The effects of the college bankruptcy reorganization ban are more strongly felt among certain types of institutions. In particular, small colleges that have traditionally provided a liberal arts education and those that were founded to counter race- and gender-based discrimination appear especially vulnerable to financial distress, and are therefore more likely to need to take advantage of chapter 11’s toolkit. As a result, many of our nation’s most storied institutions have been forced to close their doors, preventing them from fulfilling their important missions, instead of being allowed to reorganize in bankruptcy. For example, almost twenty percent of all historically black colleges and universities (“HBCUs”) have closed since 1980.To cut to the chase, it is the Higher Education Act and not the Bankruptcy Code that makes impossible reorganization of colleges and universities.
Bruckner's article is 61 pages long because it addresses not only the nature of the "death penalty" for colleges and universities that need to reorganize their debts but also why this should not be the case. In other words, he explains how the possibility of reorganization under federal bankruptcy law can preserve value for several groups of stakeholders and serve the common good, a two-fer that's generally not the case in the reorganization of most commercial enterprises.
None of this is to say, at least not in my opinion, that all colleges and universities in financial distress should reorganize. Bruckner addresses structural and cultural reasons why higher education in America finds itself in distress and Chapter 11 certainly will not solve those sorts of problems. Many schools should close but those for which there is no hope of financial recovery should not poison the well for those that could if given the chance.
In any event, Bankrupting Higher Education is an excellent piece of scholarship and should be of interest to those institutions that can gain the ear of lawmakers in Washington.