Frequently Asked Questions: Loan Repayment
The College Cost Reduction and Access Act (CCRAA) of 2007 established, among other things, two new programs that will be of particular interest to graduates going into low-paying and public interest jobs. Income Based Repayment (Section 203 of the Act) allows borrowers to pay back their federal loans on the basis of their income at the time of repayment. Loan Forgiveness (Section 401 of the Act) will forgive federal Direct loans after 120 payments and 10 years of full-time employment in the public service sector. It is possible to take advantage of both these programs at the same time, or to elect one or the other option. One option does not either preclude nor exclude another.
As of July 1, 2009, this is an option for paying back federal loans which will be particularly helpful for borrowers with higher debt and lower incomes with "partial financial hardship." The amount the borrower pays back is based upon his/her annual adjusted gross income.
Most federally guaranteed student loans are included in this benefit, including all Stafford subsidized, unsubsidized, consolidated, and Grad PLUS loans. Parent PLUS loans, private loans, and loans from outside parties (such as parents) are not included.
The loan payment for the borrower will be capped at 15 percent of the borrower's discretionary income, where discretionary income is defined as the Adjusted Gross Income (AGI) for the student (or student and spouse if filing jointly), minus 150 percent of the poverty level applicable to the borrower's family for that year. In math terms, the equation is:
AGI – (Poverty Level x 1.5) x .15
If we take an example of a single borrower with a $40,000 income and $90,000 debt:
AGI: $40,000 Poverty Level: $10,830
$40,000 - (10830 x 1.5) x .15
= ($40,000 – 16,245) x .15
= $23,755 x .15
= $3563.25 -- the maximum annual amount the borrower would have to repay, which translates into $296.94 per month. This contrasts sharply with the standard 10-year repayment plan where the borrower would have to pay $1,036 per month on a 6.8 percent fixed-interest rate loan.
This program is for the entering classes of 1984–2010. If you are from the entering class of 2011 and later, you must review the Income-Based Debt Management Program FAQ (see next section).
The University of Michigan's traditional Debt Management Program is a complicated program, because of our concern for fairness for all participants. That means there are a lot of details and subtleties in the program that can best be explored by discussing your particular situation with a financial aid counselor. This FAQ hopes to address general questions about the program for you. Please let us know how else we can be of assistance.
In very broad terms, we look at two things to determine your eligibility for the program. First we look at your income and assets to figure out how much we think you can afford to pay toward your monthly student loans. Then we look at the eligible loans that you incurred to attend law school. The difference between the required loan payment and what we expect you to pay is what you get from the program.
It is a loan that you get, but if you remain in your same Debt Management-eligible job for the year, it is converted to a grant at the end of the calendar year. If you leave your job or get a really big raise during the year so that you are no longer eligible for the program, you will have to pay money back.
The traditional Debt Management Program will consider federal loans (Stafford and Grad PLUS) and private loans taken out during your time at Michigan Law; however, loans taken out to cover the student contribution or to attend an institution other than the University of Michigan Law School are not included in the program. Bar loans of up to $8,000 and computer loans are also considered eligible for the program.
You must be employed full time in law-related work. In very general terms that means if a JD is required for the job, then your job qualifies you for the program. The only exceptions to this are judicial clerks, temporary jobs, and fellowships funded by U-M, which do not qualify for the program at all. "Law-related" of course includes those jobs that require an individual to be licensed to practice law, such as working in a law firm or legal services office, representing and advising clients; working at a state or federal agency, representing the legal interests of the government; or working in the general counsel's office of a corporation. "Law-related" also includes any job for which a JD was required in order to obtain the position, even if the job does not involve the practice of law or require bar passage or an active law license. Examples include contract review, corporate compliance, and management consulting, as well as legal policy work, whether for the government, an advocacy organization or a research and educational institution.
Eligibility for our debt management program requires more, however, than an employer's affirmation that the J.D. is helpful in performing the duties of the job. So, for example, a law degree can certainly contribute to an individual's abilities as a public speaker, but that fact is not sufficient to demonstrate that a job is "law-related." Applicants must demonstrate that the job requires skills or knowledge which could only have been attained as part of a legal education.
Special note for those pursuing Presidential Management Fellowship (PMF) positions: On rare occasions, the job you receive may not be law-related and, therefore, makes you ineligible for the Law School's loan repayment assistance programs. The Office of Career Planning will work with you as much as possible to avoid this, but if you are in doubt about it, please be in consultation with the Financial Aid Office to discuss your eligibility.
No, we do not require that jobs be public interest or public service jobs. We really want our graduates to be doing what they want to do, whether that be working for a public interest organization, the government, or working for a small law firm in a lightly populated area.
No, it does not. We have had recipients in Thailand, Lebanon, and Pakistan, to name a few.
We have no cap. Eventually your salary becomes large enough so that the contribution expected from your income and assets exceeds the monthly payment required on your eligible loans.
There is no limit. You could potentially be in the program as long as your loans are in repayment.
No, you can enter at any point that you are in repayment on your loans. You just cannot be delinquent, in default or in forbearance on any of your student loans.
Please visit our website at: http://www.law.umich.edu/currentstudents/financialaid/loanpayment/Pages/ Traditional-Debt-Management-Program.aspx.
The University of Michigan Law School has an LRAP (loan repayment assistance program) that supports our graduates so they can pursue the area of employment that they truly love, without the debt they may have incurred in Law School directing their choice. This FAQ addresses general questions, but there are a lot of details and subtleties in the program that can best be explored by discussing your particular situation with a financial aid counselor. Please contact us at lawfinaid@umich.edu if your particular questions are not answered here.
In order to participate in our program, our graduates must first enroll in the U.S. Department of Education's Income Based Repayment plan (IBR). The IBR plan requires a certain level of annual payment depending on income and, if you work for 10 years in a public interest or public sector job (or 25 years in the private sector), the federal government will forgive your outstanding loans entirely. You must then apply to our LRAP program each year to receive benefits in the following calendar year.
Our LRAP links our benefit calculations to the federal pay scale, in particular, the General Schedule GS-11 rate at which entry-level federal government attorneys are hired ($50,287 in 2012). For graduates whose incomes are at that rate or lower, we will provide an annual payment equivalent to the entire annual IBR payment. In other words, graduates at that income level will make no payment toward their loans. Graduates with higher salaries, up to 175 percent of the GS-11 rate, will also receive an IBR stipend from us, on a sliding scale.
In addition, for LRAP participants at income levels of GS-11 or below, if your annual IBR payment is too low to cover the annual interest accrual on your debt, the Law School will set aside an amount equivalent to your annual unpaid interest in an escrow account. For participants at higher income levels (up to 150 percent of the GS-11 rate), unpaid interest is escrowed on a sliding scale. In the event you stop participating in our program before your loans qualify for federal loan forgiveness, we will remit to you the funds in your escrow account. This ensures that for most participants in our program, the amount of principal you owe will not be higher if you leave the program prior to total loan forgiveness. (Because IBR payment levels are set according to income only, without regard to the borrower's total debt, it is possible for participants with particularly high debt levels and income over the GS-11 rate to accrue unpaid interest. To avoid this scenario, we encourage students to seek counseling from the Financial Aid office early in your law school career to discuss strategies for reducing your total borrowing.)
This program is for the entering class of 2011 and later. Students from the entering classes of 1984–2010 may choose to apply for this program if they wish to do so.
The numbers vary from year to year, but typically 90 to 115 people participate. We do not, however, have any ceiling on the number of graduates we will cover in a given year.
As mentioned before, our calculations are tied to the GS-11 rate, which varies annually according to changes in the cost of living. Our cap is 175 percent of the GS-11 rate for that year. As an example, in 2012 the GS-11 base rate is $50,287, so the cap would be $88,000.
Our program has been designed to cover the vast majority of debt for the vast majority of our students. Federal loans (Stafford subsidized, Stafford unsubsidized and Grad PLUS loans) taken out during your time at Michigan Law will all be eligible for coverage under the program. Private loans will not be covered unless you were ineligible for federal loans because you were on visa status while attending law school.
You must be employed full time in law-related work. In very general terms that means if a JD is required for the job, then your job qualifies you for the program. The only exceptions to this are judicial clerks, temporary jobs, and fellowships funded by U-M, which do not qualify for the program at all. "Law-related" of course includes those jobs that require an individual to be licensed to practice law, such as working in a law firm or legal services office, representing and advising clients; working at a state or federal agency, representing the legal interests of the government; or working in the general counsel's office of a corporation. "Law-related" also includes any job for which a JD was required in order to obtain the position, even if the job does not involve the practice of law or require bar passage or an active law license. Examples include contract review, corporate compliance, and management consulting, as well as legal policy work, whether for the government, an advocacy organization or a research and educational institution.
Eligibility for our debt management program requires more, however, than an employer's affirmation that the J.D. is helpful in performing the duties of the job. So, for example, a law degree can certainly contribute to an individual's abilities as a public speaker, but that fact is not sufficient to demonstrate that a job is "law-related." Applicants must demonstrate that the job requires skills or knowledge which could only have been attained as part of a legal education.
Special note for those pursuing Presidential Management Fellowship (PMF) positions: On rare occasions, the job you receive may not be law-related and, therefore, makes you ineligible for the Law School's loan repayment assistance programs. The Office of Career Planning will work with you as much as possible to avoid this, but if you are in doubt about it, please be in touch with us in the Financial Aid Office to discuss your eligibility.
No, we do not require that employment be in public interest or public service. We really want our graduates to do the legal work they want to do, whether that is for a public interest organization, the government, or a small law firm in a sparsely populated area. The breadth of our program distinguishes it from most other similar programs.
No, it does not. We have had recipients in Thailand, Lebanon, Korea, and Pakistan, just to name a few. However, if your employer is not the U.S. government or a public interest, not-for-profit employer based in the U.S, you might not qualify for Public Service Loan Forgiveness (PSLF) from the Department of Education. (Our understanding, for instance, is that the United Nations does not qualify for PSLF).
You apply to our LRAP program annually, and you don't need to make any long-term commitment to our program. You can move in and out of the program and do not need to be enrolled in consecutive years. It is to your benefit, however, to stay in the federal IBR program, even if you don't remain in ours. Under the IBR guidelines, if you remain in a public interest or public service job for 120 months, the remainder of your unpaid loans is forgiven. For those in the for-profit sector, forgiveness of the remainder of your loan debt comes at 25 years.
You may be enrolled in our program for a total of 10 years. These years do not need to be consecutive.
Each year you are in the program you receive an interest-free loan from the Law School. If you remain in your same eligible job for that year, the loan is forgiven at the end of the calendar year. If you leave your job during that calendar year or receive a substantial raise that makes you ineligible for the program, though, you will have to pay a prorated amount back to the program. But in any event, once your participation in the LRAP ceases, you are in no way obligated to pay back the funding you received from the Law School during your participation.
No, but you must enter within five years of graduation. For example, if you graduated in May 2014, your first opportunity to apply was Fall 2014 for Debt Management in 2015. Your fifth and final opportunity to apply will be Fall 2018 for 2019 support. Graduates whose first job is a clerkship are granted an extension for the duration of the clerkship (usually one or two years).
We have a PowerPoint presentation that provides an overview and details about our program. We also have an Audio FAQ. For more information about the federal government's programs, please visit the CCRAA FAQ at the top of this page.
Applications for our program are made available each year by mid-September, and graduates must submit their forms by the November 1 deadline. You must reapply annually.