Creatively Financed Legal Education in a Marketized Environment: How Faculty Leveraged Buyouts Can Maximize Law Schools' Stakeholder Values

David Groshoff

Western State University College of Law

August 1, 2011

Fordham Journal of Corporate and Financial Law, Forthcoming

Tuition represents a majority of law schools’ revenues. Under programs created by Title IV of the Higher Education Act of 1965, 80% of today’s law students finance their educations with student loan debt. From 1999 to 2009, while college tuition rose 71%, law school tuition skyrocketed 317%. Presumably, law students have experienced direct benefits from these asymmetrical tuition increases. Yet, in July 2011, two law school deans indicated that controlling universities stripped between 25%-45% of law schools’ revenues. Such activity thus shifts millions of dollars generated by law students’ Title IV aid to non-law school operations.

These activities occur in the shadow of the marketized higher education institution (“HEI”) model that has ripened since the mid-1990s. HEI marketization explains why ostensibly public law schools, such as Michigan State’s and Virginia’s, actually are privately financed entities and why another state’s flagship law school - Minnesota’s - just announced its potential going-private transaction. Two other law schools recently became targets of corporate-like merger/acquisition activity. In this era of marketized HEIs, nearly any law school could be next.

The marketized HEI model seeks to generate nearly 90% of its revenues from student aid sources and attempts to reduce its largest cost component by exploiting outsourced faculties, devoid of self-governance, academic freedom, and tenure - traditional legal education hallmarks. Recently, an ABA committee proposed to eliminate faculty tenure from accreditation requirements, and a law school dean sought to terminate a tenured professor for using provocative in-class hypotheticals. Motivations thus exist for those controlling law schools to: (i) exacerbate revenue stripping; (ii) create financial exigency; (iii) terminate faculty tenure; and (iv) reorganize the law school with an outsourced faculty, comporting with the marketized HEI business model.

In July 2011, two Harvard Business School professors claimed, “change is inevitable .... [but] faculty members, administrators, and alumni ... have the capacity to determine their own fate.” Answering those timely calls, this Article proposes a novel way for law faculties to: (a) determine the fates of their student, alumni, and societal stakeholders; (b) embrace marketized strategies that business leaders employ; and (c) undertake a law school Faculty Leveraged Buyout (“FLBO”). An FLBO ensures continuing legal education’s traditional hallmarks while placing law schools in financially and strategically competitive positions, amid a rapidly changing marketplace of ideas and institutions.

Number of Pages in PDF File: 42

Keywords: law school financing, legal education, academic tenure, faculty governance, academic freedom, academic capitalism, higher education institution marketization, leveraged buyout, faculty leveraged buyout, FLBO, adjunct, mergers and acquisitions, M&A

JEL Classification: D41, D46, D62, D82, E13, E24, G12, G14, G32, G33, G34, G38, I22, I21, J44, K22, L21, L33, D23

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Date posted: August 14, 2011 ; Last revised: August 31, 2011

Suggested Citation

Groshoff, David, Creatively Financed Legal Education in a Marketized Environment: How Faculty Leveraged Buyouts Can Maximize Law Schools' Stakeholder Values (August 1, 2011). Fordham Journal of Corporate and Financial Law, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1909210

Contact Information

David Groshoff (Contact Author)
Western State University College of Law ( email )
1111 North State College Blvd.
Fullerton, CA 92831
United States
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