Charlotte School of Law in Charlotte, North Carolina.

 

The hits keep coming to the Charlotte School of Law.

Higher education officials in North Carolina on Wednesday found the beleaguered school in violation of several rules mandating financial stability, and gave the school until August to shape up or lose its license to operate.

That decision comes on top of being placed on probation by the American Bar Association in November, losing federal loan eligibility in December, multiplying lawsuits brought by angry students, and an ongoing investigation by the North Carolina attorney general for possible violations of consumer protection laws. The risk of losing its state license adds further uncertainty about the school’s ability to remain open, as the pressures mount and students flee in droves.

“The fact that we’ve gotten to the point where even the state is getting worried is a big red flag,” said Ben Miller, a senior fellow at the Center for American Progress who studies higher education policy. “At some point, it seems like someone should just tell [Charlotte], ‘You’re out of business.’ Which is what I think this is saying. I’d be surprised if they could come up with a tuition bond and fix all these problems.”

The University of North Carolina’s Committee on Educational Planning, Policies, and Programs unanimously voted Wednesday to impose nine conditions on the law school, including that it not admit any new students for the time being, that it prove it has come into compliance with all the state’s financial requirements, and that the American Bar Association sign off on either a teach-out plan to graduate current students then close, or a remedial plan under which the school would continue to operate. The decision also gives Charlotte until Aug. 10 to be reinstated into the federal government’s student loan program—a move the school is pushing with the help of a team of Washington lobbyists.

A spokeswoman for the law school did not respond to requests for comment on the decision Thursday.

Charlotte has been under the state’s microscope since late January, when the University of North Carolina General Administration initiated a review of the school’s license to operate in the state. A trio of experts examined the school’s finances and its academic program, according to a June 16 memo from University of North Carolina Board of Governors president Margaret Spellings.

That review identified four shortcomings:

  • A “failure to demonstrate financial resources indicating the institution is capable of maintaining operational continuity.”
  • A “failure to demonstrate an adequate financial plan for long‐range management of the institution.”
  • Records and audits that indicate the school lacks financial stability.
  • A “failure to maintain an adequate tuition guaranty bond”—a bond that guarantees a tuition refund to students should the program close.

Investigators concluded that Charlotte doesn’t have the money to remain in operations for the next three years, as state rules require.

They also raised concerns about the quality of the legal education offered at Charlotte, according to Spellings’ memo. Specifically, the steps the school has told the ABA it will take in order to come into compliance with standards meant to ensure it only enrolls students likely to graduate and pass the bar—namely increasing the academic credentials of the students it admits—pose a major hurdle and could further erode its financial standing.

“Getting better-qualified students to enroll in the school while it is on probation and while the ability to secure federal loans is at best uncertain and will be a significant challenge,” wrote Paul Kurtz, associate dean and professor emeritus at the University of Georgia School of Law, one of the three state investigators examining Charlotte.

Smaller class sizes and generous scholarships won’t help the school’s bottom line, he noted.

Enrollment at Charlotte, which stood at about 700 in the fall, has dwindled to 100, the state found, with just 11 first-year students, most of whom attend part-time and had already begun their studies when the ABA placed the school on probation last fall. Another 73 students have taken a “leave of absence,” meaning they are not enrolled but haven’t formally left the school. Those students would likely re-enroll should the U.S. Department if Education restore federal loan eligibility, the school told the state.

Charlotte leaders were given the opportunity to respond the investigators’ findings, the memo states. The school said it is in the process of restructuring debt agreements with certain investors. (It is one of three for-profit law schools owned by InfiLaw Inc. The others are Florida Coastal School of Law and Arizona Summit Law School.) But the school had yet to meet the state’s standard for financial stability.

“Based on the information available at this time, [Charlotte] has not yet demonstrated that its financial resources are characterized by stability that indicates the institution is capable of maintaining operational continuity for an ‘extended period,’” the memo reads.

Under Wednesday’s committee decision, Charlotte must establish a tuition guarantee bond equal to the amount of any student tuition

“They’re saying, ‘Look, you seem financially unstable, so we want you to put money upfront equal to the cost of the tuition being paid by these students, presumably so that if you suddenly close we can refund students their money,’” Miller said. “This is a really strong and sensible protection.”

Charlotte must also inform all current students and those who have taken a leave of absence the state’s latest decision, and keep the state informed of any developments in its dealings with the ABA, the Education Department and the North Carolina attorney general.

“The finances here just look really bleak,” Miller said. “This is what happens with schools. They enter a financial death spiral where enrollment dries up, and revenue dries up. It’s hard to pull out of something like this.”