MASFAA 2015 Diona Brown-FedLoan ServicingWill Shaffner-MOHELA

Repayment Alphabet Soup-Growing a Successful Repayment Strategy for Your Students

Agenda

Income-Driven Repayment Plans Overview• Pay As You Earn Plan• Income-Based Repayment Plan• Income-Contingent Repayment Plan• Income Sensitive Repayment Plan• Applying for an Income Driven Plan

Other Repayment Plans

PSLF• Definition

• Eligibility

• Borrower Process Flow

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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 low-wage jobs or unpaid internships

• Law graduates earning low salaries as public defenders

• Medical residents earning typical resident salaries 3

Borrower Considerations

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Pros Cons

More manageable, lower monthly payment

Repayment period could be more than 10 years

Avoidance of delinquency and default More interest could be paid over time

Remaining principal and interest is forgiven after 20 or 25 years of payments

Required annual submission of information on income and family size to prove continued eligibility for reduced payments

Possibility of Public Service Loan Forgiveness (after 10 years of qualifying payments)

Pay As You Earn

• Who qualifies:• “New” borrowers who have a PFH

• Has no outstanding balance on a Direct or FFELP loan as of 10/1/2007, or has no outstanding balance on a Direct or FFELP loan when he or she obtains a new loan on/after 10/1/2007

AND

• Receives a disbursement of a Direct Subsidized or Unsubsidized Stafford, or Grad PLUS loan on or after 10/1/2011; or receives a Direct Consolidation Loan based on an application received on/after 10/1/2011

• Eligible Loans:• Direct Loans except:

• Defaulted loans• Parent PLUS loans• Consolidation loans that repaid Parent PLUS loans

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Pay As You Earn• Under Pay As You Earn, borrowers pay the lesser of:

• 10% of discretionary income or what they would have paid under the 10-year Standard repayment plan.

• Discretionary income for this plan is the difference between the borrower’s AGI and 150 percent of the poverty guideline amount for his/her state of residence and family size.

• Interest subsidy benefit‾ 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.

• The three years does not include periods of Economic Hardship Deferment• Borrower must pay all interest on unsubsidized loans

• For Pay As You Earn, the remaining balance is forgiven after 20 years of qualifying repayment

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Income-Based Repayment (IBR)

• Under IBR, borrowers pay the lesser of:• 15% of discretionary income or what they would have paid under the 10-year Standard

repayment plan (Not a new borrower on/after 7/1/2014)

• 10% of discretionary income or what they would have paid under the 10-year Standard repayment

plan (New borrowers only on/after 7/1/2014)

• Discretionary income for this plan is the difference between the borrower’s Adjusted Gross Income (AGI) and 150 percent of the poverty guideline amount for his/her state of residence and family size.

• Interest subsidy benefit• 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.

• The three years does not include periods of Economic Hardship Deferment• Borrower must pay all interest on unsubsidized loans

• Loan forgiveness• If the 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)

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IBR Payment AmountsThe IBR Partial Financial Hardship (PFH) payment amount is determined by the AGI and family size

• If the borrower is married and files a joint federal tax return, the AGI includes both spouse’s incomes together

• If the spouse has eligible student loan debt, this debt may also be taken into consideration when determining whether the borrower has a PFH

• Annual IBR repayment amount is 15% of the difference between the borrower’s AGI and 150% of the Department of Health and Human Services Poverty Guideline for their family size and state

The IBR payment amount will be adjusted yearly based on income and family size but will never be more than what would be required to be paid under a 10-year Standard Plan based on the balance of the eligible loans when the borrower began repayment under the IBR plan

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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

$11,770 x 150% = $17,655

• Then we subtract $17,655 from $50,000 = $32,345 which is the discretionary income

• $32,345 x 15% = $4,851.75 and divide that figure by 12 = $404.31

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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 11

Income Driven Repayment Example - Beth

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Beth recently completed school with a total of $50,000 in Direct Unsubsidized Loan debt. The interest rate on all of her loans is 6.8%. She is recently married with no dependents and has an adjusted gross income (AGI) of $25,000. Her spouse has an AGI of $30,000 with no student loan debt. They live in the state of North Carolina. She is trying to determine what the best repayment plan would be depending on her filing option.

Assumptions:• Beth qualifies for repayment under the Standard Repayment Plan, the

Income-Based Repayment (IBR) Plan, the Pay As You Earn (PAYE) Repayment Plan, and the Income-Contingent Repayment (ICR) Plan.

• Repayment under all of the following plans would take place as each plan exists under regulations effective July 1, 2014.

Married Filing Jointly Example - BethFor the purposes of this example, the Beth’s AGI = $25,000 and the spouse’s AGI =$30,000. The spouse has no loan debt.

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Unsubsidized Stafford 6.8% Interest Rate; AGI increasing 5% annually; Poverty Level Change Rate 3.3%.

Eligible Loan Debt: $50,000

Starting AGI: $55,000

Family Size: 2

Married Filing Separately Example - BethFor the purposes of this example, the Beth’s AGI = $25,000 and the spouse’s AGI =$30,000. The spouse has no loan debt.

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Unsubsidized Stafford 6.8% Interest Rate; AGI increasing 5% annually; Poverty Level Change Rate 3.3%.

Eligible Loan Debt: $50,000

Starting AGI: $25,000

Family Size: 2

Income-Driven Repayment Application

• 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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Repayment Options – Income Sensitive

• FFEL loans only• Monthly payment is based on monthly gross income

• Select a monthly payment amount between 4%–25% of your monthly income.

• Your payment must be greater than or equal to the interest accruing on your loan.

• You must reapply for this schedule every year.• It is available to you for up to 5 years.

• After 5 years, you will need to choose another repayment schedule. You may have up to 10 additional years under your new schedule.

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Standard & Graduated Repayment Plans

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Standard Repayment• Assigned to borrowers automatically unless otherwise specified• Fixed (equal) payment amount each month, although it could vary

due to interest rate changes on a variable rate loan• Monthly payments will be at least $50• 10-year repayment term (Standard Repayment for Direct

Consolidation loans is 10 to 30 years based on balance)

Graduated Repayment• Payments start low and generally increase every two years• 10-year repayment term (Direct Consol. Loans may have a term of

10 to 30 years based on balance)• Monthly payment is never less than the amount of interest that

accrues each month• No single payment will be more than three times greater than any

other payment

Extended Repayment Plan

Examples from studentaid.ed.gov calculators20

Extended Repayment

• Will pay a fixed or graduated payment amount• Repayment term not to exceed 25 years• FFEL borrowers must have more than $30,000 in

outstanding FFEL Program loans (for new borrowers as of 10/07/1998)

• Direct borrower must have more than $30,000 in outstanding Direct Loans (for new borrowers as of 10/07/1998)

StudentLoans.gov Repayment Plan Comparison Calculator

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The Repayment Estimator on StudentLoans.gov takes a student’s current loan balance and shows what her monthly and total payments would be using various repayment plans.

Borrowers can use the repayment estimator tool during Exit Counseling or the Financial Awareness Counseling Tool.

Income-Driven Plans OverviewPay As You Earn IBR ICR

Payment Calculation

10% of discretionary income Discretionary income = The difference between the borrower’s AGI and 150% of the poverty guideline for their family size and state.

• 15% of discretionary income (borrowers with loans before 7/1/2014)

• 10% of Discretionary income (new borrowers only after 7/1/2014)

Discretionary income = The difference between the borrower’s AGI and 150% of the poverty guideline for their family size and state.

20% of discretionary incomeDiscretionary income = The difference between the borrower’s AGI and 100% of the poverty guideline for their family size and state.

Who Qualifies

• New Borrowers as of 10/1/07; and, • Obtains a new Direct Loan

disbursement on/after 10/1/11. • Partial Financial Hardship (PFH)

• Partial Financial Hardship (PFH) • Direct Loan borrowers

Eligible Loans

• Direct Subsidized and Unsubsidized Loans

• Direct PLUS Loans made to graduate or professional students, and

• Direct Consolidation Loans that did not repay a FFELP or Direct Parent PLUS Loan

• Direct and FFELP Subsidized and Unsubsidized Loans

• Direct and FFELP PLUS Loans made to graduate or professional students, and

• Direct and FFELP Consolidation Loans that did not repay a FFELP or Direct Parent PLUS Loan

• Direct Subsidized and Unsubsidized Loans

• Direct PLUS Loans made to graduate or professional students, and

• Direct Consolidation Loans that repaid a FFELP or Direct Parent PLUS Loan (disbursed on/after 7/1/06 )

Forgiveness 20 Years• 25 Years - borrowers loans before 7/1/2014• 20 Years - new borrowers only on/after

7/1/201425 Years

For more details on eligibility, go to www.studentloans.gov

Income-Driven Plans Overview cont’d

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Pay As You Earn IBR ICR

Partial Financial Hardship Definition

10-year standard payment amount on eligible loans (annual amount owed) exceeds 10% of difference between AGI* and 150% of HHS poverty guideline amount

10-year standard payment amount on eligible loans (annual amount owed) exceeds 15% of difference between adjusted gross income (AGI)* and 150% of U.S. Department of Health and Human Services (HHS) annual poverty guideline

N/A

Interest Subsidy Benefit

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.

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 .

The amount capitalized will not exceed 10% of original amount owed when the borrower entered repayment

Discretionary Income

Adjusted Gross Income (AGI) from tax return (or annual income based on Alternative Documentation of income) minus 150% of applicable Poverty Line (includes spouse’s income if taxes filed jointly)

Adjusted Gross Income (AGI) from tax return (or annual income based on Alternative Documentation of income) minus 150% of applicable Poverty Line (includes spouse’s income if taxes filed jointly)

Adjusted Gross Income (AGI) from tax return (or annual income based on Alternative Documentation of income) minus 100% of applicable Poverty Line (includes spouse’s income if taxes filed jointly)

Income-Derived Payment

10% ×[AGI less Discretionary Income] ÷12

Minimum Monthly Payment : $015% ×[AGI less Discretionary Income] ÷12

Minimum Monthly Payment : $0

Lesser of:20% ×[AGI less Discretionary Income] ÷12

OR

12-year standard payment multiplied by Income Percentage Factor

Minimum Monthly Payment : $0

Public Service Loan Forgiveness• Definition• Eligibility• Borrower Process Flow

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What is Public Service Loan Forgiveness?

The Public Service Loan Forgiveness Program allows eligible borrowers to cancel the remaining balance of their Direct loans after serving full time at a public service organization for at least 10 years while making 120 qualifying monthly payments after October 1, 2007.

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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

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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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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-for-profit 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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Eligible Loans

• Direct Subsidized Loans• Direct Unsubsidized Loans• Direct PLUS Loans (for parents and 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 parents and graduate or professional

students• FFEL Consolidation Loans (excluding joint spousal

consolidation loans)• Federal Perkins Loans • Title VII Health Professions and Nursing Loans

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Eligible Repayment Plans

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• not available on Direct PLUS Loans for parents or Direct Consolidation Loans that paid a PLUS Loan for a parent

Income-Based Repayment (IBR) Plan

• not available on Direct PLUS Loans for parents or Direct PLUS Consolidation Loans

Income-Contingent Repayment (ICR) Plan

• not available on Direct PLUS Loans for parents or Direct Consolidation Loans that paid a PLUS Loan for a parent

Pay As You Earn Repayment Plan

• with a 10-year repayment period

Standard Repayment Plan

• with payments that are at least equal to the monthly payment amount that would have been required under the Standard Repayment Plan with a 10-year repayment period

Any other Direct Loan Program Repayment Plan

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

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

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ExamplesEligible Loan Debt - $31,000 (6.8% interest rate/unsubsidized)Starting AGI - $25,000(AGI increasing 4% annually, Poverty Level Change Rate 3%)Family Size = 1

Pay As You Earn Repayment Plan

Income Based Repayment Plan

(IBR)

Income Contingent

Repayment Plan(ICR)

Standard Repayment Plan

First Monthly Payment $68.71 $103.06 $229.54 $356.75

Maximum Monthly Payment $114.34 $171.52 $242.51 $356.75

Total Interest Paid $10,807.54 $16,211.31 $18,423.50 $11,809.83

Total Principal Paid $0.00 $0.00 $9,889.70 $31,000.00

Total Amount Paid $10,807.54 $16,211.31 $28,313.20 $42,809.83

Remaining Principal Balance and Unpaid Interest

$41,272.46 $35,868.69 $21,110.30 $0.00

PSLF Total Loan Forgiveness $41,272.46 $35,868.69 $21,110.30 $0.00

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Examples

Eligible Loan Debt - $75,000 (6.8% interest rate/unsubsidized)Starting AGI - $50,000(AGI increasing 4% annually, Poverty Level Change Rate 3%)Family Size = 1

Pay As You Earn Repayment Plan

Income Based Repayment Plan

(IBR)

Income Contingent Repayment Plan

(ICR)

Standard Repayment Plan

First Monthly Payment $277.04 $415.56 $652.83 $863.10

Maximum Monthly Payment $410.87 $616.30 $766.30 $863.10

Total Interest Paid $40,822.81 $48,525.50 $36,769.87 $28,572.43

Total Principal Paid $0.00 $12,708.71 $51,806.45 $75,000.00

Total Amount Paid $40,822.81 $61,234.21 $88,576.31 $103,572.43

Remaining Principal Balance and Unpaid Interest

$85,177.19 $62,404.54 $23,193.55 $0.00

PSLF Total Loan Forgiveness $85,177.19 $62,404.54 $23,193.55 $0.00

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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.

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Payment Tracking for Eligible Borrowers

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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:

• Contact FedLoan Servicing if unsure

Government http://www.usa.gov/Agencies.shtml

Tribal College/Universityhttp://www.ed.gov/edblogs/whiaiane/tribes-tcus/tribal-colleges-and-universities/

Non-Profit 501(c)(3) http://www.irs.gov/charities/index.html

Private Non-Profithttp://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Private-Foundations

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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,

Take 5 video overview• Sector-based, personalized support

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PSLF 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/public-service-loan-forgiveness-toolkit.shtml

• PSLF Fact Sheet for Financial Aid Professionals: http://www.myfedloan.org/schools/docs/student-toolkit/fact-sheet.pdf

• IBR, ICR and Pay As You Earn Calculators: http://www.finaid.org/calculators/ibr.phtml

• CFPB Public Service Toolkit: http://files.consumerfinance.gov/f/201308_cfpb_public-service-toolkit.pdf

• CFPB Action Guide for Employees: http://files.consumerfinance.gov/f/201308_cfpb_pledge-action-guide-for-employees.pdf

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Repayment Plan Resources• Income-Driven Repayment Plans: Frequently Asked Questions

https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf

• Repayment Calculatorshttp://studentaid.ed.gov/repay-loans/understand/planshttp://www.finaid.org/calculators/http://www.myfedloan.org/make-a-payment/calculators/index.shtml

• Federal Student Aid (FSA) Repayment Informationwww.studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp

• Department of Health and Human Services Poverty Guidelines - 2015http://aspe.hhs.gov/poverty/15poverty.cfm

• Repayment Plan Preference Info Shared w/ Loan Servicers http://ifap.ed.gov/eannouncements/102813LSIRepayPlanInfoLoanSevicersBeginJan2014.html

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Questions?