Bankrupting Higher Education

Many institutions of higher education are struggling financially and would benefit from the use of bankruptcy reorganization tools designed to enable struggling enterprises to restore themselves to a state of financial viability. This essential set of tools for responding to financial distress is available only in bankruptcy reorganizations and Congress has effectively precluded colleges and universities from having access to them. This Article argues that this is a mistake and is premised upon an outdated and unsupported premise. It contributes to the nascent literature on higher education bankruptcy proceedings by examining how differences among the three primary organizational structures of institutions of higher education affect whether and under what circumstances institutions of higher education should be allowed to reorganize through bankruptcy. This Article argues that the profound differences in how colleges are organized greatly affect whether bankruptcy reorganization is appropriate for each type of institution. It concludes that for-profit colleges are most likely to benefit from access to bankruptcy reorganization, public colleges would likely benefit least from having bankruptcy reorganization available, and the myriad far-reaching benefits of granting all institutions of higher education the right to reorganize under the bankruptcy law far outweighs any potential risks.*Version as published*