly, many law schools solved their reduced applicant pool problem by increasing admission rates. Overall, law schools admitted almost 80 percent of applicants for the fall of 2014. Compare that to 2005 when the admission rate was only 59 percent.

During the same period, the number of applicants dropped by 40,000, but the number of admissions declined by only 12,000. Countering the impact of fewer applicants to keep tuition revenues flowing meant lowering admission standards. The ripple effects are now showing up in declining bar passage rates for first-time takers.

Student Enlightenment Interrupted

Transparency has given students access to data that should produce wiser decisions. Until the current application cycle, better information was contributing to the recent decline in the number of law school applicants. But the relentless promotional efforts of law school faculty and administrators may be interrupting that trend. Compared to last year, the number of applicants is up.

But law schools aren’t solely to blame. Responsibility for persistently dubious decisions also rests on those making them. A December 22 article in The Wall Street Journal, “U.S. Helps Shaky Colleges Cope with Bad Student Loans,“ includes this unfortunate example:

“Anthony C. Johns, 32 years old, regrets accumulating $40,000 in debt while attending Texas College, a private college in Tyler. He says he graduated in 2007 with an English degree but couldn’t land a full-time job.

“‘I think I applied for everything on CareerBuilder from teaching to banking,’ says Mr. Johns, who has defaulted on his Texas College loans. ‘Default was very embarrassing.’ Since then, he has enrolled in law school and borrowed $30,000 to pay for his first year.'”

The emphasis is mine.

The Biggest Problems Remain

According to LinkedIn, someone named Anthony C. Johns graduated from Texas College in 2007 and is currently a student at the Charlotte School of Law. That’s one of the Infilaw consortium of three for-profit law schools — Charlotte, Arizona Summit, and Florida Coastal. Owned by private equity interests, the Infilaw schools — like many others — survive only because unrestricted federal student loans come with no mechanism that holds schools accountable for graduates’ poor employment outcomes.

Ten months after graduation, Charlotte School of Law’s full-time long-term bar passage-required placement rate for 2014 graduates was 34 percent. The average law school loan debt of its 2014 graduates was $140,000. If Anthony Johns regretted accumulating $40,000 in college debt, wait until he’s taken a retrospective look at law school.

You Be The Judge

Perhaps Dean Testy is right and there is no crisis in legal education. Or perhaps it depends on the definition of crisis and how to measure it. When a problem gets personal, it feels different.

Since 2011 when the ABA first required law schools to report the types of employment their graduates obtained, over 40 percent of all graduates have been unable to find full-time long-term employment requiring bar passage within ten months of receiving their degrees.

Now let’s make those numbers a bit more personal. Saddled with six-figure law school debt, many recent law graduates might consider crisis exactly the right word to describe their situation. Where you stand depends on where you sit.

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

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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!

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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.

DEAR ABA…

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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.

INFILAW AND THE ABA

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After a setback last summer, Inflilaw has flown under the radar in its quest to acquire the Charleston School of Law. Since July 2013, the private equity owners of Infilaw  — a consortium of three for-profit law schools (Florida Coastal, Charlotte, and Arizona Summit (formerly the Phoenix School of Law)) — have been trying to add Charleston to their portfolio.  (For more on Infilaw, see Paul Campos’ recent article in The Atlantic.)

The persistence of Infilaw’s effort alone says something about the situation: There’s money to be made in legal education. Venture capitalists specialize in finding opportunities for above average investment returns. It doesn’t matter to them that the main source of that money is federal student loans. Nor do they care if the vast majority of students who obtain those loans to attend marginal schools are unable find JD-required employment. If there’s a market failure to exploit for profit, they’re on it.

On November 6, 2014, the ABA Accreditation Committee issued its recommendation of acquiescence — yes, that’s what it’s called — in connection with Infilaw’s proposed acquisition. It found that the desired change in control “will not detract from [Charleston School of Law’s] ability to remain in compliance” with ABA accreditation standards.

The Deal

The ABA recommendation identifies key aspects of the proposed acquisition, but then ignores their implications. For example, under the Asset Purchase Agreement, Infilaw would acquire most of the school’s assets, but it makes no promise of post-acquisition employment for any existing employees. None. Only on the “eve of closing” will Infilaw disclose the faculty members it wants to keep. Nevertheless, the ABA is willing to accept on faith that this pig in a poke — whatever it turns out to be — won’t “detract from the school’s ability” to retain its accreditation.

Under a separate Administrative and Consulting Services Agreement, Infilaw will receive “substantial consideration” to provide “non-academic, administrative, and consulting services” to the law school. Those services probably account for these troubling lines in the ABA committee’s recommendation:

“Infilaw contemplates that…the legal market permitting, it will increase the size of entering classes to approximately 250, or ‘pre-downturn levels.’…The law school will have access to and benefit from the collective knowledge of Infilaw and its three existing law schools with respect to student recruiting and enrollment.”

The Market?

What does “the legal market permitting” mean? Charleston enrolled 145 full-time students for its expected graduating class of 2017. Returning to “pre-downturn” levels would increase that number by 75 percent. Such near-term growth in demand for the school’s new lawyers is a pipe dream. The recent Bureau of Labor Statistics report on legal sector employment confirms painful reality: Over the past year, the number of all legal jobs — not just lawyers — is actually 1,300 lower than a year ago.

But “access to and benefit from” Infilaw’s existing three schools “with respect to student recruiting and enrollment” means law school behavior that has little to do with actual “legal market” employment conditions for new graduates. Rather, as I’ve discussed previously, the current operation of the Inflilaw business model makes the future of Charleston as an Infilaw holding apparent.

A Race To…The Bottom?

The Infilaw model depends on federal student loans to produce revenue streams that create profits for investors. As the demand for lawyers languished during the Great Recession, Infilaw schools increased enrollment and tuition.

Meanwhile, North Carolina bar passage rates for first-time takers graduating from Infilaw’s Charlotte School of Law dropped from 87 percent in July 2010 to 58 percent in July 2013. The school placed seventh (out of seven NC schools) in its July 2014 bar passage rate: 56 percent. Florida Coastal’s first-time rate dropped from 75 percent in July 2012 to 67 percent in July 2013. Its first-time Florida bar passage rate in July 2014 was 58 percent (10th out of 11 Florida schools). Arizona Summit’s first-time bar pass rate in its home state for July 2014 was 55 percent (third out of three Arizona schools).

Overall, only 35 percent of 2013 graduates from Infilaw schools found full-time long-term JD-required employment. By comparison, 53 percent of Charleston School of Law  graduates from the class of 2013 secured full-time long-term JD-required jobs — just below the national average for all law schools.

A Statistic On The Rise

At Florida Coastal, average student loan debt for 2014 graduates was $175,274. The other two Infilaw schools haven’t updated their websites to provide 2014 information. For 2013 graduates of Arizona Summit, average student law school debt was $184,825. At Charlotte, it was $155,697, plus another $20,000 in private student loans. (Average law school debt for Charleston graduates in 2013 was also too high ($146,595). But its 2013 employment outcomes were much better than any Infilaw school.)

Infliaw isn’t home free in its quest. After a closed session of the Accreditation Committee on December 5 in Puerto Rico, the recommendation will go to the ABA’s Council of the Section on Legal Education and Admissions. Then the South Carolina Commission on Higher Education has to approve the deal. Last summer, a committee of that commission voted 3-to-1 against, prompting Infilaw to withdraw its application while promising a return bout that will probably occur in early 2015.

The ABA

People sometimes ask where the ABA has been in the ongoing search for solutions to the current crisis involving law schools whose graduates are incurring staggering debt for JD degrees of dubious value. The answer is becoming clearer.

It’s “acquiescing.”

But wait. The ABA has done one more thing. It has convened a special Task Force on the Financing of Legal Education to recommend fixes for a dysfunctional legal education market. Former Detroit Mayor Dennis W. Archer, the chairman of Infilaw’s National Policy Board, is still chairman of that Task Force. In 2003-2004, he was president of the ABA.

UPDATE ON THE BATTLE FOR CHARLESTON

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Call it an eleventh-hour reprieve. Or maybe it’s just a break before the executioner arrives. On Thursday, June 5, the South Carolina Commission on Higher Education was going to decide on InfiLaw’s application for a license to own and operate the for-profit Charleston School of Law. But a day before the scheduled vote, InfiLaw suspended its application.

As I wrote last week, InfiLaw owns and operates three for-profit law schools (Arizona Summit, Charlotte, and Florida Coastal). Its owner is Sterling Partners, a Chicago-based private equity firm that lists InfiLaw as a holding in its “education portfolio.” In July 2013, InfiLaw agreed to buy the Charleston School of Law. On May 19, the Committee on Academic Affairs and Licensing voted 3-to-1 against recommending InfiLaw’s license request. Then things got interesting.

On May 23 — four days after the Committee’s rejection and just before the Memorial Day weekend — state representative John Richard C. King wrote to the South Carolina Attorney General’s office. He sought an advisory opinion that, if provided, would essentially require the Commission on Higher Education to approve InfiLaw’s application, notwithstanding the earlier Committee rejection. Representative King is also a first-year student at the InfiLaw school in Charlotte, North Carolina.

Only a week after King’s request, the AG’s office issued a detailed 10-page single-spaced legal opinion that gave InfiLaw what it wanted. The final sentence warns: “Any licensing decision based upon criteria outside the law would, of course, be subject to judicial review and possible reversal.”

State senator John Courson immediately suggested that InfiLaw suspend its request temporarily because the AG’s opinion “needs to be vetted” and Governor Nikki Haley needs to fill vacant seats on the Commission before it discusses the issue.

Senator Courson hasn’t revealed publicly where he stands on the merits of InfiLaw’s proposed acquisition. But when legislators want a governor to fill vacant committee seats before taking a final vote on a matter of interest to them, there’s usually a reason. As InfliLaw’s statement accompanying the suspension of its application declares: “We are committed to this acquisition and intend to renew our application in due course.” Close observers might get the uneasy feeling that they’re watching sausage being made.

Meanwhile, no one is discussing the more important point that transcends the Charleston situation. Typically, private equity investors seek opportunities that will provide them with above average returns. That’s not a criticism; it’s their business. However, if for-profit legal education generates returns that are appealing to private equity investors, non-dischargeable federal student loans are the reason. In a glutted market for lawyers, that’s a remarkably unfortunate outcome.

THE BATTLE FOR CHARLESTON

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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.