Monday, May 20, 2013

The Calculus of University Presidents

Money-bagsThis week's National Law Journal has a Special Report section on the challenges facing law schools.  Karen Sloan has several stories on how law schools are finding alternative sources of revenues beyond tuition dollars for JD degrees (masters's degrees for nonlawyers, online LLMs, and lawyer executive education).  

I contributed an essay entitled "The Calculus of University Presidents."  Although the essay is posed as the letter I would write to a university president seeking advice on how to handle a significant, unexpected shortfall in law school revenues, the intended audience is lawyers and legal educators seeking to get a handle on the brutal economics that are now threatening the survival of a large swath of law schools.  

From the perspective of many, it would be nice if things would go back to the way they used to be. But that is not going to happen.  Good lawyers understand that we gain no long-term advantage from hiding from these facts. Instead, we need to confront them honestly and proactively.

[posted by Bill Henderson]

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Dear Bill,

I was a bit puzzled by the following claim in your piece: "Sallie Mae, the government -chartered lender for higher education, is having difficulties selling its bundled student loans to large institutional investors, prompting concerns that the federal government is financing a student loan bubble that is destined to burst."

1. I believe that Sallie Mae had its charter cancelled in 2004 and that it is now a fully private, publicly-traded company. Consequently, I am not sure whether its troubles necessarily implicate the federal government's loan program, which the nonpartisan CBO has projected to be a moneymaker until 2023.

2. In any event, the student loan securities market appears to be quite hot according to this Wall Street Journal article: A more recent WSJ article reports that Salle Mae had to cancel a recent offering but that seems to have been because investors were not standing to gain enough interest off of the securities. The article also notes that significantly more student loan-backed securities have been issued in 2013 than at a comparable point in 2012. .

Posted by: Milan Markovic | May 22, 2013 9:33:54 PM

Milan, Sallie Mae could not sell its securities at proposed yield X. So, needing to sell them, the financial terms were improved (commensurate with the risk). Re volume, it is going up because more students loans are being originated -- imagine the political fallout if the government made it harder for college students to borrow. If students get into an accredited school, they get the loans, no co-signers or FICA scores required. Are you loading up on these securities for your retirement? I bet not.

Sallie Mae was created for a public purpose, that was my point.

Milan, in my opinion, you may be looking at a tree when you ought to be evaluating the health and viability of the forest.

Best regards, Bill H.

Posted by: Bill Henderson | May 23, 2013 11:46:39 PM

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