Michigan State University agreed to pay victims $500 million in May 2018 as part of the historic Larry Nassar settlement.
The university is settling lawsuits brought by 332 victims of Dr. Lawrence G. Nassar, a former associate professor and doctor who was convicted of sexually abusing hundreds of young girls and women. He is now in federal prison serving a sentence of 40 to 125 years.
The terms of the settlement include $425 million paid to current claimants, and $75 million set aside in a trust fund to protect “any future claimants alleging sexual abuse by Larry Nassar,” according to statement by Michigan State University.
According to board members of Michigan State University’s governing board, the university does not know how it is going to finance the massive $500 million Nassar settlement.
The university had already been facing financial pressure for several years due to deep budget cuts. Students are concerned that with the $500 million Nassar settlement, tuition costs will rise along with increased fees for campus facilities.
University officials are currently investigating whether the university can receive payouts from past insurance companies that had employment practices liability and other types of insurance policies in place during the time Nassar’s attacks occurred. One such company that will have to pay a portion of the settlement is United Educators, which is the current primary insurer for the university.
In addition to receiving funds from insurers, university officials are reportedly exploring the bond markets for financing options. Moody’s Investor Services, a bond credit rating business, recently downgraded Michigan State’s credit rating by one notch-to Aa2-and maintained a negative outlook. Moody’s has noted that the university had “undisclosed” insurance coverage and $1.5 billion in unrestricted monthly liquidity at the end of 2017 that would be used for legal expenses and restitution payments.
Penn State University is reportedly still seeking reimbursement for some expenses from its insurer following its $250 million settlement in the Jerry Sandusky case. Penn State officials stated that any expenses not covered by its insurer are being funded from interest payments that the university has made to its self-supporting units.
In 2011 the Michigan Legislature enacted steep budget cuts to state aid for higher education which has caused the Michigan State to routinely raise tuition costs for students.
Even though Michigan State Interim President John Engler has indicated to students that tuition will not be raised, it remains to be seen how the university is going to finance the largest settlement in school history.
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