Thomas Jefferson’s Folly

California’s worst-performing law school illustrates the moral hazard of federal student loans.

Investors can make bad decisions, and businesses sometimes fail due to unforeseeable market conditions. But Thomas Jefferson School of Law’s impending default on $133 million in tax-exempt bonds was predictable, perhaps even inevitable. The American Bar Association accredited the private law school in San Diego in 1996, but U.S. News & World Report never rated it; the magazine cuts off its ranking at 145 of the 203 ABA-accredited schools. Undaunted, Thomas Jefferson moved into a lavish new building in January 2011, just a few years after the Great Recession devastated demand for legal services and created a glut of law school graduates seeking employment. Law schools generally, and bottom-tier schools such as Thomas Jefferson in particular, have been in free fall ever since. From 2007 to 2013, Thomas Jefferson raised its acceptance rate from 45 percent to 81 percent—essentially open admissions—but enrollment still declined.

Steadily declining job prospects have cut into law school applications, resulting in lower enrollments and depressed tuition revenue. Many expenses associated with running a law school—such as faculty payroll, rent, and debt service on the physical plant— are fixed. Even sharp tuition increases cannot make up the revenue loss from slashed enrollments. Public law schools can subsist on legislative largesse, but private law schools—especially stand-alone schools without an endowment cushion to ease restricted cash flow—face financial crisis.

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