On the Predation of Charlotte School of Law

This is the image that visitors to Charlotte School of Law's website are seeing today.

This is the image that visitors to Charlotte School of Law's website are seeing today.

The views expressed in this article are not necessarily shared by Felton Banks, PLLC. Said views are strictly the writer's opinions -- opinions that are the product of extensive research, applied logic, and a veritable nimiety of common sense, but opinions nonetheless.

Tuesday afternoon, Charlotte School of Law announced that it is closing its doors effective immediately.  This development isn't exactly shocking; Charlotte was placed on probation by the American Bar Association late last year, its enrollment had dropped from over 1,400 to a fraction thereof, and it was the subject of an ongoing investigation by North Carolina Attorney General Josh Stein. The part that should really turn your stomach, though, is the deeper meaning. This is the last slap in the face to those remaining students, from a school that preyed on them in order to basically launder millions upon millions of dollars from federal coffers. By way of your wallet, that is.

If you're a regular reader of ours, you know that the normal timbre of my writing is fairly lighthearted, even when the subject matter is unpleasant or even unpalatable. If you're a fan of that writing style, this isn't going to be the article for you. That's because I'm really angry about this. My reasons for being angry are laid out below, but for brevity's sake, let's just say that today's developments prove once and for all that Charlotte School of Law and its handlers have only ever cared about profit. Not the students, not the legal profession, and certainly not any sort of functioning society where people look out for one another. Just profit.

How for-profit schools work.

Your average institution of secondary education is either (i) a public, state school (think UNC-Chapel Hill) or (ii) a private, 501(c)(3) nonprofit school (think Duke). Both schools have one primary focus; providing students with an excellent education. Both schools are largely supported by public money, either through state taxes or federal loan programs (or more realistically, both), but functionally the thing to remember is that money is the fuel that allows the institution to continue operating, and not the point of the institution's actual existence.

For-profit schools are different because they are either corporations or the property of corporations. Corporations, of course, exist to make money, and as much of it as they possibly can. Where state and non-profit schools treat education as a vehicle for individual ambition and societal progress, for-profit schools treat education as a product to be sold; the method for reaching the ultimate goal (money, in this case), rather than the goal itself. That can manifest itself in the form of inflated prices for textbooks (bought directly from the school, of course), private high-interest loans, and sacrificed quality in the name of maximum value. And that's even before you look at some of the really tricky stunts that for-profit schools pull. For instance, there's a '90/10' rule stating that schools have to maintain enough of a quality education that students are willing to pay for at least ten percent of the tuition without taking out federal loans. The for-profit solution to this? Raise tuition above the maximum federal loan amounts, forcing students to spend the extra ten percent or take it out in the form of a private loan.

Charlotte School of Law is -- ahem, was -- a for-profit school owned by a company called Infilaw, which owns -- ahem, owned -- Charlotte along with two other struggling law schools in Florida and Arizona. Infilaw is in turn owned by Sterling Partners, which operates the schools through Infilaw and their CEO, Rick Inatome. Interestingly, Mr. Inatome's bio on the Sterling Partners website includes the following outright falsehood: "Under Rick’s guidance, Infilaw has become a world-class organization that consistently delivers the high quality outcomes for students, like bar pass rates and career placement." You'll see below why this statement is just so cringe-y. In any case, the model for these three Infilaw schools, as you'll see, is basically to rush through as many students as possible from year to year, no matter what the student's qualifications or odds of success are. Some people call these "degree mills," but it's tough to even use that term here since Infilaw so blatantly doesn't care whether its students get degrees.

Now, are there exceptions to the traditional run-for-the-hills for-profit model? Of course there are. For-profit schools in general tout the free-market party line, and some of them really do use the free market to maximize the public's benefit, which of course is why the free market exists to begin with. But the opportunity for nefarious behavior is there, and examples like Tuesday's show us that danger truly does lurk.

Why Charlotte's example is particularly egregious.

For those of you who may not be lawyers, let me break down what you have to do in order to get a law license in North Carolina. First, you run yourself ragged in undergrad to make law-school-worthy grades. Then you sign up and take the LSAT; a standardized test designed to test your problem-solving and writing ability. Not a fun test.

Next comes the application process. You get your LSAT scores and look at your transcripts to determine what law schools, if any, you should apply to. This is really important because your LSAT score, taken alongside your undergraduate GPA, is the best predictor of how you're going to do on the bar exam down the road. Below a certain range, it's statistically improbable that you'll have any success passing the bar. 

Once you do get accepted, you sign up to pay thousands of dollars, often in the form of massive student loan debt, in exchange for the opportunity to slave away for three-plus years, sacrificing your social life and sanity in the process. If you're lucky, you'll make it through the first year without failing out or having a nervous breakdown.

So graduation day finally comes, and you get to go out for a nice meal with your family or significant other before you buckle down for twelve weeks or so of torturous bar exam prep. The exam takes place on the last Tuesday and Wednesday of July, and to say it's terrible would be like saying that Bill Gates is "financially comfortable." A dozen essays on the first day that require you to brain-vomit obscure distinctions of North Carolina law, implicating anywhere between one and three separate areas of law each. Two hundred multiple choice questions the second day, each of which is less about selecting the right answer and more about selecting the "least-wrong" answer. 

Once you leave the exam, you get to settle down for five or six weeks of nail-biting, hair-plucking fun while you wait for the bar results to come out. Then there's the final walk to the mailbox, fighting the urge to run away and be a hermit in southern Maine for the rest of your life, as you pull the envelope out, open it and read it. If you passed, you get to enter the legal profession as an attorney, with all the separate challenges and hurdles that are attendant to this line of work. If you failed, you get to go have yourself a nice cry and a stiff drink before you get the books back out.

All that is what you're signing up for when you decide to go to law school, meaning that the folks who do sign up should be commended for their ambition and determination. These men and women know the risks, they know the challenges, and they take all that on because they want that badly to be lawyers. So you can imagine how crushing it has to be to get your LSAT results back and see a relatively pedestrian number staring back at you. The type of number, in other words, that isn't high enough to get into the law school of the test-taker's choice here in North Carolina. 

Here's where Charlotte School of Law comes in. Their target market is those LSAT-takers whose scores suggest an improbability of passing a bar exam; the people, in other words, who wouldn't be admitted to most or all of North Carolina's law schools. Their message is that hope is not lost; these people can enroll at Charlotte and pay a high tuition in exchange for an education that will, presumptively, prepare them to pass the bar and go on to become successful attorneys. The members of this target market, disappointed but yet determined to pursue a legal career, apply and get accepted. They take out massive federal loans, study their tails off for three years, work harder than they've ever worked, and then the majority of them either (i) fail out of school or (ii) graduate from law school and subsequently fail the bar exam.

This is what it looks like from a bird's-eye view, at least from where this writer is sitting:

  1. A limited-liability corporate entity notices a target market with a desperate demand for a "product," in this case a quality legal education and license to practice.
  2. The corporation markets and sells said "product" to said desperate target market, with full knowledge that most of the buyers will never have a meaningful opportunity to use the product.
  3. The corporation entices its buyers to pay for said useless product by taking out enormous loans in the buyer's name; loans which are subsidized by millions (or more accurately, billions) of dollars in federal taxpayer money. The corporation knows that many of its buyers will never be able to pay these loans back to the taxpayers.
  4. Over the next few years, the free market begins to take notice that the corporation's "product" is a steaming pile of garbage. The ABA, regulatory agency that it is, begins sniffing around to investigate whether the corporation should be allowed to continue selling such a low-quality product at such a high price.
  5. The corporation responds by manipulating its numbers to satisfy the ABA's standards; in this case, for example, by paying lower-performing students thousands of dollars (in taxpayer money) not to take the bar exam.
  6. Eventually, the bottom falls out. The ABA drops the hammer on the corporation, as it should, and the corporation's handlers elect to cut bait and run. The corporation leaves with lots of money and no liability to repay any of it. The buyers of the corporation's "product" are left with jaw-dropping amounts of debt liability in exchange for a product that they'll never be able to use. The students and American taxpayers get the shaft, while the corporation laughs all the way to the bank.

The details.

Regardless of what your leanings are when it comes to fiscal politics, this should tick you off. The facts show that this is not an example of a law school trying its best to compete with other North Carolina law schools and just not cutting it. This is an example of a corporate entity making a pre-meditated and calculated effort to scam enormous amounts of money from federal coffers by convincing its desperate and vulnerable victims to sign up to pay it back, knowing that many of them will never be able to.

If you don't believe me, look at the fact that Charlotte School of Law had what amounted to an open-enrollment policy for years. As far back as 2013, the school had an enrollment of roughly 1,400 students, which made it the largest law school in North Carolina by far. Many of those admitted didn't have a meaningful chance of becoming lawyers based on their LSAT scores and undergraduate performance. The school knew this, and its handlers still maxed out its enrollment year after year after year. 

The price for this Chimaeran educational model? Over $41,000 per year, on par with the tuition one would pay at Wake Forest or Campbell. One of the biggest functional differences is in the enrollment numbers; Wake Forest's total enrollment last year was 567, while Campbell's was slightly over 300. Charlotte's enrollment in the 2013-2014 school year, as we discussed above, was over 1,400. If you look at the "product" being sold as the opportunity to attend a year of law school, Wake Forest sold 567 "units" last year for a total revenue of $25,214,490. Let's say Campbell sold 300 "units" for a total revenue of $11,970,000. Given their typical bar passage rates from year to year (and conceding that most North Carolina schools have seen a decline in bar passage rates in recent years), both schools are selling products of a reasonably high quality. Charlotte's product is a different story. In 2013-2014, for example, Charlotte collected over $57,400,000 from its students. Mind that this number only reflects tuition; it doesn't include other costs and expenses, like books and other fees.

And what did the students get for their money? Just over half of the exam-takers from Charlotte passed the bar on their first try; nearly 15 percent lower than the statewide results. This past February, a vomit-inducing 25 percent of Charlotte's first time test-takers passed; nearly 20 percent lower than the already-horrible statewide results. So what you end up with is one school charging vastly more money for an educational "product" having far less value than the less expensive versions offered by the other law schools in North Carolina. Looked at a different way, 77 first-time test-takers failed the bar exam in February 2017, and Charlotte grads accounted for FIFTY-FOUR of them. Let that sink in for a minute; the Charlotte results skewed the statewide results down by over 20 percent. I'd be hard-pressed to call that an unfortunate coincidence, earth-shaking levels of incompetency, or anything other than an outright and intentional scam. 

If that doesn't convince you, then let's look at some of the statistical gymnastics that Charlotte School of Law has engaged in over the past few years. After the ABA began to show concern over the abysmal bar passage rates at the school, Charlotte instituted a new policy of paying poorly-performing students up to $11,200 not to take the bar exam. The practical effect is that the school knew that Student A wouldn't pass the bar exam, the school paid Student A not to take it, and the school thereby boosted its bar passage rates by removing a probable failure from the pool of test-takers. When the ABA responded by putting the school on probation, which led to a cut-off of federal funding and an eventual investigation, Charlotte's response was to blame the ABA, the State of North Carolina, and even its own students for its woes. 

What now?

There have been several class action lawsuits filed, going back to before the school actually closed. By all accounts, more than 150 former students are suing the school. That number is bound to increase now that the closure is a reality.

It’s certainly appropriate to feel that a lot of money should be paid back. It’s this writer’s opinion that jail time is probably more appropriate for the ringleaders of this little shenanigan. Whatever happens, we’ll keep a close eye on it, and we’ll keep you updated with any new developments.