Transcript Document

Income-Driven Repayment Plans
&
Public Service Loan Forgiveness
Agenda
• Income-Driven Repayment Plans
 Understanding “partial financial hardship”
 Understanding IBR/Pay As You Earn – the good, the bad,
and the ugly
• Public Service Loan Forgiveness
 Program Overview
 Eligibility/Qualification
 Borrower Process Flow
2
But first, some background……….
• 2007 College Cost Reduction and Access Act
 PL 110-84
 Income Based Repayment Option (IBR)
• Effective July 1, 2009
• Defines “Partial Economic Hardship”
• Creates Federal Public Service Loan Forgiveness
Program
– Effective October 1, 2007
– First forgiveness November 1, 2017
3
Who Should Consider Income-Driven
Repayment Plans?
Borrowers with high student loan payments relative to income
• Individuals who are experiencing financial difficulties but who may not
qualify for other options such as deferment or forbearance
• Teachers with heavy debt loads against low salaries
• Individuals pursuing lower paid social-service careers
• Recent graduates managing typical federal student loan debt in lowwage jobs or unpaid internships
• Law graduates earning low salaries as public defenders
• Medical residents earning typical resident salaries
4
Partial Financial Hardship (PFH)
• Important to understand these programs
• A partial financial hardship exists when :
 The payment calculated under the Standard 10 year
amortized repayment plan is GREATER than the
payment calculated under Pay As You Earn/IBR
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IDR Overview
Three main plans
• Income-Contingent Repayment Plan (ICR) – 1994
• Direct Loan Program only
• More information available at StudentAid.gov/ICR
• Income-Based Repayment Plan (IBR) – 2009
• Available in both the Direct Loan and FFEL Program
• More information available at StudentAid.gov/IBR
• Pay As You Earn Plan (PAYE) – 2012
• Direct Loan Program only
• For new borrowers in FY 2008 who receive new loans in FY 2012
• Modeled on IBR, incorporating statutory IBR changes scheduled to take
effect for new borrowers in 2014
• More information available at StudentAid.gov/PayAsYouEarn
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Eligible Borrowers – IBR/PAYE
IDR Plan
Income
Based
Repayment
Pay As You
Earn
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Eligible Borrowers
•
Direct Loan and FFEL Program borrowers with eligible loans and
•
Their payments would be lower on IBR relative to what would have been
paid under the 10-year standard repayment plan (called “partial financial
hardship”)
•
Direct Loan borrowers with eligible loans
•
Must be a new borrower on/after 10/1/2007 who received new loan
on/after 10/1/2011 and
•
Their payments would be lower on Pay As You Earn relative to what
would have been paid under the 10-year standard repayment plan
(called “partial financial hardship”)
Eligible Loans & Payment Amounts – IBR/PAYE
IDR Plan
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Eligible Loans
Eligible Payment Amounts
Income
Based
Repayment
All Direct and FFEL Program
loans except parent PLUS
loans and Consolidation Loans
that repaid parent PLUS loans
• 15% of discretionary income
(income-based payments) or
• What they would have paid under
the 10-year standard repayment
plan (non-income-based
payments)
Pay As You
Earn
• 10% of discretionary income
(income-based payments) or
All Direct Loans are eligible
except parent PLUS loans and • What they would have paid under
Consolidation Loans that repaid
the 10-year standard repayment
parent PLUS loans
plan (non-income-based
payments)
IBR Payment Amounts
EXAMPLE:
Borrower’s AGI is $50,000 and they reside in 1 of the 48 contiguous
states and a family size of 1.
 Poverty guideline for this example is
 $11,670 x 150% = $17,505
 Then we subtract $17,505 from $50,000 = $32,495 which is the
discretionary income
 $32,495 x 15% = $4,874.25
divide that figure by 12 = $406.19
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Interest Subsidies – IBR/PAYE
IDR Plan
Income
Based
Repayment
Interest Subsidy
If the monthly IBR payment amount does not cover the interest that
accrues on the loans each month, the government will pay the unpaid
accrued interest on the borrower’s Subsidized Stafford Loans (either Direct
Loan or FFEL Loans) for up to three consecutive years from the date they
began repaying under IBR or Pay As You Earn.
−
−
Pay As You
Earn
If the monthly Pay As You Earn payment amount does not cover the
interest that accrues on the loans each month, the government will pay the
unpaid accrued interest on the borrower’s Direct Subsidized Stafford
Loans for up to three consecutive years from the date they began repaying
under Pay As You Earn or IBR.
−
−
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The three years does not include periods of Economic Hardship
Deferment
Borrower must pay all interest on unsubsidized loans
The three years does not include periods of Economic Hardship
Deferment
Borrower must pay all interest on unsubsidized loans
Negative Amortization
“Negative” sounds bad …. And it is!
Example
– Payments do not cover the interest due on the loans
– $100,000 at 6.8% = $6,800/yr = $566.67/mo
– PAYE @ $40k income = $190
– $567-$190 = $377/mo accruing interest not paid
– Capitalized when leave IBR/PAYE or no longer PFH
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Loan Forgiveness – IBR/PAYE
Loan Forgiveness
• If the IBR borrower makes 25 years of qualifying payments and
meets certain other requirements, any remaining balance will
be cancelled (20 years for new borrowers only on/after
7/1/2014)
• The remaining balance is forgiven for the PAYE borrower after
20 years of qualifying repayment – is considered taxable
income!
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Important Reminders – IBR/PAYE




Must apply annually
Online – studentloans.gov
Release prior year tax forms electronically
Must affirm that “The information on my prior year tax
form substantially represents my current financial
situation” or similar
 Can use alternative documentation of income form if
prior year tax form inaccurate (paper)
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Leaving IBR or Pay As You Earn
• If borrowers leave IBR and have unpaid interest, it will
capitalize to principal, increasing principle balance
• The borrower is placed into the Standard Plan based on
the term remaining for their loan type
– For example, Stafford/PLUS Loans will have 10 years minus the time in
repayment. Consolidation Loans may have 10-30 years minus the time
in repayment.
– Borrowers may request a reduced payment forbearance if they cannot
afford the payment amount on the standard repayment plan.
• Borrowers who leave IBR can come back if they
demonstrate "partial financial hardship".
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Income-Contingent Repayment (ICR)
• Does not require borrower to show PFH for eligibility
• Loan discharged after 25 years
• Each year the monthly payments are recalculated based on:
– AGI (spouse’s income will only be included if they file federal taxes jointly or
are repaying under joint ICR
– The Family size
– Total amount of the borrower’s Direct Loans
– Lesser one of the following:
• 12-year standard repayment schedule multiplied by income percentage factor, or
• 20 percent of discretionary income
• If payments are not large enough to cover the interest that accrues
monthly, the unpaid interest is capitalized once each year
– The amount capitalized will not exceed 10% of original amount owed when the
borrower entered repayment
– If the borrower’s payments are not enough to cover the accruing interest, it will
continue to accrue but will not be capitalized if the borrower has reached the
10% limit
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Income-Driven Repayment Examples
Eligible Loan Debt - $125,000
(6.8% interest rate/unsubsidized)
Starting AGI - $78,000
(AGI increasing 4% annually,
Poverty Level Change Rate 3%)
Family Size = 1
Pay As You Earn
Repayment Plan
(20 years)
First Monthly Payment
$510.38
$765.56
$1,119.50
$1,438.50
Maximum Monthly Payment
$742.97
$1,438.50
$1,584.49
$1,438.50
Total Interest Paid
$150,293.05
$103,412.57
$59,053.45
$47,620.71
Total Principal Paid
$36,954.65
$125,000.00
$125,000.00
$125,000.00
Total Amount Paid
$187,247.70
$228,412.57
$184,053.45
$172,620.71
Remaining Principal Balance
and Unpaid Interest
$99,073.50
$0.00
$0.00
$0.00
Total Loan Forgiveness
$99,073.50
$0.00
$0.00
$0.00
Examples from FinAid.org calculators
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Income Based
Repayment Plan
(IBR)
(17.4 years)
Income
Contingent
Repayment Plan
(ICR)
(11.2 years)
Standard
Repayment Plan
(10 years)
Income-Driven Repayment Examples
Eligible Loan Debt - $125,000
(6.8% interest rate/unsubsidized)
Starting AGI - $45,000
(AGI increasing 4% annually,
Poverty Level Change Rate 3%)
Family Size = 1
Pay As You Earn
Repayment Plan
(20 years)
First Monthly Payment
$235.38
$353.06
$569.50
$1,116.28
Maximum Monthly Payment
$545.24
$1,016.12
$991.08
$1,116.28
Total Interest Paid
$88,980.04
$135,862.82
$88,913.06
$36,953.46
Total Principal Paid
$0.00
$53,615.82
$97,000.00
$97,000.00
Total Amount Paid
$88,980.04
$189,478.63
$185,913.06
$133,953.46
Remaining Principal Balance
and Unpaid Interest
$139,939.96
$57,114.55
$0.00
$0.00
Total Loan Forgiveness
$139,939.96
$57,114.55
$0.00
$0.00
Examples from FinAid.org calculators
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Income Based
Repayment Plan
(IBR)
(25 years)
Income
Contingent
Repayment Plan
(ICR)
(18.9 years)
Standard
Repayment Plan
(10 years)
Income-Driven Repayment Application
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•
Borrowers may apply for an IDR on
www.studentloans.gov or complete a
paper application.
•
Can be used by borrowers with Direct
Loans or FFEL Loans
•
Uses IRS Data Retrieval Tool that is
used on the FAFSA
•
Retrieves the most recent tax
information from two most recently
completed tax years
•
If a borrower selects a specific
repayment plan that they are not
eligible for, the borrower will be placed
on the lowest monthly payment amount
IDR plan for which they are eligible.
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PSLF Overview
The Public Service Loan Forgiveness Program (PSLF) was
created to encourage individuals to enter and continue to work fulltime in public service jobs.
• Enacted as part of College Cost Reduction and Access Act (CCRAA)
of 2007
• Direct Loans Only (may need to consolidate)
• Public Service – full-time employment for 10 years
• 120 qualifying payments (IBR, ICR, or Standard Repayment plans
only) made within 15 days of the due date – only payments made after
10/1/2007 count
• Balance of loans forgiven – not taxable (108(f))
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Eligible Loans
•
•
•
•
•
•
Direct Subsidized Loans
Direct Unsubsidized Loans
Direct PLUS Loans (for graduate or professional students)
Direct Consolidation Loans
Special Direct Consolidation Loans
Other federal loans eligible if consolidated into a Direct Consolidation
Loan, including:





FFEL Subsidized/Unsubsidized Stafford Loans
FFEL PLUS Loans for graduate or professional students
FFEL Consolidation Loans (excluding joint spousal consolidation loans)
Federal Perkins Loans
Title VII Health Professions and Nursing Loans
Alternative/Commercial Loans are NOT eligible loans for PSLF
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Qualified Employment
• Full-time employment in any position with a public
service organization
– Not including staff of for-profit contractors working for public service
organizations
• Full-time AmeriCorps or Peace Corps position
Eligible Employer Examples
 Hospitals
 NGOs
 Foundations
 Research Institutes
 Government
 Charitable Organizations
 Universities
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Definition of Public Service Organization
• A federal, state, local, or Tribal government organization,
agency, or entity (includes most public schools, colleges and
universities);
• A public child or family service agency;
• A non-profit organization under section 501(c)(3) of the Internal
Revenue Code that is exempt from taxation under section
501(a) of the Internal Revenue Code (includes most not-forprofit private schools, colleges, and universities);
• A Tribal college or university; or
• A private non-profit organization (that is not a labor union or a
partisan political organization) that provides a specific public
service.
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Definition of “Full-time” Employment
For purposes of eligibility for PSLF, full-time employment is defined
as:
Working in qualifying employment in one or more jobs for the greater of:
 An annual average of at least 30 hours per week (or for a contractual or
employment period of at least 8 months, an average of 30 hours per week); or
 Unless the employment is with two or more employers, the number of hours the
employer considers full-time
Employer-provided vacation or leave time is equivalent to hours worked
in determining whether you meet the full-time employment requirement.
This includes leave taken for a qualifying condition under the Family and
Medical Leave Act of 1993.
Note: When determining full-time public service employment at a not-for-profit organization you may
not include time spent participating in religious instruction, worship services, or any form of
proselytizing.
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Identifying Qualifying Employers
• Check with the employer regarding their classification (government,
non-profit, etc.)
• Depending on employer type, public websites are available:
Government
Tribal College/University
Non-Profit 501(c)(3)
Private Non-Profit
http://www.usa.gov/Agencies.shtml
http://www.ed.gov/edblogs/whiaiane/tribes-tcus/tribal-colleges-anduniversities/
http://www.irs.gov/charities/index.html
http://www.irs.gov/Charities-%26-Non-Profits/CharitableOrganizations/Private-Foundations
• Contact FedLoan Servicing if unsure
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Eligible Repayment Plans
Income-Based Repayment (IBR) Plan
• not available on Direct PLUS Loans for parents or Direct Consolidation Loans
that paid a PLUS Loan for a parent
Income-Contingent Repayment (ICR) Plan
• not available on Direct PLUS Loans for parents or Direct PLUS Consolidation
Loans
Pay As You Earn Repayment Plan
• not available on Direct PLUS Loans for parents or Direct Consolidation Loans
that paid a PLUS Loan for a parent
Standard Repayment Plan
• with a 10-year repayment period
Any other Direct Loan Program Repayment Plan
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• with payments that are at least equal to the monthly payment amount that
would have been required under the Standard Repayment Plan with a 10year repayment period
Qualifying Payments
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Must have been made after
October 1, 2007
Must be on-time
(no later than 15 days after the
scheduled due date)
Must be made each month
(satisfying the monthly
installment amount that was
due for that month)
Must be made when the loan
is not in a default status
Forgiveness Under PSLF
Eligibility for forgiveness of an outstanding balance on an
eligible Direct Loan occurs if the borrower:
 Is not in default
 Makes 120 separate, full monthly payments (after 10/1/07), within 15
days of due date
 Makes payments under one or more PSLF-specified repayment
plans
 Is full-time employee of public service organization while making
required payments and at time forgiveness is requested and granted
 Not a taxable event
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PSLF Examples
Eligible Loan Debt - $97,000
(6.8% interest rate/unsubsidized)
Starting AGI - $45,000
(AGI increasing 4% annually,
Poverty Level Change Rate 3%)
Family Size = 1
Pay As You Earn
Repayment Plan
Income
Contingent
Repayment Plan
(ICR)
Standard
Repayment Plan
First Monthly Payment
$235.38
$353.06
$569.50
$1,116.28
Maximum Monthly Payment
$351.56
$527.34
$831.97
$1,116.28
Total Interest Paid
$34,819.75
$52,229.63
$62,331.59
$36,953.46
Total Principal Paid
$0.00
$0.00
$20,892.61
$97,000.00
Total Amount Paid
$34,819.75
$52,229.63
$83,224.20
$133,953.46
Remaining Principal Balance
and Unpaid Interest
$128,140.25
$110.730.37
$76,107.39
$0.00
Total Loan Forgiveness
$128.140.25
$110,730.37
$76,107.39
$0.00
Examples from FinAid.org calculators
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Income Based
Repayment Plan
(IBR)
PSLF Examples
30
Eligible Loan Debt - $125,000
(6.8% interest rate/unsubsidized)
Starting AGI - $78,000
(AGI increasing 4% annually,
Poverty Level Change Rate 3%)
Family Size = 1
Pay As You Earn
Repayment Plan
First Monthly Payment
$510.38
$765.56
$1,119.50
$1,438.50
Maximum Monthly Payment
$742.97
$1,114.46
$1,573.10
$1,438.50
Total Interest Paid
$73,953.20
$77,288.94
$58,133.33
$47,620.71
Total Principal Paid
$486.71
$34,370.92
$103,830.88
$125,000.00
Total Amount Paid
$74,439.91
$111,659.86
$161,964.20
$172,620.71
Remaining Principal Balance
and Unpaid Interest
$135,541.44
$90,629.08
$21,169.12
$0.00
PSLF Total Loan Forgiveness
$135,541.44
$90,629.08
$21,169.12
$0.00
Income Based
Repayment Plan
(IBR)
Income
Contingent
Repayment Plan
(ICR)
Standard
Repayment Plan
Borrow Process Flow
• Borrower receives form packet, which is standard with all servicers, and
includes a cover letter, Employment Certification Form and instructions.
• Borrower submits Employment Certification Form.
• Employer is approved public service organization.
• Borrower receives approval notification.
• Eligible loans are transferred to FedLoan Servicing, if applicable.
• Borrower receives notification of qualifying payments made with all prior servicers.
• The borrower will be reminded annually, via email, to submit a new ECF if
employed with a qualifying public service organization since the last ECF was
submitted.
31
Payment Tracking for Eligible Borrowers
32
Partnering with Schools
• Borrower Toolkits for outreach to
current and past student borrowers
• Reporting Available
 Customized email communications
showing the number of borrowers for
your institution who have submitted an
Employment Certification Form
 Student detail information through the
FedLoan Servicing School Portal
• Training resources and personalized
support
 Presentation available for download
 Sector-based, personalized support
33
Counseling Eligible Borrowers
• The first step is to determine what the student is
doing after school.
• If a career in public service is being pursued, PSLF
eligibility should be explored.
• If PSLF is being considered, the borrower should:
 Determine eligibility for income-driven repayment plans
(IBR,ICR and Pay As You Earn)
 Consolidate any FFELP loans under Direct Consolidation
 Make payments on time
34
Current Student Toolkit
Considering a career in Public Service?
Contains:
• Student
Handout
• Various Web
and Print Ads
• Sample Student
Email
• Sample Social
Media Posts
• Alumni toolkit is
also available!
35
School and Borrower Resources
•
PSLF Fact Sheet and Q&As: www.studentaid.ed.gov/publicservice
•
Borrower Information and Employment Certification Form from FedLoan
Servicing: www.MyFedLoan.org/PSLF
•
PSLF Borrower Toolkits: http://www.myfedloan.org/schools/products-tools/publicservice-loan-forgiveness-toolkit.shtml
•
PSLF Fact Sheet for Financial Aid Professionals
http://www.myfedloan.org/schools/docs/student-toolkit/fact-sheet.pdf
•
CFBP Public Service Toolkit:
http://files.consumerfinance.gov/f/201308_cfpb_public-service-toolkit.pdf
•
CFBP Action Guide for Employees:
http://files.consumerfinance.gov/f/201308_cfpb_pledge-action-guide-foremployees.pdf
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Additional Resources
•
Repayment Schedule Estimator
www.myfedloan.org/billing-payment/payment-plans/repayment-schedule-estimator.shtml
•
Repayment Options
www.myfedloan.org/billing-payment/payment-plans/index.shtml
•
Repayment Calculators
http://studentaid.ed.gov/repay-loans/understand/plans
http://www.finaid.org/calculators/
http://www.myfedloan.org/make-a-payment/calculators/index.shtml
•
Federal Student Aid (FSA) Repayment Information
www.studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp
•
Department of Health and Human Services Poverty Guidelines - 2015
http://www.liheapch.acf.hhs.gov/profiles/povertytables/FY2015/popstate.htm
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