Summary: Struggling law schools, like the Thomas Jefferson School of Law in San Diego, remain open because of their creditors.
With the recent debt issues arising at Thomas Jefferson School of Law, other law schools can learn a lesson, according to The New York Times.
The school is in San Diego and is ranked in the lowest tier by U.S. News & World Report. One of the problems the school faces is that it is in California, where there are 20 law schools accredited by the American Bar Association.
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The graduates of the school have struggled more than students at almost any other law school. The debt per student is $180,665 as of 2013. Also, nine months following graduation in 2013, just 29 percent of graduates were employed in a full-time job that required a law degree.
First-year enrollment at the school has dropped to 200 students from 348 in 2010. Prior to the recession, the school built a new building in downtown San Diego, but did not have the money. It borrowed $127 million at a rate of 11 percent to construct the new building. As admissions dropped, the payments on the debt took up 20 percent of the law school’s revenue.
In June of this year, the law school defaulted on its debt when it did not make a payment.
The school announced last week that it would remain open after renegotiating its debt with creditors. The new building was given to creditors, which dropped its debt to $40 million from $127 million. The interest rate also dropped down to two percent.
Should the lease for the law school not get extended by the creditors in 10 years, the school will be lent money to move, which could cut the debt by an added $20 million.
To read more about Thomas Jefferson School of Law, click here.
Should the law school default on the rest of its $40 million debt, there is nothing left for the creditors to take, which means the school will get away with it.
Thomas F. Guernsey, the president and dean of the law school, said the following in a press release:
“This restructuring is a major step toward achieving our goals,” Guernsey said. “It puts the school on a solid financial footing and will enable Thomas Jefferson to continue to fulfill its mission serving a diverse group of students in a collegial, supportive learning environment.”
Guernsey continued with the following: “The improved financial stability enables us to continue to focus on improving results for our students in passing the bar and securing jobs in the legal profession,” Guernsey said. “This includes adding new programs and improving core curriculum. By restructuring the debt and reducing the annual payments to the bondholders by almost 50 percent, the school can continue its mission to be a school of opportunity for a diverse population of students. Our long-term goal is to continue doing a better job for our students in all ways and steadily raise the reputation of the law school, the quality of the education and, the success of our graduates.”
One of the lessons for other law schools to learn is that closing a law school is worth very little to creditors. The only value in the school is the revenue coming in when open and maybe its building.
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Image credit: Thomas Jefferson School of Law