Assets are considered in determining the amount of a LIPP subsidy for which a participant is eligible. Graduates will receive an asset protection allowance of $10,000 at graduation, with an additional $10,000 for each subsequent year employed, and $10,000 for each full year employed between college and law school. For married participants, the protected asset amount is doubled since the spouse’s assets are also considered. In addition we protect 50% of the vested retirement value reported by participants. The total allowance is then subtracted from the total amount of assets, resulting in an amount of unprotected assets. A declining percentage (from 100% for 0 years out to 0% for 10 years out) is applied to the unprotected amount. This result is then divided by the outstanding loan debt amount, resulting in a percentage. The LIPP subsidy is reduced by that percentage.
Single participant has been out of school for 3 years and worked 1 year between college and law school. Total assets are $60,000, total outstanding debt is $110,000. Calculated award without asset adjustment $5,000.
- Protected Assets: $10,000+3*$10,000+1*$10,000=$50,000
- Unprotected Assets: $60,000-$50,000=$10,000
- Adjusted Unprotected Assets: $10,000*0.70=$7,000
- Award Reduction Percentage: $7,000/$110,000=6.36%
- Adjusted LIPP Award: $5,000*(1-0.0636)=$4,682
For LIPP purposes, assets are defined as cash and savings, investment equity, home equity, and retirement savings such as 401(k), 403(b), and IRA plans. Updated asset information is collected for each LIPP application cycle. The assets accumulated by participants are intended to cover expenses for which LIPP does not make allowances such as out of pocket medical expenses, relocation costs, saving for down-payments, adoption, alternative reproduction technologies, elder care, etc.
LIPP participants who hold non-traditional mortgages, such as loans from family members or other non-commercially available loans, will need to provide documentation of the repayment terms. If the loan terms are more favorable than those available within the conventional mortgage market this represents a gift for LIPP purposes. The amount of the gift will be determined by comparing the monthly payment on the non-traditional mortgage to the monthly payment on the average rate available on conventional mortgages at a 30-year fixed rate and included as income when calculating LIPP eligibility .