Michigan State Settles Nassar Lawsuits for $500 Million

University officials won't say where they'll get the money, which will be distributed among the former doctor's hundreds of victims.

May 17, 2018
 

Michigan State University will pay half a billion dollars to the survivors of abuse by a disgraced former professor and doctor at the institution, Larry Nassar, who pleaded guilty to sexually assaulting hundreds of women.

It is believed to be the largest settlement of its kind involving sexual misconduct and a university, blowing away the $109 million payout from Penn State University to the more than 30 survivors of abuse by former assistant football coach Jerry Sandusky.

What remains unclear is how Michigan State will pay for the settlement.

The institution’s financial future has been complicated by the waves of lawsuits stemming from the Nassar case -- the $500 million settlement covers 332 claimants. A university spokeswoman, Emily Guerrant, declined to comment to Inside Higher Ed on where the money will come from -- although the university announced Wednesday that $425 million will be distributed now and $75 million will be set aside in a trust fund in case other victims come forward.

Since the scandal has unfolded, two financial ratings agencies have downgraded Michigan State to a negative outlook, though they maintain the institution has good credit. Still, this development, along with predictions that enrollment might drop, has led to questions on how the university will cover the settlement costs.

No confidentiality or nondisclosure agreement would be attached to the settlement, which the institution described as agreed to “in principle.”

“We appreciate the hard work both sides put into the mediation, and the efforts of the mediator, which achieved a result that is responsible and equitable,” Robert Young, a lawyer for Michigan State, said in a statement.

Michigan State took in $2.9 billion in the 2016-17 academic year, according to its public financial statements, about 30 percent coming from tuition dollars, which could take a hit given wide news coverage of the Nassar case.

But state aid has continued to rise modestly, and the university's endowment sits at about $2.7 billion.

Likely, the university will pay the settlement in a combination of future bonds and general university revenue, or perhaps unrestricted parts of the endowment, said Robert Kelchen, assistant professor of higher education at Seton Hall University.

Its insurance policy, of which Inside Higher Ed could not immediately obtain a copy, caps payouts related to sexual assaults at $39 million, according to The Wall Street Journal.

Earlier this year, both S&P Global Ratings and Moody's Investor Service lowered Michigan State’s financial outlook to “negative.” This would affect the interest rates it could obtain.

Kelchen said while this might cost the university tenths of a percentage point on interest rates, on hundreds of millions of dollars, this would add up.

He expected that enrollment would likely remain stable, but the university would need to wait to see if the number of out-of-state or international students would decline because of the scandal, which would more drastically affect its cash flow.

Interim president John Engler told Michigan lawmakers earlier this year that he expects the settlement money to be taken from tuition revenue and state money, remarks that legislators sharply criticized.

A report from Moody’s stated that Michigan State’s large research enterprise and donor support help its credit. But turnover at the university concerned the agency -- both the president and athletics director resigned in the wake of the Nassar revelations. The settlement also does nothing to resolve continuing investigations by the U.S. Education Department or the National Collegiate Athletic Association.

“Michigan State University’s announced settlement in principle potentially removes some of the uncertainty around the financial impacts of the Nassar cases,” Susan Fitzgerald, associate managing director at Moody’s, said in a statement. “However, the details of the funding sources and timing are not yet available. Moreover, the university continues to face scrutiny from a number of parties which will continue to be a credit challenge.”

While survivor advocates applauded the settlement, in interviews they said that more importantly, Michigan State must rework its policies to prevent this from happening again.

By settling, the university with acknowledged the financial fallout of rape and sexual assault, said Alyssa Peterson, policy organizer for advocacy group Know Your IX. But administrators should consider further measures that students and others have lobbied for -- free counseling, or expunging from transcripts poor grades that may have resulted from the abuse.

The institution should revamp training for employees on reporting rape, said Taylor Parker, an associate with Safety Advisors for Educational Campuses, which consults with campuses about their obligations under the federal gender antidiscrimination law, Title IX of the Education Amendments of 1972. She’s also the compliance coordinator and deputy Title IX coordinator at the Ringling College of Art and Design.

Parker said she was concerned that the university had already quantified how much it would reserve for future victims. She said she would not want survivors who go public later to feel impeded or pressured not to pursue court action.

“It’s sad to say that these types of situations are a double-edged sword,” Parker said. “While I think that this is one form of justice, it’s still that reactionary justice that we have to have because so many individuals failed in the first place.”

John Manly, a lawyer for the survivors of Nassar's abuse, on Wednesday called the settlement “historic.”

“This … came about through the bravery of more than 300 women and girls who had the courage to stand up and refuse to be silenced,” he said in a statement. “We appreciate the diligent efforts of [attorney] Mick Grewal and the survivors’ attorneys throughout the nation who worked to obtain this measure of justice and healing. We also thank the mediator and all who participated in crafting this settlement. It is the sincere hope of all of the survivors that the legacy of this settlement will be far reaching institutional reform that will end the threat of sexual assault in sports, schools and throughout our society.”

Nassar is in prison after pleading guilty to sexually abusing Michigan State athletes and scores of gymnasts he examined in his capacity as a doctor for the U.S. gymnastics team. The settlement only applies to those who sued the university.

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