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Law School: Buy Now, Pay Later?

Brett Hughes (1L) & Padraigin Murphy (1L)

Over this past year, there has been an ongoing discussion between students, Students’ Law Society (SLS) representatives, and the administration regarding the growing gap between tuition and the availability of financial aid here at the Faculty of Law.

Whether or not you have been actively involved in the conversation, you may have noticed some of the results. These include the Dean’s town halls and the creation of the SLS Financial Aid working group.

The discussion has been fruitful, and this article is intended to help move it forward by focusing on a possible solution: income-based tuition repayment.

In Australia, most undergraduate students do not need to pay tuition up-front. Instead, the federal government administers a Higher Education Loan Program (HELP), which covers tuition on the front end. The program then requires that graduates repay the loan through income-based payments, which are administered through the tax system. The higher your income, the higher the rate at which you pay back the loan. If you have no income for a time period, you make no repayments. The real value of the loan does not increase because it is only tied to the consumer price index (CPI).

This model dramatically levels the playing field for students pursuing post-secondary education, while at the same time ensuring that everyone bears a relatively equal cost burden for their education.

An income-contingent repayment model could be designed in a number of different ways. There can be discounts for upfront payment or accelerated repayment. There can be a fixed repayment amount that must be paid back in full, or there can be debt relief after a certain number of years (as with the Faculty’s current back-end debt-relief program).

But why the need for change?

Dean Moran has articulated four ideals that guide the school’s approach to tuition and financial aid: (i) offering the strongest program, (ii) ensuring that our school remains accessible regardless of financial need, (iii) ensuring that career choices are not distorted by tuition; and (iv) ensuring that our school reflects the diversity of Canadian communities. Unfortunately, the present system is unable to live up to these ideals in important ways.

First, back-end debt relief is available based only on financial need identified by the financial aid office during your time in the program. If you did not qualify for financial aid, the school will not help you manage your debt if, for example, a public interest career hinders your ability to make repayments.

Second, tuition levels and trends have made access a serious concern, particularly because credit is not equally available to everyone. There are many reasons for this. Some of us are more burdened by debt than others from undergrad. Some of us have families to support. Some of us do not have friends or family to cosign for loans. While these problems do not affect the student population equally, they are acute for those who experience them.

The beauty of an income-contingent approach is that it would dramatically mitigate these problems. It would allow the school to live up to its ideals with respect to accessibility without hindering its ability to fund a world-class law school. The devil would certainly be in the details. We don’t purport to know what the best model would look like, but we do think the options are worth discussing.

For instance, a model like this could be implemented by the provincial government. Compliance would be straightforward, in that deductions would be processed through existing income tax mechanisms. Risk would be broadly distributed across hundreds of thousands of university graduates. Given that rising tuition and ballooning debt loads affect students enrolled in all kinds of programs across the province, this approach could certainly gain traction. In Oregon, for example, the state legislature recently passed a similar plan called “Pay it Forward, Pay it Back,” so the model is already being looked to by policy makers outside Australia. That said, the present political climate and complexity involved in designing and modeling such a program means a provincial approach might not do much for us in the short-term.

So what else can we do?

The University of Toronto Faculty of Law could implement this plan unilaterally. We know; it sounds crazy. But hear us out.

First, enforcement would be different, given that the school cannot make pay-cheque deductions. Relying on private contracts for tuition (with the possibility of private action in case of default) poses risks and could be time-consuming and expensive. However, U of T Law graduates form a tight-knit community with generally well-paying jobs and an incentive to avoid bankruptcy (and the associated risk of being removed from the bar). Given these factors, compliance and repayment rates for our alumni should far exceed what is possible for a broad-based provincial plan.

Perhaps the trickiest part is financing the up-front cost of such a program. Now that the fundraising drive for our new building is complete, Dean Moran and the administration are looking for the next major project. While we hope that such a drive would focus on financial aid in any case, this alone is not very interesting. And besides, a successful campaign would only buy us a few years of increased student funding. A much more interesting move would be a campaign to front-end making this transition.

An additional possibility would be to seek third-party institutions to purchase the student debt, as is already the case for many at an individual level. The school would be able to negotiate more favourable borrowing terms given the now-consolidated millions of dollars worth of high quality debt.

What do you think? Is this an idea worth pursuing?

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