Steven Harper
Steven Harper (Karen Hoyt)

Two law schools that have been in the news lately probably wish that they weren’t. That’s because they are attracting attention as vivid examples of the market dysfunction at work in the current system of financing legal education.

Indiana Tech

More than a year ago, I wrote about Indiana Tech Law School, one of several U.S. law schools founded since 2010. Even as proponents of the school’s creation were conducting a feasibility study to show that Indiana really needed a fifth law school, newly required ABA disclosures demonstrated that only half of all recent law school graduates were finding full-time, long-term J.D.-required jobs.

Indiana Tech Law School opened its doors last fall with only 28 first-year students, far fewer than the original target of 100. And on May 21 of this year, the school’s first dean and university provost, Peter Alexander, resigned both positions. According to the university’s press release announcing the move, “Alexander cited the achievement of the goals he had established for the law school to that point in time and a desire to pursue other employment opportunities as the reasons for his decision to resign.”

An Uncertain Future?

In addition to promoting Indiana Tech as unique, the school’s website introduces prospective students to the doctrine of caveat emptor:

“Like any new law school, Indiana Tech must be in operation for one year prior to seeking ABA accreditation. …The Law School makes no representation to any applicant that it will be approved by the American Bar Association prior to the graduation of any matriculating student.”

In early May, the school stated its intent to seek provisional accreditation. Perhaps ABA Accreditation Standard 201 will be relevant to that determination: “The present and anticipated financial resources of a law school shall be adequate to sustain a sound program of legal education and accomplish its mission.”

At Indiana Tech, tuition is $30,360, and estimated living and other expenses add another $17,800. No data exist on the extent to which the 28 students in the school’s inaugural class borrowed funds for their first year. But it seems likely that federal student loan dollars were central to the following prediction in a 2011 news report—when projected enrollment for the class entering in 2013 was 100 and expected to grow thereafter: “The school [will be] breaking even in 2017, according to the feasibility study. By the fifth year, the law school is projected to start operating at a surplus.”

Without assumptions that the school would need increasing amounts of student loan debt to fund operations, did anyone really think that Indiana Tech Law School was “feasible” in 2011? How about 2014?

Charleston School of Law

Charleston, a for-profit law school located in South Carolina, enrolled its first class in the fall of 2004. Today, it exemplifies a different kind of market dysfunction. InfiLaw, a for-profit law school group, has been trying to acquire it since last summer. (Recently, I wrote about InfiLaw and a member of its National Policy Board board who chairs the new ABA Task Force on the Financing of Legal Education.)

On May 19, a committee of the South Carolina Commission on Higher Education voted to reject a recommendation that InfiLaw receive a license to operate Charleston Law School.

InfiLaw’s attorney, Kevin Hall, renewed the company’s effort in a public hearing before the full commission. He described the school as “in a financial tailspin.” According to the Charleston Post and Courier, “The five judges and lawyers who started Charleston School of Law a decade ago with the lofty goal of training attorneys committed to public service … began draining money from the school [in 2010], withdrawing $25 million in profits by 2013 that they split among themselves.”

The three remaining owners “confirmed Hall’s description of the school’s financial situation, and they all agreed that it got that way because owners for years had been pulling profits from the institution.”

Follow the Money

What was the source of Charleston’s now-distributed profits? The answer appears on the school’s website: “Most students will depend on federal student loans to pay for tuition, books and living expenses while in law school. During the 2012-2013 academic year, 88 percent of our students borrowed student loans to finance their legal education. At graduation, the average student loan debt incurred for those borrowers while attending the Charleston School of Law was $146,595.”

Nine months after graduation, 53 percent of the school’s class of 2013 had found full-time long-term jobs requiring a J.D. (More than half of those were working in firms of fewer than 10 attorneys.)

So at Charleston, student debtors finance profit distributions to law school owners who have no accountability for poor graduate outcomes. When the school later hits the financial skids, only InfiLaw, another for-profit organization, can rescue it.

Wealth redistribution takes many forms, but none produces results more perverse than the current system for financing—and profiting from—legal education.

Steven J. Harper is an adjunct professor at Northwestern University and author of “The Lawyer Bubble: A Profession in Crisis” (Basic Books, April 2013) and other books. He retired as a partner at Kirkland & Ellis in 2008, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.