Stanford Law students test income-based alternative to school loans

Stanford University's campus is seen from atop Hoover Tower in Stanford, California May 9, 2014. Picture taken May 9, 2014. To match Special Report USA-STARTUPS/STANFORD REUTERS/Beck Diefenbach (UNITED STATES - Tags: EDUCATION BUSINESS SCIENCE TECHNOLOGY)
  • Demand has been robust for the first "income share agreement" program for law students
  • Participants say the program has given them more flexibility and lessened their worries about paying for law school

(Reuters) - When Spencer Segal enrolled at Stanford Law School this fall, he figured he would graduate with more than $200,000 in student loans.

But Segal is now on track to get his law degree in 2025 with zero traditional law school debt. Instead, he will pay 10% of his income for 12 years in exchange for $170,000 upfront that covers his three years of law school tuition.

Segal is among the 20 inaugural fellows of Flywheel Fund for Career Choice — the first “income share agreement” program offered by a U.S. law school. Stanford Law introduced the pilot program to students in September and interest was robust, said Flywheel Fund founder Elliot Schrage.

About 20% of first and second-year students expressed interest, and 40 students applied for the 20 available fellowships, Schrage said. Flywheel is run by Boston-based income share repayment provider Stride Funding in partnership with Stanford Law.

Segal said the fellowship eases the pressure he felt to commit to a specific career track early in law school.

“Whichever choice you make in that fork in the road — either going to Big Law so you can make enough money to pay off the debt or going into public interest — you’re kind of constrained and forced to stay on that path,” he said.

The program is open to applicants with family income under $750,000 who are selected by Flywheel and pass a credit check. It has built-in protections for both high and low earners and does not penalize participants for switching tracks.

For those going into typically lower-paying work such as public interest law, Stanford Law will fully cover repayment for Flywheel pilot participants earning less than $100,000 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.

The fund has been seeded with more than $2.5 million in donations, with the idea that repayments will help fund future Flywheel fellows. Stanford Law expects the program to cost it $200,000 to $300,000 annually in repayment assistance.

Flywheel fellow Dorna Maryam Movasseghi, who wants a public interest career, said she spent hours searching for hidden risks in the program's fine print. She said she could not find any.

The Flywheel Fund offers more flexibility than Stanford Law's Loan Repayment Assistance Program for graduates in public interest jobs, she said, in part because participants can jump into the private sector without losing eligibility. Not having to worry about debt loads has been a weight off her chest, she added.

“In a way, this felt like an equalizer with my peers” who are pursuing high-paid law firm jobs, Movasseghi said. “I’m now in a position where I can focus on what I want to do."

Read more:

Stanford Law to offer 'income share' financing as law school costs soar

'Debt transformed my life': Lawyers weigh in on student loan reprieve

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Karen Sloan reports on law firms, law schools, and the business of law. Reach her at karen.sloan@thomsonreuters.com