LRAP: Harvard Law School

Published May 2010

Low Income Protection Plan

How it Works
Those Harvard Law School (HLS) graduates who intend to enroll in the Low Income Protection Plan (LIPP) must apply twice yearly for award disbursements. Their award amount is primarily based on their income and law school educational debt. LIPP awards are intended to bridge the gap between actual law school educational loan payments and expected participant contribution towards those loans. For most, awards will be disbursed in the form of a one year loan forgiven annually. For those self-employed, employed in the private sector, or working for Harvard, the award is in the form of a grant which includes an additional 25% (since this is considered taxable income).

Eligible Jobs
In order to qualify for LIPP, the graduate must:
(1) be employed full-time i
(2) be employed for a government agency, nonprofit organization, academic organization, or overseas equivalent, or in the private sector if the position is law-related ii

The range of jobs that qualify for LIPP is greater than those that qualify for most other school’s assistance programs. Most do not cover private sector employment (or at least not as broadly), and most require that any position be law-related. Harvard’s LIPP only requires that private sector work be law-related. Presumably you could work as a community organizer at a 501(c)(3) and be covered under LIPP.

See below for how PhD program participation and judicial clerkships are handled under LIPP.

Those who are self-employed may also be eligible for LIPP assistance.

Eligible Debt
Loans taken out for law school education up to the student budget are eligible under LIPP.iii  Up to $30,000 of combined undergraduate debt and debt from a Harvard joint degree is eligible. Up to $10,000 for bar-related expenses and $3,000 for computer purchase is also eligible.iv

Ineligible loans include loans from family and friends, personal loans, and graduate school debt (not from a joint degree with HLS).

Calculation of Expected Participant Contribution
All sources of income are considered for the participant contribution. If your income is under $42,000, you are not expected to contribute any amount to your loan payments; LIPP will cover it all. You are expected to contribute 20% of any amount made between $42,000 and $48,000 and 40% of any amount made over $48,000.

So, for example, if your income is $55,000, you must contribute $1,200 (20% of $6,000) plus $2,800 (40% of $7,000) for a total of $4,000. LIPP will cover any remaining eligible loan payments for the year.

If you are married, HLS will either use your income or one-half of your joint income –whichever is higher. In calculating your spouse’s income, the amount of his/her annual educational debt obligation is subtracted from his/her income. If you and your spouse are both LIPP-eligible HLS graduates, you may apply independently.v

There are two allowances LIPP participants can take advantage of: the dependent care allowance and the longevity allowance. You will receive a $6,000 allowance for your first child, $3,600 for each additional child, and an allowance for “reasonable expenses incurred for child care.” If you are a long-term LIPP participant (five years of more), you will also receive the longevity allowance. In the fifth year, this allowance is $5,000, in the sixth year it is $6,000, and so on.

Allowances are subtracted from the income used for LIPP calculations. For example, someone in their sixth year of LIPP participation makes $60,000 per year. In addition, she has two children. Her allowances total $15,600vi ($6,000 longevity allowance plus $9,600 dependent care allowance). So, for the purposes of LIPP, her income is $44,400 ($60,000 minus $15,600). She is only expected to contribute $480 that year towards her law school educational debt (20% of $2,400).

Your LIPP award, and therefore your expected contribution, can also be affected by your assets.

Assets
For the purposes of LIPP, assets are any cash, savings, investment equity, home equity, or retirement savings. The worth of your unprotected assetsvii is converted into a percentage by which your LIPP award is reduced. Each graduate is allowed $10,000 of protected assets upon graduation, and $8,000 for every full year worked after college (whether before or after law school). If you are married, your protected asset amount is doubled.

To determine by how much your LIPP award is reduced, you take the amount of your total assets and subtract the amount of your protected assets, leaving you with the amount of your unprotected assets. Then a percentage is applied to this amount (100% if you are one year from graduation, 0% if you are ten years from graduation, and intervals in between). The resulting number is divided by the amount of your outstanding debt, leaving you with another percentage. This is the percent of your LIPP subsidy that is subtracted from the total. For an example, see Hypothetical Scenario Four below.

Judicial Clerkships
Since judicial clerkships are often a stepping stone to high-paying employment in the private sector, they are generally not covered under LIPP. However, those who do intend to take LIPP-eligible employment after the completion of their clerkship are eligible. The participant’s clerkship-period loan is forgiven at the completion of his/her first year of LIPP-eligible employment (after the clerkship has ended). The second year of the clerkship (if applicable) is forgiven at the completion of the second year of participation in LIPP (post-clerkship). Under these circumstances, the clerkship years count towards the longevity allowance.

If the graduate takes LIPP assistance but does not enter LIPP-eligible employment upon the completion of the clerkship, the loan becomes immediately repayable, interest is retroactively compounded for the year(s) of the clerkship, and a finance charge is added to the principal amount ($250 or 10% of the principle, whichever is higher).

PhD Program Participation
Those who pursue a PhD after the completion of their JD are eligible for up to seven years of coverage under LIPP. However, those loans which can be deferred must be deferred in the first two years of the program. LIPP will cover any eligible loans that cannot be deferred during that period, and after that period all loans will be covered as if the participant was in a full-time LIPP-eligible job.

Hypothetical Scenarios

Let’s explore a few hypothetical scenarios to see how LIPP might work. There is a LIPP Benefit Calculator on the HLS website as well:

LIPP Benefit Calculator

Use the calculator judiciously; it does not account for assets, spousal income, the longevity award, etc. It also assumes a 3% increase per year to the LIPP salary scale. (On the table of contents page you will find links to websites I used to calculate federal tax burden and yearly student debt obligations. Using these, you can input your own variables. Keep in mind that the take-home income amount does not reflect state or local taxes. Treat all hypothetical scenarios and amounts as approximations.)

Scenario One
An unmarried graduate with no undergraduate debt.
Salary: $45,000
Salary less Taxes: ($45,000 - $7,438) = $37,562
Debt: $110,000 on a ten-year repayment plan at 6.8% interest
Yearly Debt Obligation: $15,191
Graduate’s Expected Contribution: (20% of $3,000) = $600
LIPP Award: ($15,191 - $600) = $14,591
Take-home Income: ($37,562 - $600) = $36,962

Scenario Two
An unmarried graduate with no undergraduate debt.
Salary: $55,000
Salary less Taxes: ($55,000 - $9,938) = $45,062
Debt: $110,000 on a ten-year repayment plan at 6.8% interest
Yearly Debt Obligation: $15,191
Graduate’s Expected Contribution: (20% of $6,000 + 40% of $7,000) = $4,000
LIPP Award: ($15,191 - $4,000) = $11,191
Take-home Income: ($45,062 - $4,000) = $41,062

Scenario Three
A married graduate with no undergraduate debt. Graduate’s spouse has $13,000 in educational debt obligation per year. The couple has one child.
Graduate’s Salary: $65,000
Graduate’s Salary less Taxes: ($65,000 - $12,438) = $52,562
Spousal Income: ($85,000 - $13,000 educational debt obligation) = $72,000
One-Half of Joint Income: ($65,000 + $72,000) / 2 = $68,500
[The joint income figure is used for LIPP calculations as it is larger than the graduate’s salary alone. There is also a $6,000 dependent care allowance for the child. The final income figure used for LIPP is $62,500.]
Debt: $110,000 on a ten-year repayment plan at 6.8% interest
Yearly Debt Obligation: $15,191
Graduate’s Expected Contribution: (20% of $6,000 + 40% of $14,500) = $7,000
LIPP Award: ($15,191 - $7,000) = $8,191
Graduate’s Take-home Income: ($52,562 - $7,000) = $45,562

Scenario Four
An unmarried graduate with no undergraduate debt worked for two years between college and law school. She has been a LIPP participant for all five years since graduation. She has $85,000 in assets and $80,000 in outstanding debt. (See Assets section above for clarification.)
Salary: $70,000
Salary less Taxes: ($70,000 - $13,688) = $56,312
Debt: $110,000 on a ten-year repayment plan at 6.8% interest
Yearly Debt Obligation: $15,191
Income used for LIPP Calculation: ($70,000 - $5,000 longevity allowance) = $65,000
Graduate’s Expected Contribution: (20% of $6,000 + 40% of $17,000) = $8,000
LIPP Award: ($15,191 - $8,000) = $7,191
This would be her award without consideration of assets, or if her total assets did not exceed the amount of protected assets allowed.
Protected Assets: ($10,000 + 7 x $8,000) = $66,000
Unprotected Assets: ($85,000 - $66,000) = $19,000
Adjusted LIPP Award: (50% of $19,000 is $9,500; $9,500 divided by the outstanding debt total of $80,000 is 11.875%; 11.875% of the original LIPP award of $7,191 is $854; $7,191 - $854) = $6,337
Take-home income: ($56,312 - $8,854) = $47,458

Scenario Five
An unmarried graduate with $25,000 total undergraduate debt.
Salary: $85,000
Salary less Taxes: ($85,000 - $17,520) = $67,480
Debt: $110,000 law school debt and $25,000 undergraduate debt, both on a ten-year repayment plan at 6.8% interest
Yearly Debt Obligation: $18,643
Graduate’s Expected Contribution: (20% of $6,000 + 40% of $37,000) = $16,000
LIPP Award: $2,643
Take-home income: ($67,480 - $16,000) = $51,480

Final Notes on the Harvard Law School Low Income Protection Plan
The total amount awarded to a LIPP participant may be quite substantial. In some cases, the amount awarded over ten years of participation could well exceed $100,000. While LIPP’s salary scale may not be as generous as some other top schools’, the program does cover a wider range of careers than most. LIPP also covers participants while pursuing a PhD, which is somewhat unusual.

Additional Financial Support for Public Interest
In addition to LIPP, HLS offers Summer Public Interest Funding (SPIF) for any student employed in low- or unpaid summer public interest work. This funding is guaranteed for those in qualifying positions who apply by the deadline. The amount of funding per week can be up to $550. See http://www.law.harvard.edu/current/sfs/spif/index.html for more details.

In February of 2010, HLS announced the creation of the Public Service Venture Fund. It is designed to support the public service work of graduating students by supplementing salaries or providing “seed money for new entrepreneurial start-ups or innovative projects.” The original announcement can be found here:

http://www.law.harvard.edu/news/2010/02/09_hls.venture.fund.html

i Part-time work (at least 20 hours per week) is covered for parents of children up to middle-school age. LIPP also covers up to six months of employer-sanctioned parental leave. In both cases, the real or imputed full-time salary is used for calculation of benefits.
ii Law-related is defined as follows: “the distinctive intellectual skills acquired in a legal education are generally recognized as useful in the job; and of those who hold this position, it is not unusual for them to be members of the legal profession.”
iii Excepting loans taken to cover the expected student contributions (from unprotected assets and income).
iv Computer purchase must be done through a specific HLS process.
v In which case, for purposes of LIPP-eligibility, assets are split evenly and dependent care allowances are split proportionally according to income.
vi In most cases, this figure would be higher because of child care costs.
vii That is, unprotected from LIPP consideration.