Stanford Law to Test Income Share Agreements

Stanford Law School’s Classes of 2025 and 2026 will have an opportunity to put income share agreements to the test.

Income share agreements (ISAs) are a relatively new way for students to fund higher education. Rather than taking out a loan to pay back a flat tuition rate, ISAs allow students to pay for their education based on a fixed percentage of their monthly income post-graduation. The Consumer Financial Protection Bureau does not classify ISAs as loans, and student advocates are actively lobbying for regulation to prevent predatory practices.

Stanford Law announced last week that it would experiment with the income-share financing concept through a partnership with the nonprofit Flywheel Fund for Career Choice. Under the pilot program, 20 “Flywheel Fellows” will be chosen to pay for their law degree with an income share loan (ISL).

Each fellow will receive up to $170,000 from Flywheel for law school tuition and fees in exchange for a commitment to pay 10% of their post-graduation income back to Flywheel for 12 years, according to Stanford.

Repayments to the Flywheel Fund are contingent upon the fellows’ income, and payments will not be allowed to exceed the current federal Grad PLUS loan interest rates. Likewise, fellows won’t have to pay back the loan until they are employed, and Stanford will cover the payments of participants making below $100,000 a year as part of their Loan Repayment Assistance Program.

The school will also cover a portion of a participant’s payments if they make between $100,000 and $115,000 per year, according to the announcement.

The pilot program will also include an income cap, so participants making more than $225,000 per year will only be required to pay $1,875 per month.

The Flywheel ISLs are considered private student loans, according to Stride Funding, which manages and provides the Flywheel income share loans. Flywheel Fellows will not qualify for the U.S. government’s Public Service Loan Forgiveness program, which forgives the remaining student loan balance for borrowers serving in qualified public service jobs for 10 years.

The pilot program aims to protect students who want to pursue low-income public interest jobs or those unsure about their career path, according to Flywheel.

“We created the Flywheel Fund to address the perverse incentives in our current system of financing education, introducing a new model that empowers some of our most talented law school graduates to commit their time and talent to mission-oriented careers freed from the financial pressure of debt repayment,” said Elliot Schrage, Flywheel Fund board member, in a press release.

Flywheel Fellows will also have to participate in ongoing research about the pilot and its outcomes. Ralph Richard Banks, the Jackson Eli Reynolds Professor of Law at Stanford Law School and co-founder and Faculty Director of the Stanford Center for Racial Justice, was announced as the research advisor for the pilot project.

“A significant percentage of applicants to Stanford Law School express interest in pursuing public interest or public service careers as part of their applications, but far fewer — less than 25%, in fact — take such jobs after graduation or clerkships,” Banks said in the release.

“This project will help us understand the role debt plays in career decisions and redesign education finance programs to promote greater diversity of career outcomes.”

Flywheel bills itself as a nonprofit seeking innovative solutions to America’s student loan crisis, with the goal of expanding career choices for law school students and encouraging students to attend law school who might otherwise be discouraged by the debt required to attend. It’s led by alumni of Stanford Law and Harvard Law.

Stanford Law grads’ repayments to Flywheel will fund future fellows. If the program proves successful, the nonprofit hopes it will become a permanent way to help students finance law degrees at institutions across the country.