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A recent debt restructuring at Thomas Jefferson School of Law shows that a law school may be worth absolutely nothing.

We are more than four years into a law school pullback, one made worse by a sharp downturn in jobs for lawyers and heated rhetoric by critics who say law schools are loading up students with debt and no jobs. Enrollment last year was 39,675, a decline of 24 percent from a 2010 high of more than 52,000 students. This year’s number has not been announced, but a decline of an additional 5 to 10 percent is expected.

It doesn’t take an economist to know that lower demand has hurt almost all law schools outside the top 10 terribly. Hardest hit are law schools in the lower tier, where law school applications have fallen even more rapidly.

In this vein, the latest issues at Thomas Jefferson School of Law could be an object lesson in what happens once the boom times inevitably end. Thomas Jefferson School of Law in San Diego is a stand-alone entity that is ranked in the lowest tier by U.S. News & World Report. It is also in a state saturated with more than 20 law schools accredited by the American Bar Association.

Not only that, but Thomas Jefferson’s students have probably struggled more than students at almost all other schools. Its debt load per student, at $180,665 in 2013, was the highest among all schools surveyed by U.S. News & World Report. Nine months after graduation in 2013, only 29 percent of graduates had a full-time position in a job requiring passing the bar exam.

As graduates face low employment numbers and high student debt, Thomas Jefferson has been hit with a vengeance in this downturn. Its first-year enrollment has declined to about 200 students from 348 in 2010. Tuition is $44,900 a year, but revenue has plummeted as the law school offers significant scholarships to students from that sticker price. Meanwhile, it is hard to decrease costs at a law school. Professors, who make up the bulk of expenses, are tenured and difficult to fire. But this problem is faced by every law school dean these days.

What sent Thomas Jefferson over the edge was debt. Before the financial crisis, it decided to build a 305,000-square-foot building in downtown San Diego. Lacking the money to do so, the law school borrowed $127 million at the relatively high rate of up to 11 percent. The payments on debt consumed more than 20 percent of the school’s revenue as admissions fell.

Struggling with a decline in enrollment and other problems, Thomas Jefferson defaulted on its debt in June 2014 by failing to make a scheduled payment.

This sent shivers of delight through the law school critics, creating immediate speculation that the law school might be the first to “keel over.”

But last week, Thomas Jefferson announced that it would survive after it renegotiated its debt with its creditors. In the deal, Thomas Jefferson handed over its only significant asset — the new building — to creditors. In addition, Thomas Jefferson’s debt was written down to $40 million from $127 million and the interest rate reduced to 2 percent.

There are other sweeteners for Thomas Jefferson. If the creditors don’t extend the law school’s lease in 10 years, they will lend the school the money to move the law school and cut the debt an additional $20 million. The lease is at a market rate.

Thomas Jefferson was paying $12 million a year to be in its building; the cost is now $5 million in rent and $1 million in debt service a year. In addition, the school has cut almost $5 million more in costs by laying off staff and cutting salaries.

Thomas Jefferson got a sweetheart deal, but its creditors had no choice. If they shut down the law school, the only value left would be a law school building that would need to be repurposed and redesigned. Big lecture halls would need to be turned into offices at a significant expense.

Creditors thus valued the law school at zero and took the only asset: the building. They also did the only thing they could do with a building specially built for a law school: lease it to a law school. There aren’t many other law schools around that could have taken the space.

If Thomas Jefferson defaults on the remaining $40 million in debt, there will be nothing more the creditors can get, leaving the law school scot-free, really.

Thomas Jefferson trumpeted this in a release, with Thomas F. Guernsey, president and dean of the law school stating, “This restructuring is a major step toward achieving our goals,” because it puts “the school on a solid financial footing.” In an interview, Professor Guernsey said that the law school had assumed that enrollment would not grow and that it had forecast revenue and enrollment at “sustainable” levels.

There are lessons here for the entire law school system.

First, a closed law school is worth little, or most likely nothing, to creditors. The value is only in the revenue stream it produces and perhaps its building. (You could say the books also, but these are increasingly fewer.) And these days, that revenue stream is down 20 to 40 percent, meaning that if law schools were for-profit businesses, most would be failures.

A troubled law school is like Dracula: hard to kill. Creditors will not do so because even keeping a struggling school alive means there is some possibility of repayment.

Most law schools, however, don’t have huge bonds to service, or at least, the debt they have is borne by the university. For these schools, the calculus is even easier. If a closed law school is worth nothing and a nice big building without students is useless, then keeping it open remains the only option.

Shutting down a law school at a larger university also puts the administrators and others out of work, with few options for employment. They have every incentive to keep the school alive.

This explains why, despite forecasts that up to a third of law schools could close, even the most financially dire have not. Instead, law schools are doing everything they can to push down costs hard and fast. Reports of layoffs of professors, buyouts and job cuts abound even for those with tenure. For years, central campuses sucked money out of law schools. Now they are keeping them alive.

Thomas Jefferson dealt with these issues sooner than other law schools because of its debt. As Professor Guernsey told me, “What happened here is going to hit most law schools.”

The failure of law schools to close may also simply be a recognition that the market is adjusting to today’s realities. The struggle is pushing down the costs of operating a law school, and law schools are still valuable to universities. It may be tempting to shut them in these difficult times, but it can cost tens of millions to open a new one. Better to invest and cut back on expenses for a while and see what happens.

The status quo is likely to remain as some are forecasting that the bottom is almost here for law schools. This is how economics works: Markets tend to overshoot on the way up, and down.

Thus, the decline in enrollment could lead to a shortage of lawyers five years from now. Of course, this assumes that the change is not driven by technological developments and is due to become permanent. And let’s face it, Dodd-Frank and other regulations are also creating more need for lawyers.

But the events at Thomas Jefferson show that the realities of operating law schools are still working for them. It all means that there will still be many law schools, just fewer newly minted lawyers.