New Financial Agreement Gives Hope to Thomas Jefferson School of Law

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Summary: A new financial agreement will allow Thomas Jefferson School of Law to significantly reduce its debt and expenses.

Earlier this year, Thomas Jefferson School of Law missed a payment to creditors that had financed construction at the school. According to UTSanDiego.com, though the school has struggled financially, an agreement is in the works that will provide stability to the law school.

  

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Thomas Guernsey joined Thomas Jefferson School of Law as its dean and president in July 2013. He said the new agreement will put “the school on a solid financial footing.”

The agreement will provide the bondholders possession of the law school’s eight-story building located at 1155 Island Avenue in San Diego. The law school will then become a tenant of the property. Such a move will reduce the law school’s expenses by half, and will lower its debt by an impressive two-thirds.

Guernsey is hopeful that the agreement will create a new path for the school. He commented, “We’re going to be smaller, more selective and more mission-oriented.” The law school will be offering additional courses, and will increase skills training in trial practice, counseling, negotiating, and interviewing.

In October, the school agreed to turn over the building.

According to Guernsey, the majority of financial problems at Thomas Jefferson School of Law were due to bad timing. Discussion and negotiation for new construction at the school began while the economy was still strong. Roughly $133 million in bonds for the construction were not issued until 2008, the year the economy crashed and the legal field took a downturn. Jobs dissipated for attorneys as many sought legal help from the Internet or paralegals. This led to a major decline in law school enrollment. Law schools across the country, including the top law schools, have seen their enrollment rates plummet.

At the school’s peak, it enrolled 1,000 students. The new building can accommodate 1,050 students. When the new building opened in 2011, enrollment had already been on a steady decline. This semester, 650 students are enrolled at the law school.

Last August, the law school had to let go of a dozen employees, and cut $4.4 million from its budget. By last December, the school’s credit rating was junk-bond status. It was shortly thereafter that the school missed a payment to creditors, which put the school in danger of defaulting on its bond debt.

However, over 90 percent of the bondholders have said that they will participate in the new restructuring agreement. The agreement will cancel taxable bonds with an interest rate of greater than 11 percent as well as non-taxable bonds that charged interest at over 7 percent.

To replace the old bonds, the bondholders will get $40 million in new notes at a 2 percent interest rate. This will reduce the school’s debt to $40 million. Previously, it was $127 million.

Law school enrollment continues to decline.

The bondholders, according to the agreement, will rent out the remaining rooms in the building as office space, while becoming landlords of the law school. Thomas Jefferson School of Law previously paid $12 million each year in principal and interest. Now, it will pay $5 million per year in rent, and $1 million in interest and expenses. It will no doubt help the school manage its expenses tremendously.

The school will still have to recover from its low enrollment numbers. The school’s enrollment has dropped over the past ten years, and Guernsey expects the drop to continue. According to the Law School Admission Panel, applications to all law schools for the fall 2015 semester are down 9.5 percent from the year before.

Guernsey predicts that enrollment at the school will be roughly 500 in five years. He also feels that the number of law students will be equal to the market demand for new attorneys during that time.

Brian Letter, a professor of jurisprudence at the University of Chicago Law School, agrees. Letter also serves as the director of the school’s Center for Law, Philosophy and Human Values. He said, “I don’t see evidence that we’re going to see a rebound to prior highs. What we can hope for is stabilization.”

As for his opinion on Thomas Jefferson School of Law, Letter said that Guernsey “seems like a sensible guy” and thinks that the new agreement will give the school some leeway to rework its business model and move forward. “If schools like Thomas Jefferson, which are free-standing, can pull through this, that’s a good sign. But I still wouldn’t be surprised to see some law schools close in the next few years unless there’s a huge turnaround in applications. And I haven’t seen that happening.”

Guernsey remains optimistic that the school will flourish because it is fulfilling a need. “I’m not one who believes there are too many lawyers in the country. You don’t need another Harvard Law School to represent wealthy individuals,” he explained, as the law school’s mission is to help underserved populations.

Photo credit: tjsl.edu