Assets are considered in determining the amount of a LIPP subsidy for which a participant is eligible. Graduates will receive the following asset protection allowances:
- $10,000 at graduation
- $10,000 for each full year (12 consecutive months) employed full time between college and law school
- An additional $10,000 for each subsequent year employed
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.
To determine the asset reduction value, the total calculated asset allowance is subtracted from the total amount of assets reported, 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; the percentage is adjusted once per year on July 1st. This result is then divided by the outstanding loan debt amount, resulting in a percentage. The LIPP subsidy is reduced by that percentage.
Example:
A participant who is single, out of HLS for 3 years, and worked 1 year between college and law school. Total assets are $60,000, total outstanding debt is $180,000. Calculated LIPP assistance without asset adjustment $5,000.
- Protected Assets: $10,000 x 4 (3 yrs out of HLS + 1 yr prior work ) + $10,000 for graduation =$50,000
- Unprotected Assets: $60,000-$50,000=$10,000
- Adjusted Unprotected Assets: $10,000 x 0.70 (10% decline for each year out of HLS) =$7,000
- Funding Reduction Percentage: $7,000/$180,000=3.88%
- Adjusted LIPP Amount: $5,000 x (1-0.0388)=$4,806
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.
Beginning with the January – June 2023 application period, we will be implementing the following in regard to home equity:
- Home values will be set once a year in the January – June application period as markets are less volatile at that time of year
- We will cap increases in home value at 10% a year
- We will use the lowest value across the 3 main online home value resources (Zillow, Redfin, and Realtor.com) as each has shown strength in accuracy in different regions of the US
- If participants feel their home value is lower than the published lowest value, we will honor a letter from a real estate professional stating the fair market value of the home, which must be updated once a year
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.