Stanford Law to fund student loan alternative based on grads' future earnings
BankingDec 12, 2023
Stanford Law School said this week that it will fund a student loan alternative that sets repayment at 10% of graduates' income, whether they work in private practice, public interest or elsewhere.
The law school told Reuters on Wednesday that it is now providing the funding for the first “income share agreement” program offered at a U.S. law school, which it started last year with donations. The school is pumping $1.7 million into the loan alternative program called the Flywheel Fund for Career Choice.
Income share agreements differ from traditional student loans because participants receive tuition money upfront in exchange for paying back a portion of their future earnings. Stanford's Flywheel fellows get up to $170,000 at the start of their legal studies while agreeing to pay back 10% of their income for 12 years after graduation.
The nonprofit Flywheel program began in 2022 with 20 participants, and this year expanded to include 10 first-year law students, with Stanford Law footing the bill. Although Flywheel administrators, who select the applicants, prioritize those who are likely to pursue lower-paying public interest jobs after they graduate, it also considers students going into the private sector. Notably, the program, unlike traditional loan forgiveness and repayment assistance programs, does not penalize graduates who later transition out of public interest work.
The rising cost of a legal education has been a source of concern in the profession for decades. The average amount borrowed by 2022 law graduates at private schools was $135,000 while graduates of public law schools borrowed nearly $94,000, according to Law School Transparency.
Earning potential varies widely among law graduates. Starting associates at many large law firms now earn $225,000 before bonuses, while the median starting salary for public defenders was $59,700 in 2022 and $57,500 among new civil legal services attorneys, according to data from the National Association for Law Placement.
Many law schools, including Stanford, have programs that help graduates in lower-paying public interest jobs repay their student loans. The Flywheel Fund program permits all students to apply, regardless of their career aspirations.
Stanford is the only law school to offer income share agreements thus far, but Flywheel Fund founder Elliot Schrage said he is in talks with "elite" law schools on the East and West Coasts about expanding to their campuses.
Spokespeople from five law schools with relatively large endowments, including Harvard and Yale, either did not respond to requests for comment or said they were unaware of any plans to offer income share agreements to students.
Chris Chapman, president of AccessLex Institute, said Flywheel could be a good deal for graduates with lower earnings. But he said income share agreements are unlikely to upend the traditional student loan model in part because they require a heavy upfront investment from either donors or law schools.
"The number of law schools who have the available funding and historical employment outcomes similar to Stanford is extremely limited," said Chapman.
The pay gap between public interest and law firms' jobs explains why the Flywheel Fund has been particularly appealing to Stanford students who are interested in public interest careers, which is about 30% of the class, Stanford Law Chief Financial Officer Frank Brucato said. The school had about 30 students apply for the 10 available slots this year.
Stanford Law will fully cover repayment for Flywheel pilot participants earning less than $100,000 after graduation and subsidize payments for those earning between $100,000 and $115,000. The program also has an income cap of $225,000, meaning monthly payments cannot exceed $1,875 for even the highest paid graduates.
“If it works, it really will change the way we finance legal education,” said Brucato, adding that he hopes to be able to offer income share agreements to the entire Stanford Law class down the road with repayments from graduates covering most or all new income share agreements for students.