Mar 30, 2017

For-profit law school owners take the 5th

The American Bar Association this week announced that it was putting Arizona Summit Law School on probation due to egregiously low bar exam passage rates. This makes ASLS only the country's second law school on ABA probation ― the first of which, Charlotte School of Law, subsequently was shut off from the federal student loan spigot by the U.S. Department of Education.

The connection? These are two of three for-profit law schools owned and operated by Infilaw, which in turn is owned by private equity firms Sterling Partners and ABRY Partners, alongside a bit of debt and equity co-invest from publicly-traded Ares Capital Corp.

How bad is it? Last year, ASLS students taking the bar exam for the first time passed at just a 24.6% rate. The national average was 64.2%, while local rival Arizona State University came in at 78.8%. In Charlotte, things got so bad that the school secretly paid "at risk" graduates to delay taking the bar exam until after taking a third-party prep course. And before you think this is some cut-rate program, one year of attendance at ASLS runs over $67,000.

What went wrong? Who knows? Seriously, I mean that. A spokeswoman for Sterling Partners said that the Chicago-based firm does "not comment on matters related to InfiLaw." When I pointed out that Sterling has actually commented plenty in the past, extolling the virtues of for-profit education, she said she'd get back to me. Never happened. I also called the Sterling managing director currently responsible for Infilaw, but his EA said he'd need "permission" to speak with me. Permission from whom? No comment, and apparently it wasn't forthcoming since he never called back. Also silent was minority equity-holder ABRY Partners, which actually wiped all references to Infilaw from its website last summer. As for Infilaw itself or Ares Capital.... well, you guessed it.

One would hope one of these folks would feel some obligation to explain why they are charging so much for such ineffective services, particularly when the likely results include taxpayers being on the hook for loans that are either: (1) Unlikely to be repaid, since the students don't become lawyers; or (2) Personal bankruptcies in order to repay the loans since, again, the students didn't become lawyers.

Oh, and this is hardly the first time that Abry has run into for-profit education trouble. The Boston-based investment firm also owned a piece of Marinello Schools of Beauty, which closed last spring after also losing federal student aid access for around half of its campuses.

What now: The big question going forward will be if the Department of Education ― now under new management ― gives ASLS the same treatment that it gave Charlotte. It seems like a fairly cut-and-dry case, but new Education Secretary Betsy DeVos is a well-known proponent of for-profit education, to the point that she even hired an advisor whose last job was as a lawyer for a for-profit education company under federal investigation. It's also worth noting that DeVos has personal exposure to some Ares-related CLOs, but there is no indication that they are invested in InfiLaw.

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