After Charlotte School of Law officials announced Friday that it would open for its spring semester on Jan. 19, officials at the troubled school backtracked on Monday and delayed the start until Jan. 27 as it works to secure tuition financing after losing its federal loan eligibility.
The move to postpone Charlotte Law’s spring semester was the latest blow to the school’s more than 700 students, who have been in limbo since the U.S. Department of Education announced Dec. 19 that it would withhold federal loans from Charlotte Law students over what it deemed accreditation shortfalls and misleading information about bar passage rates.
School officials said they were working on funding options for students, and a spokesman for the U.S. Department of Education said it was working with the school on a plan to enable existing students to complete their studies or transfer. The plan calls for no new students at Charlotte Law.
So what does the financial crisis mean for the future of Charlotte Law and its students? We spoke with Ben Miller, senior director of postsecondary education at the Center for American Progress, about what options the law school and its students have without access to federal loans, which are the key source of funding for most institutions of higher education. Miller is an expert in higher education accountability and previously worked in the Education Department.
Charlotte Law is one of three for-profit law schools owed by Infilaw Corp., Arizona Summit Law School and Florida Coastal School of Law are the other two.
His responses have been edited for length and clarity.
Q: Is losing federal student loans a death sentence for the school?
A: It depends. For a rich school, it would probably hurt a little bit, but they would survive. Princeton [University] does not need the federal financial aid dollars to survive. Probably every private for-profit and most other schools do need the federal student aid dollars to survive. I would imagine, for Charlotte [Law], it probably would be a death blow.
Q; What options does Charlotte Law have? Can they find a private lender?
A: The first thing is that they have some degree of an appeal process with the department. We’ve seen in other cases like this. You’ve seen things go to court to challenge the process, but you can’t do that until you’ve exhausted all your appeals within the executive branch.
They could look for a private lender. I would imagine a place with a low bar passage rate — if I were a private lender, why would I want to lend to a place with such a low bar passage rate?
My guess is, were they to find [a private lender], they would probably end up with a financial arrangement similar to what caused problems at Corinthian and ITT [Technical Institutes], which was essentially relying on a private lender but having the school guarantee the loans. Saying, “You front the capital, but any loans that go bad we will make you whole on.”
That also requires you having the cash to make it all work. And if I were Charlotte School of Law’s accreditor and I see the Department of Education actually kick them out, that might raise questions of my own like, “Do I want to be approving this school anymore?” There’s a decent chance they might lose their accreditation. The lack of accreditation and financial aid I assume would end it for them.
Q: I’m not hearing a lot of good options for the school.
A: I think their best option would be some sort of change of opinion within the department. I think if the Department of Education’s decision holds, I think their only hope would be a legal victory. The private market isn’t going to want to step up and fund the school.
Q: What options do current students have?
A: There is something called a closed school discharge. If a school closes while you’re enrolled or shortly after you’ve left but didn’t graduate, you have the ability to have your loans canceled. In order to do so, you are essentially forfeiting your credits. You can’t transfer your credits to a substantially similar program. If I were at Charlotte School of Law and I transfer to some other law school, in that case, your loans would continue on. Let’s say Charlotte School of Law closes: I’ve got my loan debt, no other law school will take me or will take my credits from that school, then you could get your loans canceled.
You’d be getting a fresh start from your debt. You obviously can’t get your time back, and you can’t get any tuition you paid out of pocket back.
Q: Charlotte Law has said it will stay open for the spring semester. How do you think students will pay their tuition?
A: The only other thing I could see is if [the law school] does some sort of cross-subsidization within the parent company, because they own two other schools. It might be that their hope is that they can wait the department out, get some sort of reconsideration, and that will save them.
The problem is, if people flee, then the game is up. A lot of these schools are hand-to-mouth in the sense of, if your enrollment tanks, you’re done anyway. They don’t have a cushion to support a lot of faculty without sufficient enrollment. They may be just hedging their bets.
But by delaying a decision, many students won’t be able to transfer to another school in time for the current semester.
The Department of Education can say, “We don’t want to fund you anymore.” But the department can’t tell a school it must close. That results in a situation where Charlotte’s going to act in its best interest. Not the students’ best interest. It will stay open probably as long as it thinks there’s a chance it can win federal aid back. As soon as it can’t, it will probably close with no notice, or 24 hours’ notice. That seems to happen in a lot of these other cases. It might be that they’re just trying to see if they can make it work.
Q: Is litigation common against schools that close?
You do see that. Usually it’s not over the school closing. It’s more often litigation by students saying, “Hey, this school is a rip-off, or they lied to me.” That happens with some frequency. Because students have that closed school discharge, it lessens the blow.
Q: What are other developments do you expect to see out of this situation?
A: The question is, “Are the problems with Charlotte unique to Charlotte, or are the rest of the Infilaw schools in similarly challenging spots?” I think if I were the [American Bar Association] and saw this, I would probably say, “Hey, maybe we should look at the other two.” So there’s a question, “Is the ABA going to do anything?”
Contact Karen Sloan at email@example.com. On Twitter: @KarenSloanNLJ
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