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Prof offers alternative to traditional law school loans: Structure a swap transaction

Posted Jul 23, 2013 6:14 AM CDT
By Debra Cassens Weiss

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American University tax law professor Benjamin Leff is suggesting another way to finance a law school education—through an “income-based rate swap.”

Leff’s plan would give law schools an incentive to find good jobs for their students, the Wall Street Journal Law Blog (sub. req.) reports.

The idea: Students would still borrow to finance their education from a bank or the federal government. But the law school would then contract with students to make loan payments, and the students would agree to pay the school a percentage of their income over time. “The IBR Swap is a student’s exchange of a fixed obligation to lenders for an income-based obligation to the school,” Leff explains in an abstract of an article he co-authored with American University law professor Heather Hughes. The article abstract is available here.

Leff told the Law Blog he’s not sure whether law schools or third-party investors should make the swap. He also sees a possible problem. “I’m not a 100 percent sure this is legal,” he told the blog.

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