DeVos offers a lifeline to for-profit law school that hired her former adviser

Early this year, Charlotte School of Law looked ready to collapse. The government had cut off the private equity-backed, for-profit law school’s access to federal student loans, determining in a review that it had violated federal law and misled students, allegations the school denied. But for a school that more than nine in 10 students borrow money to attend, the decision had the ring of a death knell.

Until Donald Trump took office.

One day before Betsy DeVos was confirmed as secretary of education, Charlotte Law hired the adviser who had just steered her through her confirmation hearings to lobby her agency on its behalf. Lauren Maddox, a lobbyist with the Podesta Group in Washington and a former Education Department spokeswoman, has worked for senior Republicans in Congress. But in lobbying for Charlotte Law, she and her colleagues would appear to have a tougher task: Charlotte graduates are leaving school owing more than three times as much on their loans as they wind up earning every year. Fewer than half pass the bar in their first try.

Some $130,000 in fees later, the lobbying effort appears to have paid off. Last week, according to a copy of official correspondence reviewed by Bloomberg News, DeVos's agency told the law school that—provided it puts up $6 million in collateral and agrees to certain conditions, such as offering refunds to first-years and hiring a monitor—it would consider reinstating its access to the federal student-aid program.

Such a move could bring in tens of millions of dollars in annual revenue for the school, federal data suggest, if the state of North Carolina reverses its June ban on enrolling new students and lets the school start recruiting them. The resumption of federal student-aid cash could boost the school’s case before the state, which has questioned Charlotte Law’s finances and whether the school can stay in business for at least three years. The school has said it believes that’s the case.

"The dream for for-profit colleges is unfettered access to federal money," said Clare McCann, deputy director for federal higher-education policy at the Washington-based policy organization New America and a former Education Department official in the Obama administration. The agency under DeVos, she said, seems to be relaxing the Obama-era policies that for-profit colleges had said disproportionately affected them, handing a "huge win" to Charlotte Law.

The typical Charlotte Law graduate leaves school owing $167,000—nearly the amount needed to buy the typical Charlotte-area home—and making $49,000 a year. More of its 2016 grads were unemployed and looking for work than were employed in full-time, long-term jobs that required them to have passed the bar, according to an April disclosure. Its recent grads pass the bar at a rate nearly 20 percent lower than the statewide average.

Maddox didn't comment during a brief phone interview and didn't respond to a subsequent message seeking comment. Victoria Taylor, a spokeswoman for Charlotte Law, said in a statement that the school was willing to meet the Education Department's demands, but she didn't respond to a voicemail seeking comment. Liz Hill, a spokeswoman for the federal agency, said discussions are ongoing and that the school, as of now, isn't able to tap into federal student loan cash.

Challenges remain for Charlotte Law. It still must satisfy its accreditor, the American Bar Association, which has put it on probation, and its state licensing agency, the University of North Carolina Board of Governors, which barred it in June from enrolling new students. Its enrollment has plummeted from nearly 1,400 students in 2012 to 100 now, as of the most recent count.

But by at least one measure, Charlotte Law is doing great. Its annual income per student has almost doubled since 2012, to $30,588, according to a May report prepared for the UNC board of governors. Meanwhile, it's now spending half as much on education as it used to, relative to its other expenditures—suggesting to consultants working for the state licensing board that its "initiatives may be designed to maintain profitability at the expense of [its] core educational programming."

Charlotte Law is indirectly owned by two funds operated by Sterling Partners, a Chicago-based private equity firm, Sterling's general counsel and chief compliance officer Avi Epstein said in a May 8 declaration in a lawsuit brought by students in Charlotte federal court. (The judge in that case dismissed the claims against the two Sterling funds last week.) The two funds own a Delaware-registered limited liability company that owns Charlotte Law's parent corporation. Epstein didn't respond to a voicemail seeking comment.