Saturday, February 11, 2012
Class-action lawsuits recently filed against fifteen law schools for fraud are "credit negative" because they could cause reputational damage and a decline in tuition revenue, according to a report released this week by the ratings agency Moody's Investors Service. ...
Law-school graduates sued three schools in 2011, and twelve more on Feb. 1, alleging they committed fraud by publishing misleading job-placement statistics. The wave of litigation comes at a bad time for law schools -- especially those that are lower ranked, the report said.
"The outlook in general is that law schools are looking at fewer applications," said Emily Schwarz, who authored the report. "Students are starting to question the value of the degree because of high tuition rates and more limited job prospects. They're concerned they won't get their money's worth." ...
The report noted that standalone law schools -- including New York Law School and Southwestern Law School in Los Angeles -- are more likely to suffer the negative effects of the lawsuits than those that are part of a larger university. Standalone schools have less operating revenue and smaller balance sheets than those attached to universities, the report said.
Brian Tamanaha, a professor at Washington University School of Law in St. Louis, agreed on this point. "Standalone law schools are especially vulnerable because there is no institutional support behind them to help out in difficult financial times," said Tamanaha. "At lower-ranked law schools ... the situation can quickly deteriorate if they experience year-after-year double digit declines in the numbers of applicants."
There are already troubling signs for some standalone law schools. In January, Moody's revised its outlook on New York Law School from "stable" to "negative," reflecting "recent enrollment volatility" -- a 25-percent decrease in the size of the 2011 entering class -- and uncertainty about the outcome of the pending lawsuit. (The agency affirmed an underlying "A3" rating on New York Law School's bonds, the lowest grade of "A" bonds with above-average creditworthiness.)
- Above the Law, Will Sued Law Schools Take A Hit To Their Credit Ratings?
- Inside Higher Ed, Report: Suit Against Law Schools Not Good For Business
- Wall Street Journal, Law School Job-Placement Lawsuits Are ‘Credit Negative’