Who’s Looking Out for the Students?

Last week at the Brookings Institution, Consumer Financial Protection Bureau (“CFPB”) Director Richard Cordray described his greatest challenge as CFPB director as coordinating his agency’s response with those of other agencies whose responsibilities overlap with the CFPB. Although he didn’t mention the U.S. Department of Education (the “ED”) by name, perhaps he was thinking of them when he spoke, given the two agencies’ widely divergent responses to the ongoing Corinthian Colleges debacle. For those who aren’t aware, both agencies recently accused Corinthian Colleges of misleading students about their job prospects at graduation. But the agencies appeared to part ways on the appropriate response. 

The "Overwhelming Incentives" to Avoid Bankruptcy

In an earlier post, I claimed that Thomas Jefferson School of Law’s recent debt restructuring was the rational response to its recent financial difficulties. I closed that post by suggesting that bankruptcy was not a viable option for Thomas Jefferson’s creditors because of U.S. Department of Education (“E.D.”) regulations. Those regulations provide that a voluntarily bankruptcy filing terminates an institution’s eligibility to participate in Title IV loan programs (e.g., Stafford, Perkins and Plus loans). As a result, law schools and their creditors ordinarily share “overwhelming incentives . . . in avoiding bankruptcy”. See Marblegate Asset Mgmt. v. Education Mgmt. Corp., 2014 WL 7399041,*11. (S.D.N.Y. Dec. 30, 2014).

A brief discussion of those regulations and their implications follows after the jump.

Consumers Don't Shop for Mortgages and the CFPB Intends to Change That

Richard Cordray, the director of the Consumer Financial Protection Bureau, gave a short speech today at the Brookings Institution. In his speech, he outlined several steps the CFPB is taking to help fix the mortgage market. In his view, one of the chief problems with the mortgage market is that consumers do not shop around for mortgages the same way they shop for other products, including houses. According to a recent CFPB study, "almost half of all borrowers seriously consider only a single lender or broker before deciding where to apply."

The CFPB's aims to solve this problem with some new tools. More after the break.

Why Troubled Law Schools May Remain Open

For years, pundits have declared that many law schools were on the verge of closing. In particular, low-ranked, stand-alone law schools operating in competitive marketplaces were repeatedly highlighted as being at the highest risk of closing. And with enrollment plummeting at law schools around the country, many were wondering which law school would be the first to keel over. Thomas Jefferson School of Law was often highlighted as a particularly likely candidate. But instead of closing, Thomas Jefferson recently restructured $127 million in bond debt, writing down $87 million and having the interest rate on its remaining $40 million reduced to 2%. In exchange, the school handed over the only significant asset it had on its balance sheet—its new law school building. But the building was promptly leased back to the school and Thomas Jefferson remains open for business. This ignited my curiousity and I decided to investigate.  

A look at Thomas Jefferson’s audited financial statements helps make sense of the school’s restructuring and what it implies for other law schools.