Stanford University is making a bid to revive the concept of income-based private student loans, offering a trial version in its celebrated law school just as many other US campuses are backing away.

The pilot project, starting this semester, aims to provide 20 Stanford law students with up to $170,000 (£150,000) apiece – nearly their full three-year tuition bill – with terms that require them to pay back 10 per cent of their income for 12 years.

According to Ralph Richard Banks, a law professor who is backing the idea, it is a response to the university’s recognition that its law graduates command high starting corporate salaries – beyond $200,000 is the norm – but often want to pursue public-interest careers.

“We want students to be free to pursue employment options that contribute to the world in a way that’s consistent with their own desires and interests, and not feel compelled to take the highest-paying job,” Professor Banks said.

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Yet for sceptics of so-called income-share agreements (ISAs), the rationale is not at all evident.

Income-share agreements have been touted for years – most enthusiastically on the political right – as a fiscally responsible non-governmental answer to inflationary pressures in higher education that can hopefully push institutions to offer their students only programmes with a demonstrable corresponding value in the job market.

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But for various reasons, the idea is struggling, at least among four-year institutions. Purdue University and the University of Utah are among the more prominent of several to wind back or halt their ISA offerings, because of factors such as low student interest, the loss of private financing partners, and heightened federal scrutiny in an arena seen as ripe for exploiting vulnerable students unable to fully assess the long-term commitment they are making.

One ISA provider, Better Future Forward, just finalised by the federal Consumer Financial Protection Bureau forbidding it from continuing to suggest to students that ISAs are not loans. Purdue’s servicer, Vemo Education, was sued by dozens of former students of a for-profit coding academy over allegedly deceptive practices.

That kind of problem has fuelled critics such as the Student Borrower Protection Center, a non-profit investigative and advocacy group, which questions the underlying need for new types of privately financed loans when the federal government already has its own more reliable options – a general income-based repayment programme and a more generous one for those in public-service careers.

The case of Stanford is especially curious, said Ben Kaufman, the centre’s director of research and investigations. The offer for its law graduates to pay back 10 per cent of income for 12 years is a better deal than the government’s main income-based repayment programme, but worse than its public-service version, he said, meaning that it should have no potential appeal beyond the relatively few lawyers who find a service-oriented job outside the public sector. And for those, he said, Stanford’s law school could simply adjust its existing Loan Repayment Assistance Programme.

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ISAs are still growing in the post-secondary realm – the Student Borrower Protection Center estimates that it totals several hundred million dollars in loans annually – though Mr Kaufman saw the growth now happening outside the world of major universities and limited to short-term boot camps and other types of other vocational training.

But Professor Banks, the co-founder and faculty director of the Stanford Center for Racial Justice, said he was comfortable for now with the new ISA plan, and said he had already heard from colleagues at other schools who were interested in trying the concept.

“Maybe it’ll take off,” he said. “Stanford is known for innovation and experimentation – this is just another example of that.”

paul.basken@timeshighereducation.com