Loan Repayment Programs

LRAP FACTORS

CONSIDER …

MICHIGAN LAW INCOME-BASED DEBT MANAGEMENT PROGRAM

Who

• Which class years are eligible?

• Program is open to all Michigan Law JD entering classes ≥ 1984.

IBR-Required?

• Is enrollment in the US Department of Education's Income-Based Repayment (IBR) program required?
• If it is not an IBR-based program, how is the outstanding debt in its entirety retired or forgiven (and by whom)?

• Yes, enrollment in federal IBR, PAYE, or REPAYE is required for all eligible debt (except for non-citizens).
• Graduate must be eligible for federal IBR, PAYE, or REPAYE using only loans received to attend Michigan Law.
• Government grants forgiveness for entire IBR loan, if all terms met, after 10 years for public interest and 20 (PAYE) or 25 years (IBR/REPAYE) for private employment.

Federal Income-Driven Repayment Plans

Loan Forgiveness

Latest Entry into Program

• What is the entry deadline (as flexibility will generally work to your advantage)?
• Are extensions available?

• Graduate may enroll any time within 5 years of graduation, subject to meeting application deadlines.
• Extension for a judicial clerkship (usually 1 or 2 years) is automatic.

Maximum Number of Years Participation

• What is the maximum number of years you can participate in the program?
• What happens when you wish to return to the program but had to exit it because you changed job, started a family, or experienced some other major life event?
• Is there a set end date for eligibility, i.e., 10 years after graduation?
• Is there a requirement for consecutive years of participation? 

• Alum may participate in the program for 10 years, but they need not be consecutive.
• Alum must enroll within 5 years of graduation.
• The combined effect of the latest entry date (≤ 5 years graduation) and non-consecutive 10 years of participation work in tandem to create the scenario that our support could be available to an alum over the 25 year course of some payment plans.

Eligible Jobs

• What legal job sectors and jobs are eligible? 
• Is a public interest job required?  If so, how is "public interest" defined? 
• Is private/for-profit employment eligible?
• What is the specific language for eligibility:  "JD required," "JD preferred," or some other phrase?  How is it defined?
• What jobs are likely to need case-by-case review for eligibility?
• Is there a difference between the IBR and LRAP's definitions of "public interest"?  Is it possible your job is eligible for one but not the other?
• Are other kinds of employment eligible – part-time, self-employment, or volunteer?

• All sectors (not-for-profit and profit) of the legal profession are included – academic, business, government, private practice, public interest.
• JD is required. Exceptions are granted through appeal.
• The job must be full-time and paid.
• Career (i.e., permanent) clerkships are eligible.

Excluded Sectors/Jobs

• Is there a risk that a future job relevant to your interests is excluded?

• No JD-required, full-time, permanent job is excluded.

Judicial Clerkships

• Are clerkships excluded or included?
• Do clerkships trigger an extension of years of eligibility or entry date?
• Are there special circumstances for a clerkship to be considered an eligible job, e.g., a restriction on the kind of post-clerkship job?

• Career (i.e., permanent) clerkships are eligible.
• Term clerkships (generally temporary) are excluded but still eligible for IBR.
• Entry into the program is extended for clerkships (usually 1 to 2 years).

Part-time, Self-, and Other Employment

• Are part-time employment and self-employment eligible jobs?  If so, are there any conditions that apply?

• Self-employment is eligible (consistent with other program requirements).
• Part-time and temporary jobs are excluded.

Full Coverage

• At what salary will you have virtually no out-of-pocket costs?

• A salary at or below federal GS-11 base rate (the General Schedule pay rate for entry-level federal attorneys), currently about $55,000, will result in virtually no out-of-pocket costs for the graduate.

Cap

• What is the maximum salary still eligible for participation?  The higher the cap, the longer you'll be able to participate in the LRAP.
• How does the LRAP provide support over the upper ranges of income – continued full coverage, a sliding scale, a limited range of salary covered?

• The salary cap is 175% of federal GS-11 base rate (~$96,600).
• Coverage is provided on an income-based sliding scale up to ~$96,600. See details in "Factors Considered" within the Benefits & Coverage section.

Eligible Loans

• Is there a highly restrictive list of eligible law school education loans? If so, it may be difficult to receive a useful benefit.
• Are other loans eligible, e.g., educational (private, joint degree programs, undergraduate), private (bar-related, computer, others)?
• Are international students eligible?

• Direct (subsidized & unsubsidized) & Grad Plus taken for Michigan Law education (the loans most of our students obtain) are eligible. See also the lists of eligible and ineligible loans for each federal loan repayment plan.
• Bar-related loans ≤ $8K are eligible.
• Private educational loans are eligible if taken due to visa status.

Loan Repayment FAQ

Eligible Loans for Each Federal Repayment Plan

How Often

• How are entry and re-entry into the program handled?  Is re-entry prohibited or conditions placed on it?
• Are there penalties for exiting the program that require repayment of money loaned prior to the current year?  What is the interest rate?

• Participant may enter and exit the program as needs change, subject to deadline dates.
• No long term commitment to remain in LRAP. No penalties.
• However, the graduate benefits from remaining in IBR because of debt forgiveness by the government.

Negative Amortization (or What Was Happening to All That Unpaid Interest?)

• How does the plan address negative amortization (i.e., when the required federal IBR payments for the loan do not cover the accruing interest)?  Negative amortization is most relevant on exit and re-entry to IBR and LRAP programs.

• On a sliding scale based on income, Michigan Law places funds annually into a reserve to account for the unpaid interest.
• Alum can request a one-time disbursement from the reserve account up to five years after leaving the program (and prior to loan forgiveness).
• Disbursement funds are sent directly to the alum's federal loan servicer.

 Income-Based Debt Management 

Deadlines During the Year

• What are the application deadlines?  Programs may have limited flexibility in accepting late applications due to their own need for financial planning and budgeting.

• May graduates apply by November 1.
• December graduates receive a one-time opportunity to apply (by May 1) to receive interim coverage until the November 1 application cycle.

Factors Considered in Determining the Amount of the Benefit

• Whether and how the LRAP accounts for
  • your spouse's income
  • your spouse's educational loan payments
  • assets (yours and/or your spouse's)
  • dependent care and costs
  • other debts
  • past activities

• Tier 1: Graduate pays $0 at federal GS-11 pay rate (~≤ $55K).
• Tier 2: Graduate pays increasing share of principal & no interest from ~ $55K to ~$82K).
• Tier 3:  Graduate pays all but a little of the IBR payment on a sliding scale from ~ $82K to ~$96K.
• Reserve account is created to account for unpaid interest.
• Only the participant's income is used to calculate the IBR payment level that determines program coverage.
• Even if the participant files a joint tax return and, thus, has a higher federal IBR payment than that derived from a single income, program coverage extends only to that derived solely from the participant's income.
• Program requires notification of changes during the year (e.g., employment, income, loan payments).

Learn more

Negative Amortization

• Is there a program benefit designed to address this issue? 
• Is it one amount for all participants or individually calculated based on your accruing unpaid interest?
• How long does it take to vest? 
• Does the benefit expire at some point?  If so, when?  

• We place funds (on an income-based sliding scale) into an escrow account to offset participant's unpaid interest.
• The account vests after two consecutive years.
• Participants can request a one-time payout within five years after exiting the program.

Annual Forgiveness and Federal Tax Issues

• Is annual funding from LRAP given as a loan or a grant?
• Note that a loan may be non-taxable, but a grant or scholarship in this kind of program is taxable. Programs generally encourage consultation with a tax advisor to confirm whether forgiveness is taxable or non-taxable.

• The benefit is an annual interest-free loan from Michigan Law that is forgiven at the end of that calendar year, provided all terms are met.
• The program includes a recommendation to consult a tax advisor.

Family Care Leave

• What events may provide for a family care benefit?
• Is the benefit tied to employment?  In general, LRAP coverage is dependent on the participant's employment (requiring near full-time, paid leave to continue receiving the benefit).
• If deferral is available, does the program likewise extend your years of eligibility for coverage (or does the deferral "use up" some years of eligibility)?

• Alum must be on leave at full salary with the employer to remain eligible for LRAP.
• Alum is eligible to resume participation in the LRAP whenever the unpaid leave from employment is over.
• The ten year clock of eligibility is paused during times of unpaid leave.
• Note: If participant's employer requires long-term unpaid leave, participant may still seek a possible reduction in federal IBR payment with their federal loan servicer.