Income-Driven Repayment & Public Service Loan Forgiveness

Ian Foss & Nathan Arnold

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DETAILS OF INCOME-DRIVEN REPAYMENT PLANS

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Income-Driven Plans - 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 * = partial financial hardship

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Eligible Loans

Parent PLUS Loans consolidated in DL prior to 7/1/2006

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Payment AmountsUnder ICR, borrowers pay the lesser of:

Under IBR, borrowers pay the lesser of:

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

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ICR - Income Percentage Factors

For more on income percentage factors in ICR, see 78 FR 33395, available at: https://federalregister.gov/a/2013-13193

Income Percentage Factors - 2013

Single Married/HOH55.00% $10,690 50.52% $10,69057.79% $14,708 56.68% $16,86760.57% $18,926 59.56% $20,10066.23% $23,239 67.79% $26,27671.89% $27,359 75.22% $32,55280.33% $32,552 87.61% $40,88888.77% $40,888 100.00% $51,279

100.00% $51,280 100.00% $61,676100.00% $61,676 109.40% $77,269111.80% $74,126 125.00% $103,250123.50% $94,916 140.60% $139,627141.20% $134,433 150.00% $195,275150.00% $154,139 200.00% $319,093200.00% $274,549

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Interest Subsidy Benefit• On subsidized loans, borrower receives subsidy for first 3 consecutive years on IBR and

Pay As You Earn during periods of negative amortization

• Subsidy amount = difference between amount of interest that accrues on subsidized loans and payment amount toward subsidized loans

• 3-year clock doesn’t stop except for Economic Hardship Deferments

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Capitalization• ICR:

• During periods of negative amortization, annually• Interest capitalizes only until principal balance is 10% greater than

original principal from when borrower entered repayment• Otherwise, normal capitalization rules apply

• IBR:• No longer qualifies for payments based on income (no longer has a

partial financial hardship) or• Leaves IBR entirely

• Pay As You Earn:• No longer qualifies for payments based on income (no longer has a

partial financial hardship) or• Leaves Pay As You Earn entirely• Interest capitalizes only until principal balance is 10% greater than

original principal amount when borrower entered plan

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Loan ForgivenessQualifying repayment includes:

• Payments under an income-driven plan

• Payments under the 10-year standard repayment plan (or any other repayment plan with a payment amount at least equal to the 10-year standard plan amount) or

• Economic hardship deferment

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Billy Borrower

• Billy Borrower:– Is single with no dependents and lives in DC– Has an AGI of $35,000 that rises at 5% per year

and – Has $50,000 in Direct Loan debt ($23,000 of which

is subsidized), all of which has a 3.86% interest rate

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Year Interest Payment1 $283.33 $388.832 $275.93 $418.003 $265.96 $429.804 $254.47 $435.145 $241.79 $440.696 $227.84 $446.137 $212.52 $451.538 $195.76 $457.489 $177.39 $463.53

10 $157.32 $469.7911 $135.39 $476.2112 $111.48 $482.7713 $85.43 $489.5414 $57.08 $496.4615 $26.25 $503.5816 N/A N/A17 N/A N/A18 N/A N/A19 N/A N/A20 N/A N/A21 N/A N/A22 N/A N/A23 N/A N/A24 N/A N/A25 N/A N/A

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Year Interest Payment Subsidy1 $283.33 $218.69 $29.732 $283.33 $237.06 $21.283 $283.33 $255.81 $12.664 $283.33 $275.17 5 $283.33 $295.64 6 $283.33 $317.03 7 $283.33 $339.40 8 $283.33 $363.04 9 $280.55 $388.00

10 $273.01 $414.38 11 $263.09 $442.24 12 $250.52 $471.66 13 $235.00 $502.71 14 $216.22 $535.49 15 $193.82 $570.08 16 $167.42 $575.40 17 $138.80 $575.40 18 $108.17 $575.40 19 $75.39 $575.40 20 $40.31 $575.40 21 $2.77 $575.40 22 N/A N/A 23 N/A N/A 24 N/A N/A 25 N/A N/A

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Year Interest Payment Subsidy1 $283.33 $145.79 $63.272 $283.33 $158.04 $57.633 $283.33 $170.54 $51.884 $283.33 $183.45 5 $283.33 $197.09 6 $283.33 $211.35 7 $283.33 $226.27 8 $283.33 $242.02 9 $283.33 $258.67

10 $283.33 $276.26 11 $283.33 $294.83 12 $283.33 $314.44 13 $283.33 $335.14 14 $283.33 $356.99 15 $283.33 $380.05 16 $283.33 $404.39 17 $283.33 $430.06 18 $283.33 $457.14 19 $283.33 $485.70 20 $272.49 $515.83

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Year IBR ICRPay As

You Earn1 $218.69 $388.83 $145.792 $237.06 $418.00 $158.043 $255.81 $429.80 $170.544 $275.17 $435.14 $183.455 $295.64 $440.69 $197.096 $317.03 $446.13 $211.357 $339.40 $451.53 $226.278 $363.04 $457.48 $242.029 $388.00 $463.53 $258.67

10 $414.38 $469.79 $276.2611 $442.24 $476.21 $294.8312 $471.66 $482.77 $314.4413 $502.71 $489.54 $335.1414 $535.49 $496.46 $356.9915 $570.08 $503.58 $380.0516 $575.40 N/A $404.3917 $575.40 N/A $430.0618 $575.40 N/A $457.1419 $575.40 N/A $485.7020 $575.40 N/A $515.8321 $575.40 N/A -22 N/A N/A -23 N/A N/A -24 N/A N/A -25 N/A N/A -

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Billy Borrower – ComparisonICR IBR Pay As You Earn

Initial Payment $388.83 $218.69 $145.79

Final Payment $503.58 $575.40 $515.83

Time in Repayment 14 yrs., 10 mos. 20 yrs., 1 mo. 20 years

Total Paid $80,922.75 $102,530.80 $72,528.60

Forgiveness $0 $0 $45,072.74

Standard Extended & Consolidation

Payment $575.40 $397.04

Time in Repayment 10 years 25 years

Total Paid $69,048.20 $119,110.82

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REPAYMENT ESTIMATOR

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Available at StudentAid.gov/repayment-estimator

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APPLICATION PROCESS

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Applying: Reasons & Plan Selection

Direct Loans FFEL Program Loans

IBR □ □

Pay As You Earn □ Not Available

ICR □ Not Available

Place me on plan with lowest

payment

□Only IBR will be considered for FFEL

Program Loans

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Applying: Electronic or Paper

ADOI = “alternative documentation of income”; not AGI.

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Applying: Spouses

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Applying: Income Documentation

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Applying: Income DocumentationIf borrower is married and files a joint tax return, also need ADOI of spouse.

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Applying: ADOI• Borrowers who use the electronic application must

follow-up with their loan holder and send in documentation

• It is often difficult to know how frequently the borrower receives the income based only on the documentation

• Projected annual income using ADOI is usually higher than the borrower’s AGI will be because of tax code

• Borrowers may not have held the job for the entire year, but loan holders project income to cover a 12-month period

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Application: Electronic• IBR-only launched in September 2012; incorporated

ICR and Pay As You Earn in December 2012• Can be used by borrowers with ED-held loans (Direct

Loans or FFEL)• Can be used by borrowers with commercially held FFEL

loans serviced by an entity that also services ED-held loans

• On StudentLoans.gov• Retrieves the most recent tax information from two

most recently completed tax years

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Reason for Request

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Spouses

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Link to IRS?

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IRS Link

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Result of IRS Link

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Populating the Application

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Which Income Documentation?

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Selecting a Repayment Plan

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Select a Repayment Plan

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*If borrower submits documentation by hard deadline, payment amount will not change if loan servicer cannot process it before anniversary date.

Annual Life Cycle

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PUBLIC SERVICE LOAN FORGIVENESS

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Public Service Loan Forgiveness

•Borrower must also be employed by a qualifying organization at the time that the borrower applies for and receives PSLF•According to the IRS, the forgiven amount is not treated as taxable income

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PSLF – Qualifying Payments

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PSLF – Amount of Payment• Multiple, partial payments during the borrower’s monthly

billing cycle will qualify if they add up to equal the borrower’s monthly payment amount

• A borrower will not receive credit for more than one payment toward PSLF if the borrower makes a lump sum payment (e.g., makes a single payment equal to two or more full monthly payments)– Exception for AmeriCorps and Peace Corps borrowers who make

lump sum payments using education award or transition payment

– Making payment that is too large can affect borrower’s ablility to make qualifying payments in future

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PSLF – Qualifying Repayment Plan

Income-driven plans are most likely to leave a remaining balance for forgiveness after 120 qualifying payments

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PSLF – Eligible Loans• PSLF is only for Direct Loans, but all Direct

Loans qualify.

Only payments made on the Direct Consolidation Loan will qualify.

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PSLF – Qualifying EmploymentDoesn’t matter what the borrower’s job duties are.

Borrower can work at multiple organizations while making the required120 payments.

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PSLF – Full-Time Employment• Must be a full-time employee or work multiple part-

time jobs that equal full time• Full-time is whatever the employer considers full-time,

but must be at least an annual average of 30 hours per week

• For borrowers working for a not-for-profit organization (501(c)(3) or otherwise) with job duties that include religious instruction, worship services, or proselytizing, the hours spent on those activities cannot be factored into meeting the full-time employee requirement

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PSLF – Employment Certification• On January 31, 2012, released a voluntary Employment

Certification Form that borrowers can submit to the FedLoan Servicing (FLS) for a determination of whether their employment and payments qualify for PSLF

• For more, including Q&As, see StudentAid.gov/PublicService

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PSLF – Employment Certification• Employment Certification Form is not an

application for forgiveness• Borrower must make 120 qualifying payments

after October 1, 2007, so no borrowers can qualify until 2017 at the earliest

• PSLF Forgiveness Application will be developed and released prior to earliest date of eligibility for PSLF

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PSLF Form: Common Problems

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PSLF – Portfolio• 125,033 borrowers have completed and submitted an Employment

Certification Form• 112,928 borrowers have been determined to be working in PSLF-

qualifying employment• Of the 112,928 borrowers working in qualifying employment, 80,812

have had qualifying payments calculated

Through April 2014

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PSLF – Qualifying Employment

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PSLF – Qualifying Payments

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PSLF – Qualifying Repayment Plans

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PSLF – ECFs Per Month

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PSLF – On-Track Borrowers

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Relationship: Income-Driven & PSLF

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PSLF – Billy Borrower

ICR IBR Pay As You Earn

Time in Repayment 14 yrs., 10 mos. 20 yrs., 1 mo. 20 years

Total Paid $80,922.75 $102,530.80 $72,528.60

Plan Forgiveness $0 $0 $45,072.74

ICR IBR Pay As You Earn

Time in Repayment 10 years 10 years 10 years

Total Paid for PSLF $52,811.04 $37,250.64 $24,833.76

PSLF Amount $23,893.04 $46,427.50 $54,949.76

Without PSLF:

With PSLF:

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QUESTIONS?

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