The school is one of three operated by Infilaw Holdings, a group owned by Sterling Partners, a private equity firm with offices in Chicago, Baltimore and Miami. It appealed the department’s preliminary decision last month and reacted angrily on Thursday to the government’s rejection.
Federal loans are the chief financing source for the tuition costs of five figures and up in law schools across the country. Charlotte School of Law students received more than $48 million in federal loans last year, according to the Education Department.
The Charlotte school had 716 students enrolled in the fall semester, and they pay as much as $45,000 in annual tuition and fees. But the law school’s revenue will be slashed if it remains ineligible for federal student loans.
The Charlotte school’s operations have been crippled for weeks as it negotiated with federal officials for a solution to the situation.
The negotiations broke down, however, and on Wednesday, Ted Mitchell, the under secretary of education, issued a statement that the school “is no longer recognized to participate in federal student aid programs, and students will not be able to receive federal student aid at C.S.L. for current or future attendance.”
The school’s dean, Jay Conison, and its president, Chidi Ogene, argued in a statement that North Carolina law did not permit the federal government’s solution, which was to shutter Charlotte and temporarily allow a “teach-out” plan that would substitute accredited personnel from another law school to take over student instruction.
Such a plan, Dean Conison and Mr. Ogene said, “could take place only if we remained an active institution delivering curriculum and awarding degrees” under the supervision of the Florida Coastal Law School, one of the three for-profit Infilaw schools.
Barry Currier, managing director of the American Bar Association Section of Legal Education and Admissions to the Bar, said on Thursday that the accrediting body had directed Charlotte to file a teach-out plan.
“Given the timeline for the school and its students, we would expect the school to not only file its plan in a timely fashion, but begin executing it,” he said.
Charlotte Law insisted on Thursday, in contrast to Mr. Mitchell’s statement, that students who received federal loans for the fall semester were entitled to them for the spring. And, according to Kathy Heldman, vice president for marketing at Infilaw, the company is “exploring private loans (including institutional loans) for students who were not awarded federal direct loans for the spring semester.”
While Charlotte officials tried to cast the dispute as federal overreach, the school’s struggles underscore the plight of a number of law schools across the country that are experiencing a decline in applicants and an accompanying decline in revenue. A handful of students pay from personal resources or obtain loans from private sources, but most students rely on federal loans.
The federal government permits loans to accredited educational institutions. The decisions on accrediting law schools are made by the American Bar Association, which placed Charlotte on a two-year probation but did not withdraw its accreditation.
Probation was not enough, some law critics say, arguing that the association has been ineffective in curbing law schools’ admission of students who are unlikely to pass the bar and obtain legal employment sufficient to pay off their six-figure debt. Some schools report low bar passage rates and job placement rates below 50 percent.
“Long ago, the A.B.A. should have stopped protecting marginal law schools, but it’s a victim of its own insularity,” said Steven J. Harper, an adjunct law professor at Northwestern University’s law school and a former partner at Kirkland & Ellis.
“At far too many schools, students are amassing staggering educational debt in return for law degrees of dubious value,” he said. “Maybe the department’s action will spur the legal profession to clean its own house before the heavy hand of government does the job for it.”
The future looked much different when the Charlotte School of Law opened in the growing Southern financial center in 2006. It is one of three for-profit schools run by Infilaw, which include Florida Coastal and Arizona Summit Law School. Despite fewer students applying and the dearth of jobs requiring bar passage, the three schools roughly doubled their enrollment figures, to nearly 1,200, in recent years.
Each of the three schools failed to cross the 40 percent mark for graduates who were employed in full-time jobs requiring passage of a state bar examination.
Yet graduates had law school debt that exceeded $140,000 — higher than law schools like those at the University of Virginia, where the job placement rate is 78 percent and average debt is $132,182, or Duke, at 80 percent and $125,406, according to bar association figures.
The Charlotte School of Law’s practices, said Kyle McEntee, executive director of Law School Transparency, a nonprofit that works for more openness about law school admissions and financing, “are similar to the educational degree mills that have been shut down in recent years.”
The turmoil and uncertainty at Charlotte Law have left students adrift and complaining that they have little or no information just days before spring classes are set to start.
Two students have filed a complaint in federal court seeking class-action status against Charlotte Law and Infilaw, accusing them of misleading statements and not disclosing accreditation shortcomings.
Some students have already taken a leave of absence or transferred, but the cutoff ends a crucial funding source for students like Daniel A. Herrera, who is halfway through his three-year degree.
“I’m not sure what I should do,” said Mr. Herrera, 24, of Bayonne, N.J. “I’m trying to decide if I should focus on transferring to another law school.”
Uprooting from Charlotte, where he likes living and volunteers for a civic project, is a hard and expensive choice, he said. But there are no other law schools in the city.
Other law schools are reluctant to accept Charlotte Law’s credits, said Arique Ross, 23, who is a third-year student.
“They say they are going to open the doors, but there is no money to pay,” Mr. Ross said of Charlotte Law. “When I ask other law schools about transferring, they are indicating that they can only accept some of my credits and I would have to retake classes and have more debt. So I’m really uncertain about what to do.”
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