1. Welcome andIntroductionsKim Maphis Early

2. Income-Based Repayment Plans for Theological SchoolGraduateswith Claire Law, Anthony Ruger and Sharon Miller 3. Overview The Problem: Student Debt Income Driven Repayment Plans1. Income-Contingent Repayment2. Income-Based Repayment3. Pay As You Earn Repayment ExampleInitiatives and New LegislationHelpful LinksUpdate on Auburn StudyCopyright Educational Avenues 2013 all rights reserved 4. 5.8 Million Students 5. In June 2011, student loan debt exceeded: 6. FY 2010 2-Year Official National Student LoanDefault RatesSource: http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html 7. How Can We Help? Encourage financial planning before enrollment Conduct comprehensive exit interviews Enhance literacy about repayment options for future Help students and graduates avoid default 8. If student loan debt is high relative to income,investigate options for reduced monthly payments! 9. What are the options? Income-Driven Plans Income Contingent Repayment Plan (ICR) 1994 Direct Loans only http://studentaid.ed.gov/repay-loans/understand/plans/income-contingent Income Based Repayment Plan (IBR) 2009 Direct Loans and FFELP Loans http://studentaid.ed.gov/repay-loans/understand/plans/income-based Pay As You Earn Plan (PAYE) 2012 Direct Loans only for 2008-2012 cohort http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn 10. Income-Driven Plans- Eligible Borrowers ICR: Direct Loan borrowers with eligible loans IBR: Direct Loan and FFEL Program borrowers with eligible loans Their payments would be lower on IBR relative to what wouldhave been paid under the 10-year standard repayment plan (calledpartial financial hardship) PAY AS YOU EARN: Direct loan borrowers with eligible loans Must be new borrower on/after 10/1/2007 who received new loanon/after 10/12011 Their payments would be lower on Pay As You Earn relative to whatwould have been under the 10-year standard repayment plan (calledpartial financial hardship) 11. Exceptions to Eligibility PLUS loans for parents Consolidation loans that repaid PLUS loans for parents Loans in default Private, Alternative Education Loans 12. Income Contingent Repayment (ICR) Direct Loans only ICR plan bases repayment amount on 20% ofdiscretionary income*, family size, size of loan, theinterest rate applicable to each loan More information available athttps://federalregister.gov/a/2012-12420*Discretionary Income = Adjusted Gross Income (AGI)Minus Poverty Level Guideline Divided by 12 13. ICR Features 25 year term after which balance is forgiven For those in low paying jobs Adjusted annually based on yearly reapplication 10% cap on capitalization of interest May be used with Public Service Loan ForgivenessProgram (PSLF) 14. 10-Year Public Service Loan Forgiveness Any not-for-profit 501(c )(3) organization For organizations that are religious: Hours of work must be at least 30 per week Exclusions: religious instruction, worship services Must make on-time full payments, monthly under a federalrepayment plan www.studentaid.ed.gov/pubs 15. Eligible Federal Loans for IBR, Pay As YouEarn Undergraduate, graduate and professional federal loansincurred before and during theological education Direct & FFEL Subsidized and Unsubsidized Stafford Direct & FFEL PLUS Loans made to graduate orprofessional students Direct and FFEL Consolidation Loans without underlyingPLUS loans made to parents For ICR direct loans only are eligible 16. Income Based Repayment (IBR) Borrower must have a partial financial hardship Based on annual income and family size Adjusted each year, based on changes to annual incomeand family size Usually lower than under other plans Never more than the 10-year standard repaymentamount Made over a period of 25 years 17. IBR Features Allows borrowers to cap student loan payments at 15%of current discretionary income Discretionary income = AGI minus 150% of PovertyGuideline based on: Family Size State of Residence Starting in 2014 will cap borrowers monthly payments at10% of discretionary income Loan servicer performs calculations http://studentaid.ed.gov/repay-loans/understand/plans/income-based 18. IBR Advantages Pay based on what you earn Interest payment benefit Limitation on capitalization of interest 25- year loan term - then forgiveness 10- year Public Service Loan Forgiveness No cost to American taxpayers 19. IBR Disadvantages You may pay more interest You must submit annual documentation Pay tax on forgiven amount after 25 years. 20. New Pay As You Earn Program (PAYE) ICR regulations amended for December 2012 Implementation for 2008AY - 2012AY cohort only For new borrowers Reduces maximum annual payment from 15% ofdiscretionary income to 10% Reduces forgiveness time from 25 years to 20 years Allows for consolidation with loans-in-good-standingoriginated before 2008 21. Entering repayment: Interest startsaccruing during six-month grace period 22. Compare IBR and PAYEIBRPay As You Earn Loan debt must be high Loan debt must be high Lower scheduled monthly Lower scheduled monthlypaymentpayment Interest payment benefit Interest payment benefit 15% of discretionary 10% of discretionaryincome income 25 year cancellation 20 year cancellation 10 year Public Service 10 year Public ServiceForgivenessForgiveness Must be a new borrower 23. Compare IBR and PAYE (cont.)IBR Pay-As-You-Earn You may pay more You may pay moreinterestinterest You must submit annual You must submit annualdocumentation documentation No interest grace period No interest grace period Payments can be as low as Payments can be as low aszerozero 24. No Interest Subsidy During Grace Period 25. Comparison of Monthly PaymentsIncome Based RepaymentPay As You Earn Family Family Family Family FamilyIncomeFam Size 1 Fam Size 2 Fam Size 3 Fam Size 4 Income Size Size Size Size Size$10,00023456$15,000 0000$10,000 $0 $0 $0 $0 $0 $0$15,000 $0 $0 $0 $0 $0 $0$ 20000 $41000$20,000 $27$0 $0 $0 $0 $0$25,000 $69$19$0 $0 $0 $0$30000$166 $91$170$30,000 $110 $61$11$0 $0 $0$35,000 $152 $103 $53$0 $0 $0$40,000 $291 $216 $142 $68$40,000 $194 $144 $95$45$0 $0$50,000 $416 $341 $267 $193 $45,000 $235 $186 $136 $87$37$0$50,00$277 $228 $178 $129 $79$300$55,000 $319 $269 $220 $170 $121 $71$60,000 $360 $311 $261 $212 $162 $113$65,000 $402 $353 $303 $254 $204 $155 26. Example of Monthly Payments on Stafford Loan Debt of $50,000Standard Repayment (10 years @ 6.8%) vs. Income Based Repayment (IBR) and Pay AsYou Earn (PAYE) $700 $600 $576$576 $500 Monthly payment $400 Standard$291 IBR $300 PAYE$194 $200 $100 $68$45$-Single, with $40K in Discretionary Family of four with $40K inIncome Discretionary Income 27. Example If borrower does not qualify for IBR or PAYEConsider the Income Contingent Plan (ICR) Considers Discretionary Income Family Size Total amount of Direct Loans 28. Right now only 972,000 graduatesabout2.6 percent of all borrowersare usingIncome-Based Repayment plans. Two tothree million further borrowers couldqualify for the program.Mark Kantrowitz, Publisher of FinAid.org 29. Try Out This Calculator http://studentaid.ed.gov/repay-loans/understand/plans/income-based/calculator 30. The Case of Joe Borrower,Master of Theological Studies 2006 Joe is single, his income $30,000 Under IBR Joe generally pays 15% of his discretionary income Payments only based on income Payments capped at what he would have paid on the ten-yearstandard repayment plan Note: ICR does not cap payments relative to standard 10year plan, so payments could become higher than in the ten-year standard repayment plan. 31. Is Joe eligible for PayAsYouEarn? Hes not part of the 2008AY-2012AY cohort ofborrowers The majority of theology graduates likely borrowedbefore this cohort The best deal will take some crunching of numbers Use the calculators The Department of Education ultimately has to approvea plan 32. What Borrowers Dont Know Can HurtThem! Private lenders are not required to explain repaymentoptions. Federal loan websites are informative and easiest touseat a minimum, point students toward theseresources. Make good faith efforts to educate alums, as well asgraduating students, about alternative repayment plans. 33. Impacts of Recent Legislation There is a window of people who are eligible now whocan go to the Pay As You Earn Planyou are currentlyworking with these students!! If students choose occupations in public service and havemade 120 full on-time monthly payments, they could beeligible to have the remaining balance forgiven throughthe Public Service Loan Forgiveness Program. New benefit: A borrower can switch to anotherrepayment plan pretty easily, but annual application andyearly approval of Department of Education will berequired. 34. On the Horizon? Possible expansion of PAYE in 2014 The Department of Education is pursuing administrativeaction that may extend lower payments to morestudents as soon 2013 35. Helpful Links Repayment Plans and Calculators www.studentaid.ed.gov Income Contingent Repayment (ICR) http://studentaid.ed.gov/repay-loans/understand/plans/income-contingent Income Based Repayment Plan (IBR) http://studentaid.ed.gov/repay-loans/understand/plans/income-based Pay As You Earn Plan (PAYE) http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn Public Service Loan Forgiveness http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service Improving Repayment Options for Federal Student Loan Borrowers (A PresidentialDocument by the Executive Office of the President on 06/13/2012) https://www.federalregister.gov/articles/2012/06/13/2012-14537/improving-repayment-options-for-federal-student-loan-borrowers ICR Update: https://federalregister.gov/a/2012-12420 Federal Student Aid Resources www.studentaid.ed.gov/pubs 36. Helpful Links Federal Student Aid Conference 2012 link: Conference link: http://fsaconferences.ed.gov/index.html Sessions link: https://client.blueskybroadcast.com/fsa/2012/index.html US Department of Education Loan home page: https://studentloans.gov/myDirectLoan/index.actionhttp://www.nslds.ed.gov/nslds_SA/SaEcTour.do?page=SaEcIntro1 (exit interview) Information on the temporary suspension of grace-period interest subsidycurrently in effect: http://studentaid.ed.gov/sites/default/files/2012-13-funding-your-education-errata.pdf Elimination of Grace Period Interest Subsidy This provision eliminates the interestsubsidy provided during the six-month grace period for Direct Subsidized Loans for whichthe first disbursement is made on or after July 1, 2012, and before July 1, 2014. Studentsreceiving a subsidized loan during this timeframe will be responsible for the interest thataccrues on the loan during the grace period. If a student does not pay the interest accrued,the interest will be added (capitalized) to the principal amount of their loan when thegrace period ends. 37. We want to help people avoid this situation :) 38. Conclusion Update on Auburn Study Contact us at:www.auburnseminary.org/CSTECSTE@auburnseminary.org