I recently heard from an SLS ’18 graduate that Stanford Law School might consider integrating it’s LRAP program into the federal public service loan forgiveness (PSLF) program. The current 2019 LRAP program manual does not mention this transition, so hopefully it is a long way off, if it is planned at all.
Nevertheless, current students and recent graduates might want a primer on what such a change would mean. In my work, I help borrowers who are hoping to qualify for federal public service loan forgiveness (PSLF) and I’ve also helped other SLS alumni who are enrolled in our LRAP program. Since I’m well versed in both programs, I want to explain both programs and lay out the issues the SLS administration would face if they want to transition to PSLF for future graduates.
The bottom line is that SLS’s current LRAP program is more generous and flexible than PSLF. However, PSLF might save SLS and students some money if they end up with mid-range salaries and they are committed to staying in the program for the full 10 years.
Stanford’s Current LRAP Program
Stanford’s current LRAP program assumes that students will pay off their entire loan balance in 10 years. Stanford calculates the amount you would have to pay each month to pay everything off in 10 years, subtracts an expected contribution based on the your salary, and then gives the you the difference as a lump sum. You can read more about the program here.
Public Service Loan Forgiveness
Public service loan forgiveness is a federal program that will forgive student loan balances on eligible loans after borrowers make 120 on-time payments while (1) enrolled in the right type of repayment plan and (2) working for a 501(c)(3), government entity, or other specified organization.
Generally speaking, borrowers who utilize PSLF will enroll in an income-driven repayment plan, which will peg their monthly payment to their salary, regardless of their loan balance. As a result, loan balances can grow over the course of 10 years. But so long as borrowers stay in eligible employment, the entire balance will be forgiven at the end of the 120 payments.
PSLF vs. LRAP
Here is the simples set of assumptions you can use to compare Stanford’s LRAP program with the federal PSLF program. Here, we assume that the graduate is single and her salary stays relatively low for 10 years. We are assuming she has $150,000 in debt at an average interest rate of 6.8%.
As you can see, Stanford current LRAP program helps the graduate pay down her loans over 10 years. However, the PSLF program is negatively amortizing — meaning the loan balance continues to grow until the borrower reaches the 10th year and gets forgiveness.
(Technically the loan balance under PSLF might not rise quite that quickly because of various interest subsidies, particularly available in the first three years. But the long story short is that the loan balance will grow under PSLF)
Update: When I first posted this, I heard from another recent graduate who explained a little bit more about how SLS is thinking of combining PSLF and LRAP. If I’m understanding correctly, SLS will cap the monthly amount at the PSLF-eligible income-driven plan but will not pay more than they would have paid under traditional LRAP.
If the student ends up with a higher starting salary, this certainly lead to long-term savings, so long as the student abides by all the PSLF rules for 10 years.
I don’t have any more details about how, if at all, the administration would want to integrate PSLF into LRAP. There are numerous issues to consider. But I want to focus on a few of the most important ones.
(1) How would SLS handle students who leave PSLF-eligible employment midway through the 10 year repayment period?
Currently, Stanford’s LRAP program supports graduates who spend as little as 1 year in public service. However, transitioning to a PSLF program would penalize any student who did not stay in public service for at least 10 years unless some type of lump sum payment was available. Because the PSLF program is often negatively amortizing, an alumni could owe more money upon leaving public service than when they graduated.
How will SLS handle students who leave qualifying public service after one, two, five, or even nine years of service?
Currently SLS’s administration believes that even one year of public interest work is worth supporting and they demonstrate that support through LRAP funding on a year-to-year basis. By comparison, other schools require that you stay for a minimum of 3 or 5 years to get LRAP funding.
If the administration still holds this believe, it will need to outline a plan for how handle students who leave a PSLF-based program before they qualify for forgiveness. If SLS no longer wants to support students who wish to spend less than 10 years in public service, then that is a sharp narrowing of the program’s guidelines.
(2) How will SLS handle servicing errors by FedLoans?
I have yet to work with a PSLF borrower who hasn’t had some type of disagreement with FedLoan Servicing, the federal servicer that handles all PSLF-eligible federal loans.
FedLoan’s numerous problems have been documented elsewhere. But for starters, FedLoans frequently miscounts the number of qualifying months and delays processing annual recertifications, causing borrowers to lose months of eligible repayment time. Moreover, FedLoans dings borrowers who try to pay extra onto their loans and are put into “paid ahead” status. The 120 PSLF payments are supposed to be on time, and FedLoans will count it against you if you’re either late or early.
Is SLS prepared to continue paying graduates’ monthly fees if FedLoans’ errors cause a delay in forgiveness? I would bet that at some point in an PSLF-based LRAP program, a student would believe they are eligible for forgiveness, and FedLoans would say that more months’ worth of payments are required.
(3) How will SLS handle students enrolled in private public interest law firms?
Currently the SLS administration supports students who work at private public interest law firms. However, these students would not be eligible for PSLF because a private public interest law firm is not qualifying employment for the federal program. Is the administration still willing to support this type of public interest work with LRAP money? If so, will private public interest graduates stay in the traditional LRAP program while other students are moved over to PSLF? I think this raises many fairness issues.
Again, if the administration no longer wishes to support work at private public interest law firms, that will be another narrowing of the LRAP program.
I wrote this as a primer for people who were interested to learn more about LRAP vs. PSLF. If the administration decides to to move in the direction of a PSLF-based LRAP program, I want students to be conversant enough in the issues to get answers to these questions.