Income-Driven Repayment & Public Service Loan Forgiveness Ian Foss & Nathan Arnold 1 DETAILS OF INCOME-DRIVEN REPAYMENT PLANS 2 Income-Driven Plans - Overview Three main plans Income-Contingent Repayment Plan (ICR) 1994 Direct Loan Program only More information available at StudentAid.gov/ICRStudentAid.gov/ICR Income-Based Repayment Plan (IBR) 2009 Available in both the Direct Loan and FFEL Program More information available at StudentAid.gov/IBRStudentAid.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/PayAsYouEarnStudentAid.gov/PayAsYouEarn 3 3 Eligible Borrowers Eligible DL ICR *IBR < 10-year Std. Eligible DL/FFEL IBR Disbursed on/after FY 2012 New borrower on/after FY 2008 *PAYE < 10-year Std. Eligible DL PAYE * = partial financial hardship 4 Eligible Loans ICR All DL Except Parent PLUS Except DL PLUS Consolidation IBR All DL & FFEL Except Parent PLUS Except Consolidation including Parent PLUS PAYE All DL Except Parent PLUS Except Consolidation including Parent PLUS Parent PLUS Loans consolidated in DL prior to 7/1/2006 5 Payment Amounts 12-Year Standard * Income Percentage Factor (payments based on income and debt) 20% of Discretionary Income (payments based on income) Under ICR, borrowers pay the lesser of: Under IBR, borrowers pay the lesser of: 15% of Discretionary Income (income-based payments) 10-Year Standard (non-income-based payments) Under Pay As You Earn, borrowers pay the lesser of: 10% of Discretionary Income (income- based payments) 10-Year Standard (non-income-based payments) 6 ICR - Income Percentage Factors For more on income percentage factors in ICR, see 78 FR 33395, available at: https://federalregister.gov/a/ https://federalregister.gov/a/ Income Percentage Factors SingleMarried/HOH 55.00%$10, %$10, %$14, %$16, %$18, %$20, %$23, %$26, %$27, %$32, %$32, %$40, %$40, %$51, %$51, %$61, %$61, %$77, %$74, %$103, %$94, %$139, %$134, %$195, %$154, %$319, %$274,549 7 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 doesnt stop except for Economic Hardship Deferments 8 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 9 Loan Forgiveness IRS: its taxable IBR: 25 years ICR: 25 years PAYE: 20 years Qualifying 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 10 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 11 YearInterestPayment 1$283.33$ $275.93$ $265.96$ $254.47$ $241.79$ $227.84$ $212.52$ $195.76$ $177.39$ $157.32$ $135.39$ $111.48$ $85.43$ $57.08$ $26.25$ N/A 17N/A 18N/A 19N/A 20N/A 21N/A 22N/A 23N/A 24N/A 25N/A 12 YearInterestPaymentSubsidy 1$283.33$218.69$ $283.33$237.06$ $283.33$255.81$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $280.55$ $273.01$ $263.09$ $250.52$ $235.00$ $216.22$ $193.82$ $167.42$ $138.80$ $108.17$ $75.39$ $40.31$ $2.77$ N/A 23N/A 24N/A 25N/A 13 YearInterestPaymentSubsidy 1$283.33$145.79$ $283.33$158.04$ $283.33$170.54$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $283.33$ $272.49$ YearIBRICR Pay As You Earn 1$218.69$388.83$ $237.06$418.00$ $255.81$429.80$ $275.17$435.14$ $295.64$440.69$ $317.03$446.13$ $339.40$451.53$ $363.04$457.48$ $388.00$463.53$ $414.38$469.79$ $442.24$476.21$ $471.66$482.77$ $502.71$489.54$ $535.49$496.46$ $570.08$503.58$ $575.40N/A$ $575.40N/A$ $575.40N/A$ $575.40N/A$ $575.40N/A$ $575.40N/A- 22N/A - 23N/A - 24N/A - 25N/A - 15 Billy Borrower Comparison ICRIBRPay As You Earn Initial Payment$388.83$218.69$ Final Payment$503.58$575.40$ Time in Repayment14 yrs., 10 mos.20 yrs., 1 mo.20 years Total Paid$80,922.75$102,530.80$72, Forgiveness$0 $45, StandardExtended & Consolidation Payment$575.40$ Time in Repayment10 years25 years Total Paid$69,048.20$119, REPAYMENT ESTIMATOR 17 Available at StudentAid.gov/repayment-estimator 18 APPLICATION PROCESS 19 Applying: Reasons & Plan Selection Direct LoansFFEL Program Loans IBR Pay As You EarnNot Available ICRNot Available Place me on plan with lowest payment Only IBR will be considered for FFEL Program Loans Initial application Annual recertification Early recertification 20 Applying: Electronic or Paper Select reason for submitting form Select plan, if submitting form to initially apply Provide information about spouse, if applicable Certify family size Determine what kind of income documentation to submit Submit documentation of AGI or ADOI ADOI = alternative documentation of income; not AGI. 21 Applying: Spouses Married filing jointly and spouse has eligible loans Joint FFEL or Direct Consolidation Loan Both have DL and want joint ICR 22 Applying: Income Documentation File tax return in two most recent years? Yes AGI significantly different from current income? Yes Alternative Documentation of Income NoAGINo Alternative Documentation of Income (ADOI) 23 Applying: Income Documentation AGI Electronic Application Tax Return Tax Return Transcript ADOI Pay stubs, unemployment benefits, etc. Self-certification of zero income Provide electronically only if zero income If borrower is married and files a joint tax return, also need ADOI of spouse. 24 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 borrowers 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 25 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 26 Reason for Request 27 Spouses 28 Link to IRS? 29 IRS Link 30 Result of IRS Link 31 Populating the Application 32 Which Income Documentation? 33 Selecting a Repayment Plan 34 Select a Repayment Plan 35 Month 0 Borrower applies: 2/14/2013 Month 1 Borrower enters plan: 3/1/2013 Month 2 Borrower receives educational notice about plan: 3/2/2013 Month 9 Borrower receives request to submit new income documentation: 11/26/2013 Month 10 Soft deadline: 1/25/2014 Month 11 Hard deadline*: 2/4/2014 Month 12 Anniversary date: 3/1/2014 *If borrower submits documentation by hard deadline, payment amount will not change if loan servicer cannot process it before anniversary date. Annual Life Cycle 36 PUBLIC SERVICE LOAN FORGIVENESS 37 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 120 qualifying payments On Direct Loans On qualifying repayment plans While working at qualifying employer 38 PSLF Qualifying Payments 1 Must make 120 separate, monthly payments 2 After October 1, Do not need to be consecutive 4 Must be for full amount due under plan 5 Must be made with 15 days of due date 39 PSLF Amount of Payment Multiple, partial payments during the borrowers monthly billing cycle will qualify if they add up to equal the borrowers 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 borrowers ablility to make qualifying payments in future 40 PSLF Qualifying Repayment Plan Income-driven plans are most likely to leave a remaining balance for forgiveness after 120 qualifying payments 10-Year StandardIBRICRPay As You EarnOthers >= 10-Year Standard 41 PSLF Eligible Loans PSLF is only for Direct Loans, but all Direct Loans qualify. Direct Consolidation Loan Parent PLUS Loans FFELP Loans Perkins Loans Only payments made on the Direct Consolidation Loan will qualify. 42 PSLF Qualifying Employment 1 Any government organization 2 501(c)(3) not-for-profit organization 3 Other not-for-profit organizations providing specific qualifying services Doesnt matter what the borrowers job duties are. Borrower can work at multiple organizations while making the required120 payments. 43 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 44 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 StudentAid.gov/PublicService Borrower submits form to FLS FLS determines whether employment qualifies FLS has loans transferred to FLS FLS determines whether qualifying payments Borrower submits another form FLS determines new qualifying payments 45 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 46 PSLF Form: Common Problems Common Problems FFEL-only borrowers Missing EIN Wrong repayment plan For-profit corporations Certification in wrong category of employer 47 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 PSLF Qualifying Employment 49 PSLF Qualifying Payments 50 PSLF Qualifying Repayment Plans 51 PSLF ECFs Per Month 52 PSLF On-Track Borrowers 53 Relationship: Income-Driven & PSLF Income- Driven Income- Driven & PSLF Additional interest does not catch up to borrower Shortest repayment periodLowest paymentNo taxation Longer repayment period; sometimes forgiveness Lower payment than level plans Additional interest catches up to borrower 54 PSLF Billy Borrower ICRIBRPay 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, Plan Forgiveness$0 $45, ICRIBRPay As You Earn Time in Repayment10 years Total Paid for PSLF$52,811.04$37,250.64$24, PSLF Amount$23,893.04$46,427.50$54, Without PSLF: With PSLF: 55 QUESTIONS? 56