Transcript IBR – One Year Later and Public Service Loan Forgiveness

IBR – One Year Later
and Public Service Loan
Forgiveness
EASFAA 2010
May 17, 2010
Stephen G Brown
Fordham University School of Law
What is IBR?
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2007 College Cost Reduction and Access Act
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PL 110-84
Income Based Repayment option
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Effective July 1, 2009
Defines “Economic Hardship”
Creates Public Service Loan Forgiveness
Program
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Effective October 1, 2007
IBR
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New formula for calculating monthly
payments on federal student loans
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FFELP or Direct
Stafford, GradPLUS, Federal Consolidation
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Not parent PLUS or consol. containing PLUS
Borrower experiencing “partial economic
hardship”
Partial Economic Hardship
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Federal loan payments exceed 15% of AGI
above 150% of poverty level for family size
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Huh?
Federal Loan Payments
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Monthly payments on Stafford, GradPLUS
and/or Federal Consolidation Loans
10 year Standard amortization
Adjusted Gross Income
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Prior year Adjusted Gross Income
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If married filing jointly, both incomes*
If married, filing separately, only filer (PL110-153)
Lender may accept alternative documentation
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1040 – line 37
1040A – line 21
1040EZ Line 4
Changes in income
* After July 1, 2010, both education loan debts also count
Poverty Levels 2009
Family Size
Amount
48 states
150%
1
$10,830
$16,245
2
$14,570
$21,855
3
$18,310
$27,465
4
$22,050
$33,075
5
$25,790
$38,685
6
$29,530
$44,295
Monthly maximum payments
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AGI - (assumes family size of 1)
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$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$172
$297
$422
$547
$672
$797
$922
$1,005
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If borrower made 25 years of payments under
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IBR (Income Based Repayment)
ICR (Income Contingent Repayment)
Standard Repayment (10 year term)
and still has a balance…
The remainder is forgiven!
Interest subsidy
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If payments do not cover outstanding interest
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Negative amortization
Secretary of Education pays remaining interest
due on subsidized loans
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Or sub portion of Consolidation
Up to 3 years
Negative Amortization
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“Negative” – sounds bad
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And it is!
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Payments do not cover the interest due on the loans
$100,000 at 6.8% = $6,800/yr = $566.67/mo
@ $40k income = $297
$567-297 = $270/mo accruing interest not paid
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Capitalized when leave IBR or no PFH
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And if I become rich and famous?
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May no longer be experiencing PFH
May choose to leave IBR
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Loans become due by end of prior repayment
plan – but may switch
May choose to stay in IBR
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Pay original 10 year amortized payment
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But may take longer than initial 10 years to repay
For example…
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$40,000 income = $297 payment
$100,000 debt (at 6.8%) = $1,155 monthly payment
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4 years of partial financial hardship
Then rich and famous!
Will have paid $14,907 towards loans
$109,000 still due
Will take 136 additional months to repay
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Full disclosure – not counting -$5,202 forgiven interest on $25,500 assumed sub loan
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Loan Forgiveness
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Yes, after 25 years (300) eligible payments
under IBR
If $0 calculated payment, payment counts
Currently considered a taxable event
Miscellany
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May apply through each of your lenders
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Theory is weighted average payments
May choose to Federal Direct Consolidate
Prior year taxes or release (4506-T)
Questions – IBR?
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Moving right along…
Loan Forgiveness for
Public Service Employees
Federal Loan Forgiveness for Public Service
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Greatest thing since sliced bread!
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Only Federal Direct Loans
If FFELP borrower – MUST CONSOLIDATE
Can use IBR payment plan or ICR or 10 year
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Or other equaling 10 year payment
120 payments while in eligible employment
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Or maybe not!
Need not be consecutive
If less than 120 months, revert to original monthly
payment (10 year amortization)
Federal Loan Forgiveness for Public Service
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A full-time job in emergency management, government,
military service, public safety, law enforcement, public
health, public education (including early childhood
education), social work in a public child or family service
agency, public interest law services (including prosecution
or public defense or legal advocacy in low-income
communities at a nonprofit organization), public child
care, public service for individuals with disabilities, public
service for the elderly, public library sciences, school‐based
library sciences and other school‐based services, or at an
organization that is described in section 501(c)(3) of the
IRS Code and exempt from taxation, or teaching as a fulltime faculty member at a Tribal College or University and
other faculty teaching in high-needs areas, as determined by
the Secretary.
Federal Loan Consolidation
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Allows students to convert former (pre July 1,
2006) variable rate FEDERAL loans into
fixed rate –No private loans
Allows students to lock in “in-school” versus
“in repayment” rate
Weighted average interest rate
Forgiven for death/disability
Deferment/forbearance
Be careful of mixing
But, under IBR
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Negative amortization
Maximum payment is original 10 year
amortized monthly payment
Once no longer partially economically
hardship may have to repay for 10 (or more!)
additional years!
Look familiar?
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AGI - (assumes family size of 1)
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$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$172
$297
$422
$547
$672
$797
$922
$1,005
Other issues
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If you borrow more, more is forgiven !
How clear is the crystal ball?!?
Peace Corps/Americorps
Guaranteed forgiveness? Politics.
Record keeping
“combination of public service organizations”
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What if life happens?
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 Stay
Tuned!
 More to Come.
 Economy?
 Get Excited!
To watch out in the future
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HCERA -Health care and Education
Reconciliation Act of 2010 - P.L. 111-152
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New Borrowers after July 1, 2014
PFH if payments above 10% of income above
150% of poverty level
Forgiveness after 20 years, not 25
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Resources
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studentaid.ed.gov
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and fact sheets and q & a
IBRinfo.org
finaid.org
equaljusticeworks.org
Stephen G. Brown
Fordham University
School of Law
33 West 60th Street
New York, NY 10023
212 636-7178
[email protected]