Last month, Harvard Law School attracted national media attention by announcing a new Public Service Initiative, under which students who commit to working in a public interest position for five years after graduation will have their third year tuition waived.

Never one to be outdone, Yale Law School announced improvements to its own debt forgiveness program last week, raising the minimum post-graduation income at which students have to start paying back their loans from $46,500, to $60,000.

How do the two plans stack up? Based on some back of the envelope calculations I've done, the old and new Yale plans appear to be significantly better than the Harvard plan, save for the lucky few who get very high paying public interest jobs in the first few years after graduation.

Harvard's Plan in Brief
Harvard Law School's Low Income Protection Plan (LIPP) provides income-sensitive loan repayment assistance for graduates working in a law-related position. Graduates are expected to contribute 20% of their pre-tax income between $40,500 and $46,000 to their loan repayments, and 40% of their income above $46,001. Should this contribution not be sufficient to meet the graduate's loan liability, LIPP provides a top-up grant that covers the balance of the loan payment.

For example, if a graduate earns $50,000 a year and must pay $12,000 a year on their debt, LIPP requires the graduate to contribute $2700, while the Law School pays the balance.

Yale's Plan in Brief
Yale Law School's Career Options Assistance Plan (COAP) is very similar to Harvard's LIPP in the conditions it imposes, although it is significantly more generous than the Harvard plan. Previously, students were expected to contribute 25% of their income above $46,500 to their debt repayment, but this has been increased to $60,000 with last week's announcement.

Harvard's New Public Service Initiative

From what I can discern from the Harvard website, the new Public Service Initiative (PSI) reduces a student's total debt at graduation by waiving their third year tuition, but otherwise leaves the LIPP program intact. To benefit from the tuition waiver, students must (1) spend at least one of their summers working at a public interest job, (2) accumulate a certain number of public interest credits during their time at the law school, and (3) commit to working in a public interest job for five years after graduation. Should a HLS alumnus end up working in a non-public-interest position within five years of graduation, they must repay the grant according to a punitive sliding scale based on the time they have worked.

The Problem with the PSI
Although not having to pay tuition your third year sounds like a great deal, Harvard's new initiative does very little to improve the financial health of its graduates at the low end of the income scale. Take the following scenario, showing the financial position of a graduate of the class of 2009 who has borrowed the maximum that both law schools permit. Assuming an interest rate of 7.5% APR and 10 year repayment and amortization period(*), this is how our hypothetical graduate does under Harvard's LIPP, Harvard's new Public Interest Initiative (LIPP PSI), the original Yale COAP, and the new COAP 2d:

Since HLS graduates participating in the new PSI appear to be subject to LIPP's punishing 40% marginal loan payment rate at incomes above $46,000, they do no better in terms of their take-home pay than current LIPP recipients making less than $71,000 a year. This is because the new PSI seems to work to reduce loan principal, rather than loan repayment, as a student receiving a tuition waiver doesn't need to borrow to meet their 3L expenses. While lower loan principal means that PSI participants are able to meet 100% of their loan commitments at incomes above $71,000, all but the lucky few who manage to get very high paying public service jobs are still worse off than their peers at Yale. Under the old COAP, a Yale graduate has to make $92,000 to pay the same $11,489 on their debt that a Harvard grad must pay out of a $71,000 salary. And under Yale's new COAP 2d, the Yale graduate has to make $116,000 before the law school demands $11,489 in debt repayment.

What is worse, the Harvard PSI seems to provide a windfall to those fortunate enough to land a high-paying job meeting the program's highly restrictive definition of a "public service" position. Since the third year tuition waiver works to reduce the PSI participant's loan principal, in this hypothetical scenario, an HLS graduate earning $71,000 must make the same $11,489 in debt payments each year as a more fortunate colleague earning $120,000 – which is the income level at which a Yale graduate becomes fully liable for their debt under this hypothetical.

Bottom line: unless you are planning to make more than $120,000 a year in what Harvard Law School considers to be a "public service" job, Yale Law School offers better debt repayment assistance to its graduates.

If you want to check on my math or see which loan repayment assistance plan is better for your financial situation, you can download my source spreadsheet from the following location: http://www.vivek.ca/coaplipp.xls.

N.B. The 10 year amortization and repayment windows are a simplifying assumption. While both COAP and LIPP assume a ten-year repayment window, they use different amortization methods for different parts of the ten year period. Adding this into the model would make it a lot more complex without changing its results all that much, so I've left it out.

Labels: Yale

Next to the outrageous sums that recent philanthropists have been paying to name common rooms and library carrels, Elihu Yale got the bargain of the millennium when in 1718 he walked away with the naming rights to this university for just £562. In today’s money, £562 works out to just under $160,000 — a sum which must have the sucker who paid $250,000 to name a portal at the Yale Bowl licking his wounds.

What is more, Elihu Yale was a real cheapskate in donating just £562 to the university that now bears his name. During his tenure from 1687 to 1692 as governor of the East India Company settlement at what is now the Indian city of Chennai, Yale amassed a fortune of some £175,000 — equivalent to some $50 million today. And to think that poor Meg Whitman paid $30 million to name one lousy college at Princeton.

Labels: Pontification, Yale