The Straight Dope on COAP
One of the hazards of allowing a thirty-something to blog is that you have to read posts that use phrases like "the straight dope." As we learned from my last post, however, sometimes the straight dope is exactly what you need to navigate the law school admissions process, and this time I am going to lay it out for you with regard to loan forgiveness programs.
To rewind a little bit, I mentioned in my last post the benefit of law schools adopting policies that are aligned with student interests. Recently, two Yale Law professors discussed this in an article in Slate, proposing that law schools ought to put "skin in the game" with regard to rising law school education costs. Loan forgiveness programs are one effort to do exactly that: by placing at least some of the burden of paying back student loans on themselves, law schools with such programs have to take into account the cost, as well as benefit, of raising the price of legal education. To this end, schools that offer loan forgiveness programs -- and particularly Yale, Harvard, and Stanford, which are the only law schools remaining in the country that operate on a purely need-based financial aid model -- ought to be commended (but usually aren't) for eschewing large, front-end, merit-based scholarships which are usually allocated on the basis of LSAT and GPA in favor of back-end grants allocated based on a student's actual earnings.
Loan forgiveness programs, of course, are not created equal. And unlike scholarship deadlines, understanding them is not always straightforward, since they involve many factors. In fact, it's very easy for a school to "hard sell" you on their program by cherry picking the one or two examples in which they look better than the others based on very specific situations and circumstances. But the story of a loan forgiveness program lies in the big picture: since most students don't know what their exact situation will be in three, five, or ten years, approaching a loan forgiveness program from a veil of ignorance point of view is usually your best bet.
To this end, when I guide students through how to meaningfully compare loan forgiveness programs, I make sure that they look at five critical factors taken together: 1) the amortization schedule used by the school; 2) the expected student contribution schedule; 3) the school's treatment of assets; 4) the length of eligibility; and 5) job coverage. Only by assessing all of these factors as a whole can you determine whether a particular loan forgiveness program will be a good fit for you. If any school tries to market its program by focusing almost exclusively on one factor -- like, say, its amortization schedule -- you should notice a strong, fishy smell wafting under your nose.
I say this because in recent years I've had many students coming to me -- usually after attending a peer school's admit program -- with major confusion about how Yale's program actually works, and in particular, about our amortization schedule (which is what I'll focus on in this post -- please see here for the full details on all of the other factors listed above). Yale uses a 15/5 amortization schedule, which means that for the first five years, we assume you are paying your loans on a 15 year repayment plan. For the second five years, we assume an accelerated 5 year repayment plan. At the end of 10 years, your loans would be paid off.
Why is this an issue? According to Harvard (which uses a straight 10-year amortization schedule):
Loan repayment assistance at some other schools is calculated on a longer repayment term, such as 15 years. By using an extended repayment term your benefits from the LRAP are smaller and you will make slower progress repaying your loans. In effect, it is like receiving assistance on 75% of your eligible loan debt instead of 100% of your eligible loan debt.
In other words, according to Harvard, the mere fact that "some other schools" are using a longer amortization schedule means that you will be getting less assistance from the school. Let's take a look at the actual numbers with this graph (based on an Yale's average debt of $107,000 at 7.9% interest):
Hmmm...if you pay attention to the light blue (Yale) and red (Harvard) bars on the graph, it turns out that in fact, at a certain income (in the graphed example it is $60K), you start getting less money from Harvard than you do from Yale, despite the fact that Harvard uses a more accelerated amortization schedule. In other words, even if you are, in fact, paying your loans back on a 10-year repayment schedule, there is a fixed income point after which Yale is actually financing a larger percentage of your loan than Harvard, in direct contravention to their claim.
How is this possible? Well, even though Harvard assumes that you owe more in the first five years, its steeper student contribution curve means that they also expect you to contribute more. Since the asistance you actually receive is based on the combination of these two factors, not just on the former standing alone, focusing just on the different amortization schedules is a red herring, and frankly, factually misleading.
(NOTE: For the same reason, the difference in assistance in the first five years between Stanford and Yale -- the yellow and light blue bars -- gets smaller over time as well, though not as quickly since Stanford's student contribution schedule is higher than Yale's but not quite as high as Harvard's.)
If you pay attention to the dark blue lines, which represent Yale's assistance in the second five years, the plot thickens. Many students don't understand what advantage a 15/5 amortization schedule can offer a student. The graph shows this pretty clearly. By assuming an increase in the amount owed in the second five years, Yale's loan forgiveness plan effectively raises the income ceiling on being eligible for loan assistance. Say, for instance, you are in your fifth year at a government job, making $85K a year. At this point, you are already receiving more assistance from Yale than either Harvard or Stanford. And let's assume that you're expecting a 5-10% salary increase -- which would be typical if you were up for a grade or step increase, which is likely at that stage. Under Stanford and Harvard's flat amortization schedule, you'd be out of their programs, because you'd be expected to contribute more than you are expected to owe at the new salary. By contrast, Yale's program allows you to not only take the salary increase (in the graphed example, up to a salary of $105K) and remain eligible for the program, but receive even more assistance than you were previously, as well.
This is important because the five-year mark is usually a critical turning point in many graduates' careers. Often, at that point, graduates find that they have the experience to command a higher salary (even in a public interest or government job), the need to do so (because of additional family and financial responsibilities), or both. Even at the lowest salary levels, you'll see that Yale benefits graduates at the five year point by offering dramatically more loan assistance than both Harvard and Stanford.
Stanford and Harvard might point out that if you are in a very low paying job, and if you know you are planning to be in that job for only 2 to 3 years, their program will help you pay down more debt. As a straight mathematical matter, this could be true -- as I counseled admits at our admit program, if you know you will be in this very limited situation, perhaps these other programs might be better for you. But be careful. First, there should be another big "if" added to the above qualifications, which is IF your job qualifies for loan repayment at all. Unlike Yale, which looks at loan forgiveness elgibility solely on the basis of income (whether you are a prosecutor, a CEO of a nonprofit, or a concert pianist...all of which we have supported on our program), Harvard and Stanford require you to meet specific job parameters in order to be on the graph, so to speak, in the first place. It is, of course, easy to offer more money if you make that money accessible to only a small sliver of students.
Second, as noted above, Yale's average debt is $107,000. By contrast, Harvard's average debt, as noted on their website, is $125,000. (I could not find Stanford's average debt published anywhere.) Although the tuition among the three schools is similar, the cost of attending can vary, since a significant portion of the student budget -- and what you will be borrowing -- will be based upon your cost of living. Whatever you have to say about New Haven, it's cheaper than both Cambridge and Palo Alto. So even if you expect to get an additional $2-3K extra for a few years on the back end, look at your bottom line debt at all the schools and see if it's just making up for the fact that you're paying $15-20K more to go there in the first place. If so, then the "extra" money is just a wash. (Keep in mind that starting in the 2012-2013 academic year, subsidized federal loans are no longer available, so everything you borrow on the front end will accrue interest throughout your three years in school increasing your total debt even more.)
If amortization schedules, graphs, and math have left your eyes glazed over, I'll give you a shortcut to compare which program is the most comprehensive, accessible, and generous. Simply ask each school to answer the following questions:
1. How many graduates do you currently support with loan assistance? Yale: 398
2. How much money do you spend each year on loan forgiveness? Yale: $3.6 million
3. What is your average grant amount per year? Yale: $9,809
(Hint: Stanford is roughly the same size as Yale and Harvard is about 2.5 times larger.)