A new tax-advantaged student loan repayment assistance program for California legal aid lawyers
Lawyers considering legal aid jobs and veteran lawyers deciding whether to join or stay at a legal aid organization report that the number one obstacle is money -- including the financial burden of student loans. A Loan Repayment Assistance Program can help address this obstacle.
The California Access to Justice Commission (CalATJ) is administering a new Loan Repayment Assistance Program designed to provide tax-advantaged LRAP distributions. If you pay student loan principal and interest without an LRAP or with money provided as part of your compensation package, you owe state and federal income taxes on the money, and the plan payments are from after-tax dollars. But the CalATJ program is different. It can distribute funds to cover part or all of the participants’ student loan payments on a basis that is excluded from their taxable income.
The LRAP will depend on contributions from your LSO. To budget a contribution, your LSO needs summary information from you about your student loan payments. Questionnaire available here. More information about the questionnaire is at the end of this announcement.
An example:
A legal aid lawyer with $150,000 in federal loans must pay – at the lowest, income driven payment plan based on the average California legal aid salary ($92,000 five years in) -- $8,400 per year in principal and interest, and also pay $2,360 in taxes on the income used for loan payments. That leaves disposable income after taxes and student debt barely over the MIT‐calculated minimum living wage in urban California for a single lawyer with no children, and well short for a lawyer with a family. A fully-funded LRAP could cover the $8,400 in student loan payments without incurring the $2,360 in taxes -- a $10,760 benefit at a cost of $8,400.
How the LRAP Will Work: With funding from LSOs’ contributions, CalATJ can make LRAP distributions to staff participants who sign up. Who can participate, and what the limits will be determined by the LSO. Having an accurate budget will be key to that decision.
Please Help Your Employer Estimate the Cost of an LRAP: To facilitate budgeting for the amount needed for a contribution to an LRAP, CalATJ has developed a confidential online questionnaire for prospective participating employees. The questionnaire asks prospective participants about their student loan payments, then uses that information to generate a summary budgeting spreadsheet for each employer, without contents that identify any questionnaire respondent. You can provide answers to the budgeting questionnaire here. If you have questions, please email LRAP@CalATJ.org.
