Why troubled law schools are like Dracula
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Some saw gloom in Thomas Jefferson School of Law’s brush with possible financial doom.
After the school missed a bond payment in June, one observer suggested Thomas Jefferson was “a canary in the coal mine of legal education” signaling the possible closure of several schools.
But the school reached a debt-restructuring deal with creditors in October, suggesting a different lesson, according to the New York Times DealBook blog. “A troubled law school is like Dracula: hard to kill,” DealBook says. “Creditors will not do so because even keeping a struggling school alive means there is some possibility of repayment.”
Thomas Jefferson law school ran into trouble when enrollment declined after it borrowed about $130 million to finance a new school building in San Diego. As a result of the new deal, creditors are now the owners of the law school building after writing down the debt to $40 million. The school will pay $5 million in annual rent.
“Thomas Jefferson got a sweetheart deal,” DealBook says, “but its creditors had no choice. If they shut down the law school, the only value left would be a law school building that would need to be repurposed and redesigned. Big lecture halls would need to be turned into offices at a significant expense.”
The lesson, according to DealBook, is that a closed law school is worth little or nothing to creditors or to a university that bears its debt. “This explains why, despite forecasts that up to a third of law schools could close, even the most financially dire have not,” the blog says.
“Instead, law schools are doing everything they can to push down costs hard and fast. Reports of layoffs of professors, buyouts and job cuts abound even for those with tenure. For years, central campuses sucked money out of law schools. Now they are keeping them alive.”
Some believe law schools have nearly reached the bottom in the law-student market. Indeed, a decline in enrollment could lead to a shortage of lawyers in five years, DealBook concludes.
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