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

David Groshoff

American Jewish University

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: https://ssrn.com/abstract=1909210

Contact Information

David Groshoff (Contact Author)
American Jewish University ( email )
15600 Mulholland Drive
Bel Air, CA 90077
United States
310.476.9777 (Phone)
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