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As Critics Predict Apocalypse For Law Schools, 1 Narrowly Survives

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By William Peacock, Esq. on November 10, 2014 8:57 AM

As many as 80 law schools are in trouble, and 20 might be closing within the next few years. This is the prediction of David Barnhizer at Law Next. He points to the festering mass of surplus schools in states with few jobs (California -- that's you!), especially those schools that are state-accredited (as opposed to ABA-accredited), online-only, or otherwise useless for those who want to actually practice law someday, as schools that are especially vulnerable.

One school that nearly met that fate, perhaps not coincidentally, a California school, is the ABA-accredited Thomas Jefferson School of Law. It just narrowly survived by selling its soul to creditors. Is it just the first of many to flirt with death?

Apocalypse Soon: Closures and Mergers Coming

Barnhizer's piece starts by citing a number of critics who are predicting doom for law schools: from a handful of closures to twenty or more.

He goes even farther, suggesting that not only is it likely that twenty or more schools will close, but that many other schools, especially in states with too many schools (California, Ohio, and Florida are prime examples), will be forced to look at mergers.

Universities that started schools as low-overhead cash cows will close up shop when facing declining demand. Free-standing schools that lack a university to subsidize them through the hard times face an even tougher path. And cutting costs isn't easy: he cites tenure and diverse faculties as problems, the latter likely resulting in age/race/gender discrimination claims if they are laid off.

Apocalypse Not Yet: TJSL

Enrollment was down 24 percent from its peak in 2010. Revenue was down even further as the school used scholarship funds to slow the decline in enrollment. Meanwhile TJSL was trying to make payments on its brand new $127 million building. It failed and defaulted, reports The New York Times.

However, the school kept the doors open (literally and figuratively) by essentially selling its campus to the creditors. Now, it'll rent the building for $5 million and $1 million in debt service costs. Instead of $127 million in debt, the school owes $40 million. And if its creditors don't renew the lease in ten years, another $20 million will be forgiven.

But still: $40 million in debt, plus $5 million per year in rent, with declining revenue. Even with the school slashing costs by laying off staff, unless demand returns, they can't be too optimistic.

Positive Omens?

The school's survival is a good sign for other struggling schools, however. As the Times notes, the purpose-built building wasn't worth much without a school in it -- any other use would require extensive remodeling. As most schools' main assets are their real estate, most creditors will likely be inclined to restructure debts rather than foreclose.

Still, TJSL is a middle-of-the-road school. It may be near the bottom of most rankings, but it is still an ABA-accredited school. State-accredited, provisionally accredited, and for-profit institutions may have worse chances for survival.

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