Monday, February 6, 2017

Would Receivership Be Appropriate for a Failing and Malfeasant Law School?


[by Rick Bales; this is a cross-post from today's op-ed at TaxProf Blog]

As has been much-described elsewhere, the Department of Education has, for a variety of reasons (mostly related to admitting unqualified students and low bar pass rates), cut the ability of Charlotte Law students to qualify for federal student loans. This leaves students in academic purgatory, wondering whether the school will remain open long enough for them to receive their degrees. Many – undoubtedly the most qualified – already have transferred, but given Charlotte’s recent admissions practices, a large percentage of the student population likely lacks any such option. Meanwhile, administrators at Charlotte Law have announced that the school intends to remain open (meaning existing student debt remains extant) but also have submitted a teach-out plan that, as David Frakt points out, is crazy-nuts inadequate (my language, not David’s). Charlotte’s plan to provide “quality assurance” to its students will be run and operated by Florida Coastal – a sister-school in the Sterling Partners for-profit family – a school with numbers almost as dismal as Charlotte’s and a dean that, as former President of Charlotte, played a key role in engineering Charlotte’s current debacle.

This is grossly unfair to Charlotte students, who likely will be left deeply in debt, with no degree or opportunity to sit for a bar, and several years of their lives wasted. (Indiana Tech students are in much the same boat, and this is not likely the last time we will see this scenario playing out.) Plenty of hand-wringing is occurring in the blogosphere and local press, but notwithstanding ABA sanctions and the DOE slow-bleed of cutting loan access, there doesn’t seem to be an option for direct intervention to stop what seems to me the fairly obvious malfeasance of Charlotte’s administrators and private owners.

Perhaps now’s the time to put some teeth into the Sanctions section of the ABA Standards and Rules of Procedure for Approval of Law Schools by providing for the appointment of an ABA SWAT team that could come in on short notice and either right a sinking ship or create a viable and fair exit plan. There arguably is already a process of sorts for this, as the ABA can send “fact-finders” to noncompliant schools, but this process already has played itself out at Charlotte and does not seem to have worked.  Alternatively, a failing and noncompliant school could be put into a sort of receivership. Either way, the focus should be on the students, and not the investors or institution or even (though I’ve seen no evidence of faculty malfeasance at Charlotte) the faculty.

I don’t pretend to have thought through what all this would entail. Could a receivership be imposed and administered by the ABA, or would the DOE or a federal court need to be involved? Under what circumstances would radical intervention be appropriate (for example, should admitting large numbers of students unlikely to pass a bar exam be an appropriate trigger)? Who would be the receivers or SWAT-team members (perhaps a pool of volunteers, much like the pool of folks on ABA accreditation site-visit teams)? What limits would exist on the power of the receiver or SWAT team? Would they be empowered to act quickly, or encumbered by an extensive review process? Remember that existing students have exceptionally short time-lines – third-year students have the bar looming, and first- and second-year students face stringent limits on transfer credits and residency requirements.

I’m not convinced that receivership is the answer, but it’s hard to stand by and watch while student lives are being ruined by greed or incompetence. Existing accreditation and oversight rules seem powerless to stop it. Charlotte is unlikely to be the last school in similarly dire straits, and it would behoove us to think proactively about how we can best protect student interests in the face of other entrenched and often more-powerful interests. I would consider this a matter of professional integrity.

Thoughts and responses are welcome.


February 6, 2017 | Permalink | Comments (0)

Saturday, February 4, 2017

How Would Nuking the Charitable Tax Deduction Affect Higher Ed (and Law Deaning)?

Fr[from Rick Bales]

We may soon find out. According to Forbes (Ashlea Ebeling , This May Be The Last Year You Get A Charitable Tax Deduction), via Dean Dad, the tax deduction for charitable contributions may be history.  This could be devastating for higher education. As Dean Dad puts it, this "wouldn’t be so bad if it signified replacing private philanthropy with robust, reliable public support.  But in this context, that’s not what it means at all.  It means desiccating one of the major alternate revenue sources for most colleges, beyond appropriations and tuition/fees."

The Forbes article suggests that charitable giving would plummet absent the deduction. What would this mean for the typical law school dean? Ten years ago, fundraising was the coin of the decanal realm. Today, fundraising is still important, but developing donors is a long-term commitment (it can take 3-5 years to establish the kind of relationship/trust that results in major gifts, and even then bequests may not "mature" for decades). Fundraising is critical to a school's long-term future; many struggling schools are surviving thanks to endowments created by decanal fundraising decades ago. However, short-term enrollment crises pose existential threats at many law schools, and immediate existential threats always trump long-term investments, so my guess is that fundraising already is getting less decanal attention than it did several years ago. Moreover, donors give to opportunities, not need, so fundraising is almost never a solution to current budget challenges.

My guess: if the charitable deduction disappears (or diminishes substantially), law deans will continue to spend time friend-and fund-raising, but will skew their time even further toward the wealthiest donors, whose giving has the greatest immediate impact and who may be less affected (or motivated) by changes in the tax laws. If so, this will be a shame, because recent graduates and mid-level donors have not only future treasure, but also current time and talent (not to mention referrals for prospective students and job opportunities) that can benefit the law school far beyond the current budget cycle.





February 4, 2017 | Permalink | Comments (0)