A Play-By-Play of Charlotte School of Law’s Closure

Blog Post
Aug. 23, 2017

A for-profit law school finally shuttered its doors last week following months of delays and feet-dragging. But the stage was set for closure after a rare confluence of oversight actions taken by the Department of Education, the state of North Carolina, and the school’s accreditor, the American Bar Association. Charlotte School of Law’s path to closure can provide important lessons for the future. This is the first in a two-part series on Charlotte School of Law; click here to read Part Two.

Charlotte School of Law’s (CSL) closure could hardly have come as a shock to those watching closely, given that it spent most of the last year fighting for its life. But earlier this month, CSL’s license to operate was finally revoked and the school announced it would, at last, close its doors. From the top, here’s the story of Charlotte School of Law.

The Back Story

CSL was founded in 2005 as part of the InfiLaw System, a private equity-owned company that owns three law schools. (The other two, Florida Coastal School of Law and Arizona Summit Law School, remain in operation.) It became accredited by the American Bar Association’s accreditation arm in 2008, and by the fall of 2016, had grown to over 700 enrolled students.

But as detailed in a later letter from the Department of Education, the school soon ran into trouble. In spring 2014, the ABA conducted a regular site visit of the school, and made some concerning findings in a report presented to the school that fall. After the ABA’s January 2015 meeting, the accreditation committee said Charlotte School of Law was out of compliance with several of the agency’s standards for law schools, including its ability to provide a rigorous program that prepares students for admission to the bar and its application of reasonably high standards for admission.

The next year, in February 2016, the ABA followed up and reiterated those concerns, saying the institution was still out of compliance. Given another chance to come into compliance by the ABA, CSL returned to the ABA a few months later, appearing at a hearing and submitting a report to the agency to argue it was in compliance. But the ABA still wasn’t biting; in July 2016, it said the school wasn’t just out of compliance, but that its non-compliance now appeared “substantial” and “persistent.”

The three consecutive decisions (in January 2015, February 2016, and July 2016) by the agency were based on deep-seeded problems the ABA had noted. For instance, the data that CSL reported to the ABA detailed disturbingly high rates of withdrawals for students who fell in one of the school’s middle quartiles of enrolled students based on LSAT scores. Dropout rates for those students were 24 percent in 2015--meaning nearly one in four first-year students had left school by the end of that academic year. Data published after those initial decisions showed that, in total, 44 percent of first-years dropped out by the end of the 2015-16 school year; and the next year, that number spiked to nearly half--49.2 percent. Charlotte had the largest number of students flunking out of any law school the ABA accredited in 2016--with InfiLaw’s Florida Coastal School of Law holding second-place honors--and it had the highest rate of drop-outs for any reason (including non-academic explanations) among all ABA-accredited law schools.

The ABA also found very low bar passage rates. Among first-time test-takers in February 2016, only about one in three of Charlotte School of Law’s graduates passed (34.7 percent), compared with 51.1 percent for students statewide. To keep its numbers up, the school had apparently gone so far as to pay students to avoid the bar exam, keeping them out of the first-time test-takers number altogether. (That particular scheme was common to all three of InfiLaw’s institutions, according to a lawsuit against sister school Arizona Summit.) Without that “extended program,” Charlotte’s assistant dean said in a surreptitious recording of a faculty meeting, the bar pass rate would have been “20-something percent” for the school--objectively terrible. (To read more from the recording--and trust me, it’s worth it--check out this piece from the Charlotte Observer.)

But despite the long, drawn-out history of poor performance at the school, the ABA offered the school yet another chance. The school was directed to submit a remedial plan detailing how it would come into compliance with ABA’s standards by September 2016. Instead, Charlotte School of Law first appealed the decision. CSL even argued it shouldn’t have to notify students of the school’s noncompliance with ABA’s standards, on the basis of the findings of a study it conducted that showed the notification to students would influence their decisions about enrolling. That appeal dragged out to mid-November 2016, when the ABA turned down the appeal and finally--finally!--placed the school on probation. That action, two-and-a-half years after the first issues were spotted in an ABA site visit, was the first time the ABA or Charlotte publicly acknowledged the school’s non-compliance.

The Department of Education Steps In

Following years of persistent problems that proved the law school was serving its students poorly, and the ultimate decision to put the school on probation, the Department of Education finally took notice.

The school’s substantial non-compliance with the ABA’s standards was a big part of the reasoning for the Department’s thorough investigation. But the Department also had another concern in mind: the school’s misrepresentations to enrolled and prospective students. CSL had been suggesting publicly that it was fully accredited by the ABA and in full compliance with its standards, despite having been told in February 2016 by the ABA that it was, in fact, out of compliance with several of the agency’s standards. The Department also took issue with the school’s promotion that it had a “rigorous curriculum” that would “allow [graduates] to thrive in a professional setting” -- after all, the ABA had previously told CSL out of compliance with a standard that requires law schools to sustain a “rigorous program of legal education that prepares its students...for admission to the bar and for effective, ethical, and responsible participation as members of the legal profession.”

So on December 19, 2016, the Department of Education sent a letter to Charlotte School of Law, notifying it that the school’s regular recertification application would be denied. That meant the school would no longer be considered Title IV-eligible, and none of its students could receive federal financial aid to attend the school, effective December 31, 2016. The action was sure to have immediate repercussions for both the financial stability of CSL and for its students, who would now need to figure out mid-year how to pay their tuition bills; the school had served over 900 students the prior year, receiving about $48.5 million in federal student loan dollars.

But still, that wasn’t the end for CSL. Throughout January 2017, the school reportedly submitted more information to the Department, asking that its students be permitted to continue receiving federal loans through the spring semester; set up an institutional loan program for continuing students; and tried to set up a transfer agreement with Florida Coastal, one of the other InfiLaw-owned institutions--and told students about these negotiations in the works.

But the Department of Education wouldn’t agree to just any reopening of taxpayer dollars--after all, this was a school clearly destined to close, in trouble with both its accreditor and the federal government for soaking up taxpayer dollars for years without clear results for students, and for glossing over its problems in an effort to mislead students. Ultimately, the school reopened for the spring semester in January without access to federal loans, instead loading the relatively few students who returned with no-interest institutional loans and allegedly threatening to withhold diplomas for third-year students who declined them. The ABA also took note of the situation and demanded a teach-out plan for the school.

Timing Is Everything

By the middle of January 2017, CSL was on the brink of collapse. Hundreds of students had dropped out; and the school had laid off faculty en masse prior to reopening for the spring semester. It came close to failing the first year of the Gainful Employment debt-to-earnings test, a newly implemented federal rule designed to ensure graduates of career college programs take on manageable amounts of debt. CSL students filed lawsuits against the institution, alleging deceptive practices by the school. But  on at least one front, CSL had finally caught a break: the Trump Administration.

With the incoming administration, negotiations had begun anew. CSL threw its back into advocating to get federal loan access back, hiring the high-priced Podesta Group to lobby the Department and Congress. In late March 2017, CSL submitted an application to restore its access to federal financial aid, apparently at the direct suggestion of the Department of Education’s acting general counsel (a longtime career staffer, in point of fact). And on May 5, the Department of Education released the spring-semester funds to students at the school, though CSL still wouldn’t be eligible beyond the school year under the agreement.  Importantly, the money evidently didn’t come with any requirement that CSL post a letter of credit with the Department.

Still, CSL began to collapse under its own weight. The North Carolina attorney general opened an investigation in March 2017 over CSL’s institutional financing plans and its potential closure. In June 2017, the UNC Board of Governors, which oversees the state’s authorization of CSL, met to evaluate the school and voted to attach a whole host of conditions to the school’s license to operate in North Carolina, without which the license would automatically expire. Among them were requirements that Charlotte have a teach-out and/or remedial plan approved by the ABA, and an agreement for continued participation in the federal financial aid programs approved by the Department of Education, by Thursday, August 10.

And then, CSL missed the deadline. The ABA wasn’t even scheduled to meet until August 11--Friday--for its regular Commission meeting; and then it rejected the teach-out plan on the grounds that the plan assumed the school would continue to exist, which didn’t seem at all certain anymore. (It is unclear why CSL would have agreed to a deadline for the ABA plan that fell before the already-scheduled ABA meeting.) The Department of Education continued its negotiations with the school up to the last moments before the deadline, but it seems to have driven a harder bargain than it had in May, with conditions that included mandatory refunds to students who had been first-years when the school lost financial aid access last year and financial protection to the tune of a $6 million letter of credit. While the school apparently scrounged up the money for a letter of credit by the last day, it never signed the agreement, so the letter of credit was likely never posted.

In the following days, things began to spiral as CSL students and the public watched. The school assured students and UNC that it was close to meeting the conditions of the license, and asked UNC for an extension, a request for which there wasn’t an immediate response. The ABA waited several days to post its decision on the teach-out plan, so it wasn’t immediately clear whether the school had met the conditions. The North Carolina Attorney General declared the school closed, notified the Department of Education, and asked CSL for proof it had ceased operations. The website for CSL came down hours before it made any announcement to the public at large. And the school’s alumni association announced to members that the school had closed, scooping the institution’s notification to students and the public.

Finally, UNC announced that it had declined to grant the extension on Tuesday the following week--days after the license automatically expired. Still, it’s not entirely clear what will happen to the students. Those who were enrolled at or shortly before the time of closure will have access to discharges on their federal student loans if they choose not to transfer their credits, but those who left earlier may not. And for those who wish to finish their degrees without starting over, by transferring their credits, the options aren’t yet clear.

The events surrounding the Charlotte School of Law closure were confusing and complex and chaotic. But from the wreckage, those involved in the oversight and monitoring of institutions of higher education can draw lessons to inform their future work. For more on those lessons, check out the second post in this series here.

The author worked in the policy office at the Department of Education from 2015-2017.