What happens if SLS considers integrating its LRAP program with federal public service loan forgiveness?

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.

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(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.

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Particular Issues

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.

Conclusion

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.

5 Questions to Ask if Your Company is Considering a Student Loan HR Benefit

Recruiting and retaining top talent means offering a competitive benefits package, and increasingly that means offering a student loan benefit. However, in my conversations with EAP providers and others in the HR benefits industry, I find that few groups are familiar with the ins-and-outs of the various benefits and platforms available.

In the coming weeks, I will be writing more about what to look for when analyzing student loan benefits platforms. But before beginning the procurement process, companies should do some introspective work to figure out what they might be looking for.

Any company considering a student loan HR benefit should ask themselves these questions to get started.

1) What financial resources do you have to dedicate to a student loan benefit?

Student loan benefits range significantly in how expensive they might be. The first thing you need to decide is what type of money you have to invest in a student loan benefit.

If funds are limited, you may want to look at non-monetary options like refinancing partnerships (i.e. contracts with banks that will help your employees refinance to lower interest rates). However, as discussed below, refinancing partnerships come with drawbacks.

Alternately, if you already have a retirement plan in place, one way to lower the net expense is to institute a program that diverts funds from a retirement matching program to a student loan matching program. However, there are tax implications for both the company and the employee to doing so. I’ll be discussing these issues more in depth in future posts.

2) Are you willing to re-write your retirement plan or would you like to keep your student loan benefit separate from retirement savings?

Some companies are making 401(k) contributions based entirely on their employees student loan payments. This match can be an extremely attractive offer from a recruiting perspective. Additionally, this structure can help you keep your expenses low because employees can take advantage of the match either through student loan contributions or through 401(k) contributions, but not both. However, implementing a 401(k)-based student loan benefit requires re-writing your retirement plan and preparing for IRS oversight of the program.

3) Do your employees tend to need better interest rates or better knowledge of the federal programs?

Private refinancing is all the rage in the student loan benefit space. In recent years a swarm of refinancing options have popped up, offering borrowers competitive interest rates that are sometimes 4-5 percentage points lower than their federal student loans. Some companies have partnered with these refinancing entities to offer even more competitive rates to their employees.

To figure out whether you should emphasize private refinancing in your student loan benefit, ask yourself whether your employees tend to need better interest rates or better knowledge of the federal program.

If your company pays competitive salaries in high-demand fields such as technology or law, it is very likely that the majority of your employees will be hoping to pay off their loans as quickly as possible to lower the interest they pay over the life of the loan. If this is the case, a private refinancing partnership will help your employees to save money.

Of course, employees lose access to federal benefits when they privately refinance, so it is not always the best option, even for highly-compensated borrowers. Financial counseling and advice may be preferable to a refinancing option (or an addition to a refinancing option) if your employees would benefit from staying within the federal program.

4) Is stress relief and employee wellness a goal of your student loan benefit?

Twenty years ago, health and physical wellness outside of work were not a concern for HR departments. These days you would be hard-pressed to find a competitive HR department that isn’t thinking through stress, health, and wellness inside and out of the workplace.

Student loans can absolutely be a stressor for the modern-day workforce. 81% of employees with significant student loan debt report being stressed about their financials. 55% of those same employees report being distracted by their finances at work.

If these numbers are concerning to you and you see the student loan benefit as a wellness benefit, be sure to include financial counseling and advice as part of whatever platform you choose. While a monetary benefit can be a huge help, for borrowers buried under a mountain of debt, control and empowerment can be just as needed as a bit of extra cash.

5) Do you want to use your student loan benefit as an incentive for retention?

A student loan benefit can be an opportunity for both recruitment and retention. In an effort to incentivize long-term commitment to a company, some HR departments have offered vesting student loan benefits. For instance, a company might offer to make 20% of a student loan payment in an employee’s first year, 40% in the next year, and so on.

This structure can be a powerful retention tool. Alternately, it can disincentivize new hires who will not immediately reap financial benefits — or anger veteran employees who had to pay their student loans on their own.

Deciding internally how you want to balance the various goals of your student loan benefit will drive your procurement process and help shape your evaluation of the platforms and programs available.

Did the Department of Education Make Up a Legal Risk to Discourage Student Borrowers from Seeking Student Loan Discharges?

Early on in the Trump administration, Betsy DeVos’s Department of Education blocked an Obama-era regulation from going into effect that would overhaul how defrauded student loan borrowers could obtain debt relief.  A few weeks ago, the Department issued its own set of proposed rules that will make relief harder to obtain for hundreds of thousands of borrowers who were either misled by their schools or whose schools closed their doors.

These new changes were widely criticized by borrower advocates, who pointed out that many of the new rules were clearly aimed at protecting for-profit schools rather than average citizens.

However, one part in particular of the proposed rules leaped out at me.  The Department repeatedly claims that borrowers who obtained a closed school, false certification, or borrower defense discharge are at risk of having their official school transcripts withheld.

Withholding a transcript can have a devastating effect on already at-risk students.  A borrower may need that transcript to transfer to another school and finisher her degree, or prove to a potential employer that she’s completed the requisite coursework for a job.  Withholding a transcript can put a borrower’s life on hold and take away the promise that education offered in the first place.

The Department’s assertion that borrowers with discharged loans were at risk of having their transcript withheld came as news to me — and I research the issue of transcript withholding.  My paper on the topic will be presented at a higher education law conference this fall.

According to the Department’s notes,

The proposed regulations also would remind borrowers submitting affirmative or defensive claims that if the borrower receives a 100 percent discharge for the loan, the institution has the right to withhold an official transcript for the borrower, as has always been the case in instances in which the borrower has been awarded student loan discharge through false certification, closed school or defense to repayment discharge.

Sounds like this issue is pretty cut and dry to the Department: schools have always had the right to withhold an official transcript after a discharge.  However, the problem is that I cannot figure out where the Department is getting this assertion from.   And, despite no obvious evidence to back it up, this claim is being used by the Department to threaten scammed student borrowers, discouraging them from obtaining relief.

There are no rules or regulations about transcript withholding in the federal statutes or code of regulations.  Moreover, there is no mention of transcript withholding in the federal student loan master promissory notes, the contracts that govern the student loans that might later be subject to discharge.

Indeed, withholding a transcript has always been seen as a state law issue, one governed by the relationship between the student and the school, not the relationship between the student and the Department of Education.  Transcript withholding only occurs when a student defaults on a debt owed directly to the school such as unpaid library fees or a tuition bill that was never covered by student loans.

Does the Department of Education think that students will end up owing a debt directly to their school when they obtain a discharge on their student loans?  It’s true that the Department of Education is able to seek reimbursement for discharged student loans directly from the school.  For example, when ITT Tech went into bankruptcy, the Department of Education made a claim on the bankruptcy estate for more than $230 million to cover closed-school discharges and borrower defense discharges received by ITT Tech students.

In other words, does the Department of Education think that after paying back the Department of Education schools like ITT Tech have a corresponding claim against the individual borrowers—the ones whose student loans were discharged because of the school’s own closure?  If so, there are some obvious issues with this theory.

This supposed debt is unlikely to hold up in court.  Borrowers would have state unfair and deceptive acts and practices claims.  And equitable defenses would seem particularly appropriate.  When a student is relieved of her obligation to pay a student loan because of her school’s bad behavior, she cannot then be saddled in turn with a debt owed directly to that same school.

Alternately, what if the Department of Education is merely claiming that schools always have the ability to withhold official transcripts and they can choose to do so after a borrower obtains a discharge?  Again, this would be incorrect.

In 2009 the Seventh Circuit addressed a transcript withholding case after a student’s loans have been discharged in bankruptcy.  The Court held that “providing a transcript is an implicit part of the education contract” and that the student had a right to the transcript because, even though she hadn’t paid her school fees directly, the obligation to pay the debt had been discharged.  This case does depend on the state property law at issue, but it demonstrates that the Department of Education is misleading borrowers if this the grounds on which it claims that all schools have always had the right to withhold a transcript after a discharged student loan.

To be honest, I’m not entirely sure what the Department of Education was referring to when it claimed that schools could withhold transcripts after a borrower obtained a student loan discharge.  I have never heard of such a case happening and cannot think of a theoretical basis for it to be true.  Nevertheless, they repeat the assertion 5 times in the notice of proposed rulemaking.  At this point, I have to conclude that the Department is misleading the public to support their agenda of discouraging discharge applications.

 

Is your transcript being withheld because of student loans? Here’s what you can do.

Maurer Law LLC always offers a free evaluation of transcript cases and takes a dedicated number of pro bono transcript cases each month.  You can reach Maurer Law through our contact page.  

Having your official transcript withheld because of student loans can be a huge headache.  Without an official transcript, you can’t get the job or complete the degree you need.  And without the job or the degree, you can’t make the money to pay off your loans.

This Catch-22 is trapping more and more people.

In fact, the Ohio Attorney General’s collections unit has more than 300,000 active university accounts — that’s almost 3% of the entire population of Ohio.  And many of those collections can result in a withheld transcript.

Unfortunately under current law a university does have the right to withhold your transcript in many circumstances.  If you are caught in this situation, there are a few things you can do:

1. Talk to your employer or new school about accepting an unofficial transcript

Under federal education records law, you are entitled to an unofficial copy of your transcript, regardless of the status of your student loans.  Talk to your new employer or new university about accepting an unofficial transcript instead.  If they’ll accept it, make a written request for your unofficial transcript from your old registrar’s office, being sure to cite the Federal Education Rights and Privacy Act (FERPA) in your letter.

2. Negotiate a payment plan

Withholding the transcript is always at the discretion of the university.  There are no laws mandating that a university withhold a transcript.  As a result, some universities may be willing to release your transcript if you speak with them and enter into a payment plan on your loans.

3.  Consider bankruptcy 

If you are already considering bankruptcy, mention that your transcript is on hold when you speak with your bankruptcy attorney.  Because withholding a transcript is a method of debt collection, universities are generally not allowed to continue holding onto your transcript once you file a bankruptcy petition.

Of course, entering bankruptcy is a big decision and should not be entered into lightly.  A bankruptcy attorney can help you help you assess whether bankruptcy makes sense for your overall financial health.

Maurer Law LLC does not offer bankruptcy evaluations, so if you are considering this route, you may want to reach out to a bankruptcy attorney.

4.  Speak with an attorney

There may be other options for you to consider depending on your exact circumstances. Maurer Law LLC always offers a free evaluation of transcript cases and takes a dedicated number of pro bono transcript cases each month.  

DISCLAIMER: THIS BLOG POST IS NOT LEGAL ADVICE AND DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE READER AND MAURER LAW LLC.  SEEK LEGAL ADVICE IF YOU HAVE PARTICULAR QUESTIONS ABOUT YOUR STUDENT LOANS

In honor of Teacher Appreciation Day, some thoughts on teachers and student loan debt

Teachers are some of the lowest paid professionals in the country.   According to the National Education Association, the average starting salary for the 2016-2017 school year was $38,617.  In Ohio the average starting salary was even lower at $35,249.

At the same time, a focus on credentialing within teaching has lead to many teachers having to take on more and more debt to get advanced degrees.  According to a 2014 report authored by Jason Delisle when he was at the New America Foundation the average Masters of Education student has $8,879 more in debt than MBA graduates, coming in with an average loan debt of $50,879.

Yes, there are some specialized forgiveness programs for teachers.  One program covers FFEL and Direct Loans while Perkins loans have a separate loan forgiveness program.   Some teachers may be eligible for public service loan forgiveness.

These forgiveness programs don’t fix the problem that we are expecting teachers to take on too much debt for too little pay.  That’s why I support efforts to increase teacher pay and reign in the cost of tuition.

 

The Definitive Yale/Harvard/Stanford LRAP Comparison

I had the immense privilege of going to Stanford Law School.  When I began to be known among my friend group as knowledgable on student loans, I started to get requests for student loan consultations from other SLS alums as well as our peers at Harvard Law School and Yale Law School.  This has given me an on-the-ground insight into the three schools’ LRAP programs, which are an immense draw for students thinking of pursing a public interest career.

Understanding the different LRAP programs is fairly daunting for many admitted students and there is a lot of information to sort through.  This post aims to compare the most important issues that I see arise for alumni based on the current program implemented at each school (at Yale, for instance, the program may differ depending on your graduation year).  If you have other concerns about the LRAP programs, please let me know and I will supplement this post as best I can.

Of course, anybody in the position of choosing between these programs is already quite lucky.  Each one of these is substantially more generous than any other LRAP program out there.  As we get into the weeds, please keep in mind that I know having to compare these programs is a problem for only a few lucky people.

Eligible Employment

To enroll in LRAP at each school you must have full-time qualifying employment.  Qualifying jobs differ across the schools

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Stanford excludes academic jobs such as LRW positions from LRAP, whereas Yale and Harvard do not.  Clinical positions should qualify under all three plans.

Award amount

How much you will get under an LRAP program is a function of (1) your eligible loans; (2) the payment plan the school calculates for your eligible loans; and (3) your expected contribution.  We tackle each of these in turn.

(1) Eligible Loans

Generally speaking the three programs cover the following loans:

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(2) Payment Plan

How much money you get through LRAP depends on how much the school thinks you should have to pay every month.  Each school calculates this monthly payment amount a little bit differently.

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Because Harvard always bases its award on the plan you are actually enrolled in, if you are in a plan with a lower monthly amount than the 10-year standard, your award will decrease accordingly.  This can hurt alums who have to make a substantial contribution on their own.

Yale makes up its own numbers.  It artificially calculates a non-existent 15-year fixed repayment plan and gives you an award based on that monthly amount for the first 5 years.  In the second 5 years of the 10-year LRAP program, it calculates a 5-year repayment plan to pay off your remaining balance.  In other words, Yale’s award will most likely be quite a bit lower than either Harvard’s or Stanford’s for the first 5 years.

(3) Expected contribution

Once your school has calculated your expected monthly payment, the school then calculates how much it expects you to contribute.  Each school expects you to contribute a particular amount based on a percentage of your adjusted or gross income.  Here are the calculation tables according to each school’s program handbook:

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Which looks a little bit like this side-by-side:

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Harvard starts out expecting a much higher contribution.  Yale and Stanford start neck-and-neck, but then Yale’s program expects marginally less at higher income levels.

Your actual LRAP award will be the total expected amount minus your personal contribution.

Compensation for Tax Liability in the Private Sector 

One issue I see come up often is the effect of employment at a private-sector employer.  Alumni who do not work for a 501(c)(3) or the government will be taxed on the LRAP income their receive.  Stanford and Harvard try to offset this tax liability by increasing the award.  Yale does not.

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Transition between jobs

Luckily each program gives alums some grace period when transitioning between jobs. Harvard’s program is slightly less generous on this front, but all three programs offer some cushion.

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Clerkship Loans 

Many HLS/SLS/YLS students hoping to take advantage of LRAP programs may take 1-2 years to clerk and then hope to transition to public interest employment.  Harvard and Stanford prohibit using LRAP money to cover loans if a student is going to private-sector (i.e. firm) employment afterwards.  However, both will offer loans to students that will then be forgiven if the student goes from the clerkship to eligible public interest employment.

YLS alums can use their LRAP for clerkships, but the LRAP money is not actually forgiven.  Instead, that money is yet another loan that is added to the borrowers accumulated debt.  After the clerkship, if a YLS alum enters qualifying employment, the clerkship loan will be included in the debts to be paid off over the course of participation in the program.

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Spousal Income 

Last but not least, spousal income.  Stanford and Harvard have a straight forward approach.  They take greater of (a) his or her individual income; or (b) half the joint income.

Yale, on the other hand, will consider the joint income of the borrowers minus the spouse’s own education loan debt payments and minus $40,000.  This can hit borrowers whose spouses have higher incomes particularly hard.  (However, if both spouses are enrolled in LRAP, Yale consider’s half the joint income).

Conclusion

While I may be biased, I think the bottom line is that SLS has the best LRAP plan.

Harvard’s program expects a relatively high contribution early on and has less flexibility on repayment plans.

While Yale has an immense amount of employment flexibility, it does not provide the additional tax benefit to private-sector employees that SLS and HLS students get.  Additionally, Yale’s clerkship program and 15-year/5-year amortization schedule, clerkship loan program, and treatment of spousal income is not as generous as Stanford’s and hits young alumni particularly hard.