The media coverage of higher education is replete these days with reports of economic challenges faced by higher education institutions, and of colleges and universities that are struggling financially or failing. Moody's Issues Negative Outlook for Higher Education, Rising Tuition Discounts and Flat Tuition Revenues Squeeze Colleges Even Harder, Historically Black Colleges Face Uncertain Future, and Expect Another Down Year for Tuition Revenue, Moody's Says, are exemplary of many headlines in recent months. While the outlook is not entirely negative, Moody's reports that one in ten colleges "is suffering 'acute financial distress' because of falling revenues and weak operating performance." Law schools in particular are experiencing historic declines in enrollment. Whatever the fate of financially distressed colleges and universities, one point is clear: reorganization in bankruptcy is not an option for institutions that receive federal student financial aid funding from the United States Department of Education ("DOE") pursuant to title IV of the Higher Education Act. This is because an institution's eligibility to participate in title IV programs terminates immediately upon filing for bankruptcy, and termination will instantly destroy the institution's financial viability. This Article raises the question whether the Higher Education Act ("HEA") provision that effectively precludes bankruptcy reorganization by colleges and universities, which was added to the Act in 1992, is wise policy. Even if it was in 1992, the DOE's regulation of title IV funding and of higher education accreditation has expanded considerably since then, warranting reconsideration of the anti-bankruptcy provision in light of these changes. This Article first details the relevant education and bankruptcy law provisions, and examines the rationale for the HEA anti-bankruptcy provision as found in the legislative history. The Article then considers the merits of the provision using a hypothetical case of a stand-alone law school that cannot meet its debt obligations after paying operating expenses.
Scott F. Norberg,
Bankruptcy and Higher Education Institutions, St. John’s University School of Law Symposium
, 23 AM. BANKR. INST. L. REV. 385
Available at: http://ecollections.law.fiu.edu/faculty_publications/228