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Will American University’s law school sue students who drop out or transfer?

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That’s the question that’s raised by a provision of the school’s Public Interest/Public Service scholarship.

The terms of the scholarship include the following:

Scholars will be expected to maintain matriculation at the Washington College of Law until graduation. Absent compelling circumstances, a scholar who chooses to withdraw or transfer from the law school will be required to pay back the full amount of tuition within 30 days of the end of the last semester of enrollment plus any other WCL grants or scholarships. As a condition of receiving the scholarship, incoming PIPS Scholars will be asked to sign a form indicating their understanding and acceptance of the foregoing terms and conditions of the award.

(There’s no indication on the school’s web site that this is actually a scholarship in the traditional sense of the word, that is, money flowing from an endowment for the purpose which replaces the student’s payment. Instead it looks like a straight tuition discount, which of course means that the vast majority of American’s students who are getting little or no discount off sticker tuition — see below — are actually paying for these “scholarships”).

The PIPS is a full-tuition scholarship, which means a recipient who drops out of law school or transfers to another after the first year will be required to pay the school $49,542 within 30 days of doing so, while a student who drops out after his or her second year is supposed to write the school a check for $100,000 immediately. Let’s put aside for the moment the question of how this much blood is going to be squeezed out of these particular stones, and note a few other details.

(1) For the first five years of its existence — the program was created in 2001 — the scholarship had no repayment obligation of any kind, but recipients were expected to commit to working for at least three of their first five years after graduation for a public interest entity.

(2) Starting in 2006, this condition was added:

Scholars will be expected to maintain matriculation at the Washington College of Law until graduation. Absent compelling circumstances, a scholar who chooses to withdraw or transfer from the law school will have the scholarship converted to a loan and be subject to repayment to the law school.

(3) This year, the conversion of the scholarship to a loan was replaced with the obligation to pay the entire amount of the scholarship immediately.

Questions:

*As a formal matter, is this new condition legally enforceable? Offhand, I don’t see why it wouldn’t be, but my knowledge of contract law is shall we say a bit tenuous at this point, so perhaps a real lawyer or three might want to weigh in.

*As a practical matter, is American actually going to sue somebody who transfers or drops out? In regard to marketing considerations, such a step would seem to make Memories of Butter look like a good idea. Not to mention that 23-year-old law school drop outs and transfers usually don’t have $50,000 stuck in their couch cushions.

*Why did American change the terms of the scholarship? Were too many recipients thumbing their nose at the putative conversion of the scholarship to a school-issued loan and bailing after the first year? (A big chunk of the top of American’s class transfers each year, often to Georgetown or GW).

In regard to this last point, it’s worth noting that American is a famously stingy law school, that gives out very few large scholarships. For example, last year only 38 of 1,522 students were getting full rides, and 97% of the student body was paying more than half sticker (fully 57% was paying sticker). This results in a situation where the 88% of 2013 American grads who had law school debt probably had an average of more than $200,000 in educational debt when their first payments came due in November (The average 2013 American grad who took out law school loans took out $158,636 in such loans, which means that with accrued interest and origination fees this person had close to $190,000 in law school debt alone, not counting undergraduate or other debt).

So it’s a little mysterious as to why American is going to such lengths to keep the tiny handful of its students who have full tuition scholarships from transferring. The LSAT and GPA scores of these students do nothing to protect the school’s plummeting medians, because the only scores that count for ranking and disclosure purposes are those of entering students (which is one reason GULC and GW are more than happy to poach the top of American’s class every year). The marginal cost to the school of these students’ attendance is of course close to zero. The only interest American would seem to have in trying to keep them captive is that they may on average have better job prospects than those of the typical American grad, and the school doesn’t want to lose even one student who might actually get a job as a lawyer.

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