Direct Loan Income-Driven Repayment Plans

Rose Mary StelmaCollege Foundation, Inc.April 2013

Before We Talk About Income-Driven Repayment Plans . . . . . .

Do you know what types of repayment plans are available for Direct Loans – NOT just the income-driven plans?

Repayment Plans For Direct Loans

Standard Graduated Extended Alternative

Income-Based Repayment (IBR)

Income-Contingent Repayment (ICR)

Pay As You Earn

Repayment Plans

Not all loans qualify for all repayment plans

All loans must be repaid under the same plan unless the loan type doesn’t qualify for the plan

Income-Driven Plans

Income-Contingent Repayment (ICR) Income-Based Repayment (IBR) Pay As You Earn

Income-Driven Plans – Quick Overview Income-Contingent (ICR) – 1994

Direct Loan Program only Income-Based Repayment (IBR) –

2009 Direct Loan and FFEL

Pay As You Earn – 2012 Direct Loan Program only New borrowers on/after 10/1/2007 who

receive a disbursement on/after 10/1/2011

Income-Contingent Repayment

Direct Loan borrowers with eligible loans

FFEL borrowers do not qualify for ICR FFEL has Income Sensitive Repayment

Plan

ICR - Direct Loans That Qualify

All Direct Loans are eligible except Parent PLUS Loans Pre-7/1/2006 Direct PLUS Consolidation

Loans Direct Consolidation Loans made on

or after 7/1/2006 that repaid parent PLUS loans are eligible

ICR -Payment Under ICR, borrowers pay the lesser

of: 12-year standard repayment schedule

multiplied by income percentage factor (payment based on loan debt and income) or

20% of discretionary income (payment based only on income)

ICR – Discretionary Income

Borrower’s AGI minus 100% of the poverty guideline for the borrower’s state and family size

ExampleBorrower’s AGI $25,000100% of poverty guideline $10,000Discretionary Income $15,000

ICR - Forgiveness

Remaining balance forgiven after 25 years of qualifying repayment

According to the IRS, the forgiven amount is considered taxable income

ICR - Qualifying Payments

Qualifying Payments include: Payments made 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

Income-Based Repayment

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”)

IBR – Loans That Qualify

All Direct and FFEL Program loans except Parent PLUS loans Consolidation Loans that repaid parent

PLUS loans

IBR - Payment

Under IBR, borrowers pay the lesser of 15% of discretionary income (income-

based payments) or What they would have paid under the 10-

year standard repayment plan (non-income-based payments)

IBR – Discretionary Income

Borrower’s AGI minus 150% of the poverty guideline for the borrower’s state and family size

ExampleBorrower’s AGI $20,000150% of poverty guideline $15,000Discretionary Income $ 5,000

IBR - Forgiveness

Remaining balance forgiven after 25 years of qualifying repayment

According to the IRS, the forgiven amount is considered taxable income

IBR – Qualifying Payments

Qualifying Payments include: Payments made 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

Pay As You Earn

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

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”)

Pay As You Earn – Direct Loans That Qualify

All Direct Loans are eligible except Parent PLUS loans Consolidation Loans that repaid parent

PLUS loans

Pay As You Earn - Payment

Pay the lesser of 10% 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 – Discretionary Income Borrower’s AGI minus 150% of the

poverty guideline for the borrower’s state and family size

ExampleBorrower’s AGI $25,000150% of poverty

guideline $15,000Discretionary Income $10,000

Pay As You Earn – Forgiveness

Remaining balance is forgiven after 20 years of qualifying repayment.

According to the IRS, the forgiven amount is considered taxable income

Pay As You Earn – Qualifying Payments

Qualifying Payments include: Payments made 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

Recap of ICR Payment Amount

ICR - borrowers pay the lesser of: 12-year standard repayment schedule

multiplied by income percentage factor (payment based on loan debt and income) or

20% of discretionary income (payment based only on income)

For more on income percentage factors in ICR, see 77 FR 30266, available at: https://federalregister.gov/a/2012-12420

Recap of IBR Payment Amount

Under IBR, borrowers pay the lesser of: 15% of discretionary income (income-

based payments) or What they would have paid under the 10-

year standard repayment plan (non-income-based payments)

Recap of Pay As You Earn Payment Amount

Under Pay As You Earn, borrowers pay the lesser of: 10% of discretionary income (income-

based payments) or What they would have paid under the 10-

year standard repayment plan (non-income-based payments)

IBR/Pay As You Earn/ICR Plan Request Form – Electronic and Paper

Borrower Demographics Name Address SSN Telephone Numbers Email Address

IBR/Pay As You Earn/ICR Plan Request Form Borrower can select plans for DL and

FFEL IBR Pay As You Earn ICR I request that my loan holder determine

which of the above plans I am eligible for, and place me on the plan with the lowest monthly payment amount.

Borrower Income

Servicer uses borrower’s Adjusted Gross Income (AGI) when calculating discretionary income

Copy of most recently filed federal income tax return or IRS tax return transcript – last two most recently completed years

Income Documentation Uses same IRS data retrieval tool as

FAFSA Married borrowers requesting joint ICR

who file separately must both provide a tax return

Alternative Documentation of Income

If borrower did not file a federal income tax return OR

If AGI does not reasonably reflect borrower’s current income OR

If servicer asked borrower to provide alternative documentation of income

IBR/Pay As You Earn/ICR Plan Request Form

No taxable income – sign the form and submit

Alternative documentation of income One piece for each source of income

(borrower and spouse if applicable) Pay stub, letter from employer listing

income, interest or bank statements, dividend statements, signed explanation listing income sources and name and address of the source

IBR/Pay As You Earn/ICR Plan Request Form Provide spouse information if

Filed a joint tax return and your spouse has eligible loans

Joint Direct or FFEL Consolidation Loan obtained with spouse.

Borrower and spouse have Direct Loans and both want to repay under the joint ICR option.

Family Size

Borrowers must also annually certify their family size

If the family size question is blank, the loan servicer assumes a family size of one

Recertification

Under all three plans, borrowers are required to submit updated income documentation annually

Failure to submit documentation timely will lead to: A monthly payment amount that is what it

would have been on the 10-year standard repayment plan (non-income-based payment) and

Interest capitalization

Recertification

Loan Servicer provides a notice of deadline for submission of income documentation and consequences of failure to provide

If borrower submits documentation within 10 days of deadline, servicer will maintain current payment amount until documentation is processed

Applying for Income-Driven Repayment Plans

Borrower can also submit documentation early, if their circumstances have changed, to receive a lower payment amount.

This changes the borrower’s anniversary date

Regulatory References

Final regulations published: November 1, 2012

Effective date: July 1, 2013 These provisions were implemented

early.

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