Transcript Loan Repayment Options
Loan Repayment Options
Presented by: Kesha N Wilson & Malik Gladden Date: 5/20/2014 Event: VASFAA Annual Conference Norfolk State University
Repayment Plan Options
Standard Repayment Plan Graduated Repayment Plan Extended Repayment Plan Income Contingent Repayment Plan (ICR) Income-Based Repayment Plan (IBR) *NEW Pay As You Earn Repayment Plan Public Service Loan Forgiveness There are other repayment plans available for students via studentloans.gov. These are just the most common choices.
Terminology
New Borrower: A new borrower can be defined as someone who did not have an outstanding balance on a DL Program Loan or FFELP as of October 1, 2007 or do not have an outstanding balance on such a loan on the date a new loan was received after October 1, 2007. Student could have borrowed on a federal loan on or after October 1, 2011. Capitalization: The addition of unpaid interest to the principal balance of the loan, which will increase the principal balance and total cost of the loan. Discretionary Income: The adjusted gross income minus the federal poverty line that corresponds to family size and the state in which the student resides. Partial Financial Hardship: If the annual amount due on all of the student’s eligible loans or, if filing Married Filing Jointly, the annual amount due on all student and spouse eligible loans, is more than 15% of the difference between your AGI on the most recently filed income tax return, and 150% of the poverty guideline amount corresponding with family size and state of residence.
Equation: Annual amount of payments due > 15% [AGI-(150% x applicable poverty guideline amount)]
Federal Loans Eligible
Direct Subsidized Loans Direct Unsubsidized Loans Direct Parent PLUS Loans Direct Graduate PLUS Loans Direct Consolidation Loans *for some repayment plans FFELP (Fed. Family Education Loan Program) *for some repayment plans
Repayment Options by Loan Type
Loan Type
Subsidized Unsubsidized Direct PLUS Direct Consolidation *that did not repay a PPLUS loan Direct Consolidation *that did repay a PPLUS loan
Standard
Yes Yes Yes Yes Yes
Graduated
Yes Yes Yes Yes Yes
Extended
Fixed & Graduated Fixed & Graduated Fixed & Graduated Fixed & Graduated Fixed & Graduated
ICR
Yes Yes Yes Yes Yes
IBR
Yes Yes Yes Yes
No
Parent Direct PLUS Direct PLUS Consolidation
Yes Yes Yes Yes Fixed & Graduated Fixed & Graduated
No No No No
Standard Repayment Plan
Loans Included: Direct Sub, Direct Unsub, & all PLUS loans Maximum Repayment Period: 10 years Most traditional of the plans Has typically a higher payment each month due to a shorter period to repay
Graduated Repayment Plan
Loans Included: Direct Sub, Direct Unsub, & Direct PLUS Minimum Monthly Payment: monthly interest accrual Maximum Repayment Period: 10 years Payments start low and then increase every two years This plan will benefit those that start with low income but expect that to rise over time
Income Contingent Repayment Plan (ICR)
Loans Included: only Direct Loans Not available for Direct PLUS Loans made to parent borrowers or Direct PLUS Consolidation *Will include the PPLUS if it was made into a DL Consolidation loan on or after 7/1/2006 to repay the PPLUS loan Pay the lesser of: 12-year repayment plan (based on income) 20% of monthly discretionary income Remaining balance forgiven after 25 years and is taxable under IRS Rules & Regulations
Income-Based Repayment Plan (IBR)
Loans Included: Direct Loans (minus PPLUS loans) and FFEL Based on annual income and family size Individual must be facing a Partial Financial Hardship Pay the lesser of: 15% of discretionary income Repayment amount will be reviewed annually for any possible adjustments in income Remaining balance forgiven after 25 years and is taxable under IRS Rules & Regulations
Pay As You Earn
Loans Included: Direct Loans (excluding PPLUS) For new borrowers who did not have a balance on a federal loan on or after 10/1/2007, or have a new federal loan on or after 10/1/2011. If the monthly payment does not cover the interest, ED will cover the interest payment for up to three consecutive years for Sub loans only. Pay the lesser of: 10% of discretionary income or what would have been paid under the 10-yr SRP Remaining balance is forgiven after 20 years and is taxable under IRS Rules & Regulations
Examples of Plans: Subject
Billy Borrower: • • • Is single with no dependents and lives in Florida Has an AGI of $35,000 and Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6.8% interest rate
Example of ICR
Under ICR, Billy will * :
• • • • • Have an initial monthly payment of $397.17
Have a final monthly payment of $535.23
Make payments that cover all accruing interest, and therefore not have annual capitalization Pay off his loans in 164 months (13 years, 8 months), and therefore receive no forgiveness Pay a total of $78,444.28 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan
*Assumes a 5% increase in Billy’s income each year and a 3% annual increase in the poverty guidelines.
Example of IBR
Under IBR, Billy will * :
• • • • • • Have an initial monthly payment of $228.06
Have a final monthly payment of $575.40
Receive $653.16 in interest subsidy during the first three consecutive years of IBR repayment (because the payment will not cover all accruing interest on subsidized loans) Have a payment that is no longer based on his income (no longer have a partial financial hardship) in his 16 th year of IBR Pay off his loan at the beginning of his 21 st therefore receive no loan forgiveness) year of IBR (and Pay a total of $101,673.34 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan
*Assumes a 5% increase in Billy’s income each year and a 3% annual increase in the poverty guidelines.
Example of Pay As You Earn
•
Under Pay As You Earn, Billy will
*
:
Have an initial monthly payment of $152.04
Have a final monthly payment of $492.19
Receive $1,999.79 in interest subsidy, during all of the first three consecutive years of Pay As You Earn repayment (because the monthly payment will not cover all accruing interest on subsidized loans) Always have a payment that is based on his income (will always have a partial financial hardship) Receive forgiveness in the amount of $44,979.06
Pay a total of $70,709.53 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan
*Assumes a 5% increase in Billy’s income each year and a 3% annual increase in the poverty guidelines.
What Documentation is Needed?
Borrowers must provide documentation of all taxable income such as pay stubs, unemployment benefits, etc. Borrowers do not need to provide untaxed income such as SSI or welfare Must complete the application process for approval and may require additional follow-up or explanation of benefits/income received Documentation needed annually!
Any part of a forgiven loan may be taxable under the IRS rules and regulations
Next Steps
Find Your Servicer
A student’s specific servicer for each loan can be found at NSLDS. There are currently 17 servicers.
Determine Repayment Plan
A student can apply for the repayment plans on www.studentloans.gov
if they want something other than a Standard Repayment Plan
Consider Consolidation
Be careful with the interest rate difference Consider if student/spouse consolidation is advantageous More information can be found at www.loanconsolidation.ed.gov
Remember Deferment and Forbearance Options
These can be utilized for re-entering school or temporarily postponing payments for military, financial hardship, and other certain situations
Know about Forgiveness, Cancellation, and Discharge Know the Consequences of Delinquency and Default
Application Steps/Process
Section 1: Borrower Information Section 2: Repayment Plan Selection Options Section 3: Spouse Information (if applicable) Section 4: Income Contingent Section (Family Size, Joint Repayment) Section 5: Income Based Repayment (Family Size, Joint Repayment, Loans Eligible) Section 6: Mailing address for completed form Section 7: Privacy & Paperwork Reduction Notices
FAQ’s
Is there a limit on how many times a student can change their repayment plan?
A: There is no limit to when or how often you may change repayment plans. The new repayment plan has to have a repayment term longer than the amount of time you have already spent in repayment.
What happens if a student does not choose a repayment plan?
A: If a repayment plan is not chosen, the student will automatically fall into the Standard Repayment Plan.
What about private student loans?
A: Contact private student loan servicer to see what options are available
Resources for Repayment Plans
www.studentloans.gov
Payment Plan Application http://www.nslds.ed.gov/nslds_SA/ Students can view current loan balance http://studentaid.ed.gov/home A wealth of knowledge on all topics FA-related Very in-depth information on repayment plans Call the various servicer(s) to gain further information on what options fit the student’s circumstances