Income-Driven Repayment & Public Service Loan Forgiveness
description
Transcript of Income-Driven Repayment & Public Service Loan Forgiveness
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/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
3 3
Eligible Borrowers * = partial financial hardship
4
Eligible Loans
Parent PLUS Loans consolidated in DL prior to 7/1/2006
5
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:
6
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
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 doesn’t 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 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
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
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
12
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
13
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
14
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 -
15
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
16
REPAYMENT ESTIMATOR
17
Available at StudentAid.gov/repayment-estimator
1818
APPLICATION PROCESS
19
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
20
Applying: Electronic or Paper
ADOI = “alternative documentation of income”; not AGI.
21
Applying: Spouses
22
Applying: Income Documentation
23
Applying: Income DocumentationIf 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 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
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
*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
38
PSLF – Qualifying Payments
39
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
40
PSLF – Qualifying Repayment Plan
Income-driven plans are most likely to leave a remaining balance for forgiveness after 120 qualifying payments
41
PSLF – Eligible Loans• PSLF is only for Direct Loans, but all Direct
Loans qualify.
Only payments made on the Direct Consolidation Loan will qualify.
42
PSLF – Qualifying EmploymentDoesn’t matter what the borrower’s 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
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
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 2014
48
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
54
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:
55
QUESTIONS?
5656