S&P Warns That A Certain Type Of Law School Is In Big Trouble

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Thomas Jefferson Law School

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Thomas Jefferson School of Law

Standard & Poor's has released a report showing that the sad state of the legal industry is crushing stand-alone law schools which aren't attached to larger universities.

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Four of the five stand-alones rated by S&P have negative outlooks: New York Law School (A-), Brooklyn Law School (BBB+), Thomas M. Cooley Law School (BBB), and Thomas Jefferson School of Law (B+). Only Albany Law School (BBB) received a stable rating.

Ratings in this category have already declined, with San Diego-based Thomas Jefferson notably dropping two spots to B+ or junk-bond status in October, The Wall Street Journal reported.

Thomas Jefferson has the distinction of being the American law school where 2012 graduates had the highest debt load and the lowest unemployment rate. The S&P report predicted that enrollment would decline at Thomas Jefferson.

"In our opinion, there is also an enrollment risk given the declining number of law students nationally and recent weakness in head count that will likely compress operating margins, particularly since the school has no track record of fundraising," the S&P report said.

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Thomas Jefferson and most stand-alones often have negligible endowments and therefore must rely heavily on tuition to cover their operating expenses, law professor Paul Campos has previously told Business Insider.

"If their tuition revenues decrease markedly they may become unsustainable operations very quickly," Campos has said.

Here's more from S&P on why stand-alones have worse credit than law schools that are part of universities:

The five stand-alone law schools are among the least selective law schools we rate, and the respective ratings reflect this. Their management teams are generally more entrepreneurial and driven by the bottom line than leadership at component law schools. We believe this is partly due to the lack of program diversification at stand-alone institutions relative to comprehensive public and private institutions. We view it as a credit weakness. Stand-alones also typically lack the type of developed fundraising function that characterize many of the public and private higher education institutions we rate.

On the other hand, law schools like Yale, Harvard, or Emory have access to resources of a large university and "substantial endowments," according to the S&P report.

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"Even in the event that these schools experience operating pressures as a result of current demand and enrollment trends," the S&P report said, "we believe many of these [non-stand-alone] schools will weather the challenges relatively well."