Non-Profit Pilots Innovative Law School Funding Model to Alleviate Student Debt Burdens and Promote Career Choice for Graduates

Stanford Law School recently announced it would begin piloting a new tuition financing method for law school students in partnership with a 501(c)(3) nonprofit called The Flywheel Fund for Career Choice. In an effort to alleviate student debt concerns and allow for students to have greater choice in seeking out legal careers, the Flywheel fund has created safeguards around repayments for both lower and higher-income earners.

The pilot program, set to commence this fall, will include up to 20 Fellows who are current students at Stanford Law and have not yet committed to employment post-graduation. The Fellows will receive up to $170,000 up-front to pay for law school tuition and fees, which will be funded by philanthropic donations to the organization. Repayment will begin when the Fellows start their chosen employment post-graduation.

The terms of the pilot program include the following:

• A 12-year payment term, with a maximum of 18 years.

• Fellows will not pay anything until they have started employment (no payments will be requested during any period of unemployment post-graduation).

• Repayment is tied to income, with special consideration given to both low and high-income earners. For Fellows earning less than $100,000 per year, Stanford has agreed to cover all payments. For those earning between $100,000 and $115,000, Stanford will cover partial payments. A cap is also in place for those who opt to take high-income positions, ensuring that payments are never out-sized. The cap is placed at $225,000 per year/$18,750 per month, and Fellows will not be asked to pay a percentage of their income beyond that level.

• Fellows will never need to repay more than they would have if the Fellow had taken out a Grad PLUS Loan at the rate in effect at the time they entered into the pilot program.

• Fellows will also take part in ongoing research on the various factors, including debt, that go into shaping their career selection decisions.

 “We believe this new model for financing a legal education can alleviate financial pressure, encourage students to pursue alternative careers more quickly after graduation, improve our LRAP [Loan Repayment Assistance Program] program, and have a ‘greater good effect’ in terms of helping to finance the legal education of future students at Stanford Law School,” said Frank Brucato, Senior Associate Dean for Administration and the CFO at Stanford Law School.

Biden to Announce Student Loan Debt Relief for Earners Making Less than $125K

According to the New York Times, President Biden is expected to announce today that his administration will cancel $10,000 in student loan debt for Americans earning $125,000 or less per year (or households earning $250,000 or less per year). The administration will also extend the payment moratorium until December 31st of this year, with borrowers expected to resume payments in the new year. 

Along with this announcement, the President is expected to report that college Pell grant recipients will receive an additional $10,000 in debt forgiveness. 

Legal challenges to the loan forgiveness program are expected, which may make the timing for implementation uncertain. 

Biden Administration Remains Under Pressure to Move Forward with Student Debt Cancellation

On May 1, 2022, which is just three months away, federal student loan payments will resume. This comes after a two-year period during which borrowers could choose whether or not they would make payments. As the date nears, the Biden administration is under pressure to make good on campaign promises to reduce student debt for millions of Americans with federal loans. Last week, 85 Democratic members of Congress sent the President a letter urging him to, “...direct the Department of Education to publicly release the memo outlining your legal authority to broadly cancel federal student loan debt and immediately cancel up to $50,000 of student loan debt per borrower.”

But it is still unclear how President Biden will move forward. During his campaign, he promised to forgive up to $10,000 per student loan borrower, but he has since expressed hesitancy to extend loan forgiveness to those attending elite schools or who obtained professional graduate degrees, and have strong repayment prospects. In a press conference last month, President Biden declined to comment on a question about student loan forgiveness. 

An article in the Wall Street Journal speculates that the Biden Administration may opt to forego blanket debt forgiveness for an alternative path, “...by starting a regulatory process, complete with input from stakeholders, to set up a debt-forgiveness program that targets people most in need.” This path may allow the administration to avoid a potential Supreme Court battle that an Executive Action may spur.

In the meantime, the administration has moved forward with more targeted loan-relief initiatives, such as a revamp of the long-standing Public Service Loan Forgiveness (PSLF) program. This would allow those who have worked for a public or nonprofit organization, and also made monthly payments for a ten-year period (120 payments) to have their loans forgiven. A revamp is exciting for current business, medical, and law students who wish to go into public service, and necessary. The original program, which dates back to 2007, burdened participants with bureaucratic hurdles, and only provided benefits to a small percentage, about 16,000 out of 1.3 million. 

Elite Law Schools Provide Best Return on Investment

A Wall Street Journal analysis of federal student loan debt recently showed that elite law programs can offer the best return on investment to graduates. Among the top 20, the debt-to-income ratio averaged out to 1.0, which means that graduates were making a salary just two years out of school equal to what they had accrued in debt; the range in debt to income ratio among this elite group spanned from 0.7 at Stanford  to 1.36 at Georgetown University. 

Of note, this analysis only includes the salary and student loan debt for students who took out federal student loans and does not include private loans. The analysis reviewed the federal student loan debt accrued in 2015 and 2016 compared to the graduate’s salary two years later. 

*17 schools ranked within the top 20 were included in the Wall Street Journal analysis; Yale, Duke and Cornell were not included

More broadly, however, the Wall Street Journal found that most law degrees, excluding those from elite programs, have decreased in value over time as inflation has outpaced salary, all while tuition prices have risen dramatically. The article notes that between 1985 and 2019, adjusting for inflation, the average annual tuition for a private law school has nearly tripled according to advocacy group, Law School Transparency. And, within this context, salaries have not jumped as significantly.

According to the National Association for Law Placement, starting law salaries generally fall within two clusters: $45,000-$75,000 for public service and small firm attorneys and around $190,000 for attorneys at large firms. And, according to a Law School Transparency analysis using American Bar Association data, more than half of the entry-level jobs at the large and high-paying firms go to graduates of the top 20 ranked law programs.

Prospective law students should take into account a law program’s cost as well as the expected median salary for graduates during the school selection process. Additionally, for those students who hope to go into public service or work for a smaller firm, it may be beneficial to compare the costs and outcomes for various public and private law school options, as well as debt repayment plans that may be available for different career tracks. Similarly, those hoping to obtain a place at a large and high-paying firm should look at placement outcomes at law schools of interest to best position themselves for success. 

Related blogs:

15-Year Law School Experience Study Shows Changes in Student Demographics and Debt, Consistency in Student Satisfaction with Legal Education

ABA Report Calls for Action to Help Young Lawyers Struggling with Student Loans

MBA Programs Position Graduates Well to Repay Student Debt

A Wall Street Journal analysis of federal student loan showed that graduates of almost 98 percent of MBA programs in the US made more money in salary within two years than they had accrued in debt for their degree. At the most prestigious of programs, such as Harvard Business School and Stanford’s Graduate School of Business, over half of graduates were able to repay their federal loans within two years of graduation.

It is important to note that this analysis only includes the salary and student loan debt for students who took out federal student loans. Many students also take out private loans at lower interest rates. Harvard’s Managing Director of MBA Admissions, Chad Losee, confirmed that over half of Harvard’s 2020 graduates (56 percent) graduated with debt, and that the average was $79,000 in combined federal and private loans. 

The high rate of return on investment for MBA programs may be attributed to the fact that many MBA students come into the program with work experience, which drives up the starting salaries they are offered at graduation. Additionally, many who work in high-paying industries such as finance and consulting tend to gravitate towards the degree, and return to those or other high-paying industries. 

Tuition costs and potential debt load, as well as possible starting salaries and cost-of living post-degree may be easy to overlook at first, but they are important to consider during the school selection process. 

Related blogs: Student Loan Forgiveness Receives New Attention Under the Biden Administration

Student Loan Forgiveness Receives New Attention Under the Biden Administration

Debt is top of mind for graduate students. A Bloomberg Businessweek survey found that among 2018 graduates of prestigious MBA programs, almost half had borrowed at least $100,000 to finance the degree. The American Medical Association has long advocated for legislative action intended to ease the burden of debt on medical providers, and the American Bar Association released a report in 2020 detailing the negative impact of student debt on young lawyers’ mental health and calling for greater legislative advocacy on students’ behalf.

Late last week, when President Biden signed into law a covid relief package, he also removed a critical impediment to enacting broad-based student debt forgiveness. The bill contains a provision that allows any loan cancellation acquired between December 31, 2020 and January 1, 2026 to be excluded from taxable income. Previously, debt forgiveness (including Public Service Loan Forgiveness) was treated as additional income and taxed as such, with few exceptions. This update ensures that recipients of student debt relief are not left with large tax liabilities and are also not thrust into new tax brackets, with associated implications, due to debt cancellation.  

The counting of debt forgiveness dollars towards taxable income was a primary obstacle to broad student loan forgiveness programs. With the update now signed into law, Congressional Democrats led by Elizabeth Warren and Chuck Schumer, as well as 17 state attorneys general and consumer rights advocates are calling on President Biden to take executive action to cancel $50,000 in federal student debt per borrower. Despite this pressure, the President does not support loan forgiveness at this amount for every borrower, which he directly expressed in a CNN Town Hall last month, as it would aid people who attended elite schools or obtained professional graduate degrees and have strong repayment prospects. The Biden Administration has noted that cancelling student loans above $10,000 should be dependent on the type of loan and current income of the recipient. The President does, however, support $10,000 in blanket, federal student loan forgiveness, and he has urged Congress to legislate this action. Legislative action, he argues, will make it harder to undo. Meanwhile, he has ordered a Department of Justice review to clarify if he has the authority to cancel student loan debt via executive action. This review will be done with the White House Domestic Policy Cancel, who will also consider the best way to target loan cancellation.

While the loan forgiveness policies under consideration would not directly benefit borrowers with private or commercially held student loans, those borrowers could still benefit from the tax relief provision included in the covid relief bill. Marketwatch notes that it may help borrowers benefit from current loan relief options provided by public or private lenders as a response to the pandemic.

In an interview on student debt with the AMA, Alex Macielak, who works in student-loan refinancing, urged students to pay attention to the political discourse, “There’s a new administration. Student-loan debt is a hot topic, ... There’s been talk about forgiving loans for some people. However, how much, who would be eligible, and other important details are still in doubt. So, monitor the legislation and debate, because student loans are consistently evolving.”

ABA Report Calls for Action to Help Young Lawyers Struggling with Student Loans

A study released this week by the Young Lawyers Division of the American Bar Association (ABA) shows that student debt is impacting law graduates’ lives and mental health. The survey, which included responses from 1,084 law school graduates from the last ten years, found that not only are almost all law school graduates impacted by student loan debt, but that it affects them personally and professionally. The study also found that lawyers of color were disproportionately impacted.

Just over 95 percent of survey respondents took out student loans for law school and more than 90 percent of respondents graduated from law school with at least $65,000 in student debt. The mean loan balance post-JD was $164,742, which includes undergraduate loan balances averaging $17,512. Notably, while about a quarter of white respondents hold over $200,000 in debt at graduation, this proportion increases to at least one third among Asian, Black, Hispanic, and Multiracial respondents.

For many, these loans also grow over time, with the reported current mean loan balance ($171,036) slightly higher than the mean at graduation. Most respondents reported that their loans were higher or the same as they were at graduation; 40.4 percent of respondents reported higher and 11.7 percent said the same. Among Black respondents, however, a staggering 67 percent reported higher debt now than at graduation. Even among the more tenured lawyers, those who graduated before 2014, 45.4 percent have higher levels of student debt currently than at graduation. Though the report acknowledges that there may be reasons explaining the increased debt, including strategic repayment plans, loan forgiveness plans, and/or unemployment, it illustrates the structural burden of such high debt.

Almost all respondents, 89.8 percent, reported making at least one personal decision based on debt. Over half of those surveyed postponed or opted not to take a vacation (58.3 percent) or postponed or decided not to buy a house (55.6 percent). More significantly, almost half of respondents, 48 percent, postponed or decided not to have children due to their debt, while about 28.8 percent postponed or decided not to get married.

Professionally, 37 percent chose a job that paid more money over a job that they really wanted, and 33.5 percent took a different career than originally expected. Among those lawyers working as corporate counsel or in private practice, over 40 percent (43.2 and 42.1 respectively) said that they took a job that pays more instead of a job that they really wanted. Similarly, large proportions of those working in government/military and public sector/non-profit (63.8 percent and 50.9 percent respectively) chose a job that qualified them for loan forgiveness over a job that they really wanted. 

Perhaps most importantly, the report calls out the emergence of mental health as a theme in the responses of survey participants, despite participants not being prompted to discuss their mental health. The survey included an open-ended question that asked how student debt has impacted respondents’ lives, and the responses consistently mentioned stress, anxiety, mental wellness, depression, and anger. The report summary noted that the responses were “jarring” in both content as well as the frequency in which mental health and related issues were mentioned.

The ABA calls the report “a call to action” and urges a new approach to student loan advocacy, stating that if changes are not made soon, entering the profession could become cost prohibitive.

Despite Significant Debt for Graduates of Elite Business Schools, the Return on Investment for an MBA is High

Earlier this month, the Wall Street Journal reported that MBA graduates from the classes of 2016 and 2017 had an aggregate federal student loan burden of $3.7 billion, an average of $39,900 per student, according to data from the United States Department of Education. Graduates of elite MBA programs held even more significant debt on average. Northwestern’s Kellogg graduates averaged $116,420 and NYU’s Stern graduates averaged $105,931; similarly, alumni of Yale University’s School of Management, Chicago Booth, and UVA Darden all had average debt between $85,000 and $100,000. Notably, these data points only include federal loans and not money obtained from the private loan market, suggesting that the estimates do not represent the full debt load.

A Bloomberg Businessweek Survey on MBA debt was also released earlier this summer with similar findings. The survey, which included the responses of more than 10,000 2018 MBA graduates globally, found that close to 50 percent of students at top business schools had borrowed at least $100,000 to fund their MBA. Among the top U.S. programs, a minimum of 40 percent of the MBA graduates at Duke, Dartmouth, University of Michigan, Cornell, and University of Chicago said that they had taken on at least $100,000 in debt. The percentage was lower at MIT, University of Pennsylvania, NYU, and Northwestern, at around one-third of graduates.

The same Wall Street Journal article notes that “The cost of a traditional two-year MBA has more than doubled since the global financial crisis sent droves of college graduates back-to-school starting in 2008, to an average of $30,100 a year in 2016, according to the latest figures available from the Education Department.” Currently, however, according to the U.S. News and World Report, the tuition for the top 15 ranked two-year full-time MBA programs in 2019 exceeds $50,000, with some priced higher than $70,000.

Even if this summer’s announcement that Harvard Business School and the University of Chicago Booth will freeze tuition for the upcoming school year portends a broader slow-down in tuition hikes, the cost of an MBA will remain significant. Despite the high cost, however, the MBA has still been shown to have a strong return on investment. Last year, QS Quacquarelli Symonds, a data and research company specializing in education, released findings from its Return on Investment Report for the full-time MBA, which include:

• The average global ten-year ROI of an MBA is $390,751, which accounts for tuition, cost of living, and foregone wages. The highest ROI is found at Stanford at $1,023,150, the only school to enter seven-digits.

• The average global payback time is 51 months. Europe offers the quickest return at 39 months versus 55 in North America, which is likely due to shorter program lengths.

• The U.S. is home to 19 of the top 20 schools for highest post-MBA salary. The global average is $79,829 ($89,037 in North America) and Stanford is at number one with an average of $140,600.

• North America also has the highest average salary increase at 74 percent.

While the prospect of taking on large debt as an investment in an MBA shouldn’t necessarily deter prospective students, the means for financing the degree should be considered as thoughtfully as the school selection.

Top Medical Schools Take on Student Debt in Bid to Increase Diversity and Encourage Broader Specialty Selection

Recently, Washington University in St. Louis announced that it was going to commit $100 million over the next ten years for scholarships for medical students and to “enhance and modernize the school’s medical education program.” Up to half of the program’s future students will be able to attend the school tuition-free, with many others receiving partial tuition support. The program will begin with the 2019-20 entering class.

Washington University is the latest in a string of schools working to reduce the student-debt burden associated with medical school. Last August, New York University Medical School shocked and delighted students when it announced that all current and future medical students would be attending tuition-free. Kaiser Permanente, the following February, made a similar offer for its first five graduating classes. Additional schools, including Columbia University’s Vagelos College of Physicians and Surgeons and the David Geffen School of Medicine at UCLA also have created substantial scholarship funds to ease student loan burdens.

The rising cost of medical school debt negatively impacts not only medical students but also the greater public. Students graduating from public medical school programs carry a mean debt of just under $189,000, while those graduating from private medical schools have a mean debt closer to $209,000. This debt load can impact many aspects of public health, including deterring promising students from entering medical school, encouraging those in medical school to opt for higher paying specialties post-graduation, and creating higher stress and lower wellbeing for physicians and those in training. In late April, the AAMC published updated physician shortage numbers, with the projected shortfall of primary care physicians, a lower-paying specialty, ranging between 21,100 and 55,200 by 2032.

The schools offering reduced and tuition-free opportunities for their students believe that reducing student debt will encourage a more diverse applicant pool as well as empower graduates to pursue a broader range of medical specialties. “For most medical students, debt is a significant factor in selecting a school and a career path,” said Eva Aagaard, MD, Senior Associate Dean for Education and the Carol B. and Jerome T. Loeb Professor of Medical Education at Washington University in St. Louis. “We want to help alleviate that financial burden and instead focus on training the best and brightest students to become talented and compassionate physicians and future leaders in academic medicine….This is an investment in our students and in our institution, as well as in the health of St. Louis and the greater global community.”

 While many schools have adjusted their admissions processes to attract more minority applicants, using a combination of pipeline programs, more holistic admissions standards, and a focus on diverse representation on admissions committees, the problem has thus far remained. “From 2014 to 2018, the percentage of black students enrolled in medical school rose from 6 percent to 7.12 percent, according to the AAMC. Additionally, Latino medical students increased from 5.3 percent to 6.4 percent of total enrollment while Native Americans still account for less than one-half of a percent of all medical students.”

While it is still too early to gauge success, NYU has seen promising results in its first application wave since it eliminated tuition. While overall applications to medical schools in the United States have increased by 47 percent, African American, Hispanic and American Indian applicants only increased by two percentage points. At NYU, however, almost 9,000 applications were submitted for the 102 seats in the 2019 incoming class. There was a 103 percent increase from the previous year in applicants who self-identify as disadvantaged, a 140 percent increase in black applicants and a 40 percent increase in Pell Grant recipients. Dr. Rafael Rivera, Associate Dean for Admission and Financial Aid at NYU said, “The accepted pool that we have thus far reflects increased diversity in socioeconomic status, which is an important facet of diversity in the physician workforce that hasn’t gotten the attention it deserves.”

 The other objective of tuition-free and reduced medical school programs is the freedom that it affords graduates to select less lucrative specialties or career paths. The relationship between student debt and specialty preference is well-documented. An article reviewing research on the impact of student debt on primary care physicians, included references to a 2012 study that showed students with larger amounts of student debt are “more likely to switch their preference for a primary care career to a high-income specialty career over the course of medical school” as well as a 2016 qualitative study which found that, “students described their debt as making them feel more cynical, less altruistic, and entitled to a high income.” These findings suggest that reducing the debt, through reduced tuition or increased scholarships, will positively impact graduating students’ ability to select a specialty based on preference rather than need.

 Though only time will fully show the impact of these schools’ commitments to reducing student debt on the physician workforce, there is reason for optimism about the benefits that will be seen for medical students, physicians, as well as the public.