The net end result is that they shed $87 million in debt, the bondholders take over the building and lease it back to one of San Diego's top law schools, and TJSL can continue with increased cash flow and reduced debt obligations.
Previously, the school was paying about $12 million a year in principal and interest on its debt. Under the restructuring, the school will pay $5 million in annual rent and about $1 million a year in interest expense, cutting its annual payments to the bondholders by almost 50 percent to a total of $6 million.Let's do a compare and contrast between TJSL and its less-networked graduates.
The GRADUATE makes like $40k a year working some schlub job. He has $250k in loan obligations. Because of his imprudence, this is untenable and oppressive debt that is non-dischargable. He whines in the wake of a totally terrible recession, and Uncle Sam gives him the benevolence of IBR and PAYE, which allow him to pay only a portion of his income - even if it's well below what he gained! - and then POOF it can go away in, like, only 30 years, by which time the graduate will likely be making $100k+ as an ace litigator or trusted wealth consultant.
The SCHOOL does not get off so easy. There's no IBR or PAYE. It doesn't get an automatic reduction if the wily "scambloggers" lie to enough sophisticated consumers. Because it made a reasonable calculation just prior to a totally unpredictable financial collapse, it wound up with an untenable and oppressive debt. But Uncle Sam did not come with a bailout. It had to give up its spacious cathedral in San Diego. Tax discharge? Shoot, their "tax discharge" was paid 30 years early in the form of a high-priced deed. This is capitalism, that brutal justice despised by the lazy students.
But this is the sacrifice academics made by devoting their careers to education. They do not get the perks of their new graduates in private practice, for whom financial obligations are variable depending on the vicissitudes of the legal market. I don't see any law graduates giving up their gorgeous houses that they scrimped and saved for years to earn, to get only a 3/4 debt reduction. The idea would be absurd, but here, the bondholers, despite their benevolence, appear to have got the better hand.
But we here are the Truth Center appreciate that at least the bondholders understood the nature of the financial recession, and that it was perfectly normal for everyone to build unaffordable mansions on the assumption that the good times will roll. And just as millions of Americans got guaranteed leases back on their homes after executing a deed and reducing the debt significantly, American corporations like TJSL should have the same courtesy. Citizens United, Hobby Lobby, etc.
This is especially true given that TJSL is a going concern with a steady flow of tuition from young lawyers who wanted some diversity away from the other two schools in the metropolitan area.
I just hope that future bondholders negotiating with law schools understand how much TJSL sacrificed and make better offers to struggling law schools in the future. These are non-profitts, after all, whereas the FOR-PROFIT graduate gets to run roughshod over the state with things like PAYE.