IBR One Year Later and Public Service Loan Forgiveness

The Basics and Crystal Ball GazingFederal Income Driven Repayment and Loan ForgivenessEASFAA 2014

Lori MooreAccess Group

Stephen BrownFordham Law School

Who Cares !

President Obama 2015 budget proposalhttp://www2.ed.gov/about/overview/budget/budget15/summary/15summary.pdf

Extends PAYE to all borrowersEliminates standard payment cap under PAYESo high income borrowers pay equitable share of their earningsCalculates income for married borrowers on combined household incomeCaps PSLF at aggregate loan limit for independent undergrads - $57,500Establishes 25 year forgiveness for borrowers with balances above $57,500Up from 10? Up from 20?Prevents payments made under non income driven payment plans to be used for PSLFAssure forgiveness for students with the greatest needCaps amount of interest that can accrue when borrowers payment is insufficient to cover interest costsRep Dave Camps Republican tax proposal for 2015Repeals 108(f)

New America FoundationDeLisle and HoltBrookings (Brown Center on Education Policy)Akers and ChingosFocus on undergrad and tuition costsBrookings - old data - undergrad Grad/Prof students probably primary beneficiaries afterthought? Post 2006 Grad PLUS ?!

No immediate changes !Cloudy Crystal Ball Goals for this sessionUnderstanding partial economic hardshipUnderstanding IBR and PAYE - the good, the bad and the ugly . . .and how it relates to your students!Understanding Federal Public Service Loan ForgivenessOverall goal: To be more effective and comfortable with your students!

Some background2007 College Cost Reduction and Access ActPL 110-84Income Based Repayment optionEffective July 1, 2009Defines Partial Economic HardshipCreates Public Service Loan Forgiveness ProgramEffective October 1, 2007First forgiveness November 1, 2017

Direct Loan MPN OMB NO. 1845-0007Income-Based Repayment (IBR) Plan Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If your loan is not repaid in full after you have made the equivalent of 25 years of qualifying monthly payments and at least 25 years have elapsed, you may qualify for cancellation of any outstanding balance on your loans. To initially qualify for this plan and to continue to make income-based payments, you must have a partial financial hardship. An IBR Plan calculator is available at www.direct.ed.gov. The calculator evaluates your eligibility for the IBR Plan and estimates your initial IBR Plan payment amount. The calculator is for informational purposes only. Your servicer will make the official determination of your eligibility and payment amount.

Direct Loan MPN A public service loan forgiveness program is also available. Under this program, the remaining balance due on your eligible Direct Loan Program loans may be cancelled after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed in certain public service jobs. Election year changesPresident Obama introduces New ICR(a) program PAYE (Pay as You Earn)Announced by Campaign Oct 24, 2011Subjected to Negotiated RulemakingFinal Rules issued Nov 1, 2012Effective December 23, 2012OopsRemoved interest subsidy on Graduate/Professional Loans effective July 1, 2012

Figuring all of this out

Aggregate Loan LimitsDependent Undergrads $31,000Independent Undergrads $57,500Graduate/Professional $138,500Plus Grad PLUS!$357$662Priceless!Estimated Net Income Table(Single Earner, No Dependents, NYC Resident,)Gross IncomeNet Monthly (NYS)$50,000$55,000$3,227$60,000$3,464$65,000$3,701$70,000$3,938$75,000$4,175$80,000$4,412$85,000$4,649$90,000$4,885$95,000$5,114$100,000$5,339$105,000$5,563$110,000$5,804Economic HardshipBorrower in repayment is experiencing partial economic hardship whenLoan payments on ten year amort exceed15% of income above 150% of poverty levelPAYE 10 % if income above 150%Borrower experiencing partial economic hardship may elect to pay under IBR or PAYE (if eligible)

Poverty Levels 2014Family SizeAmount150%1$11,670$17,5052$15,730$23,5953$19,790$29,6854$23,850$35,7755$27,910$41,8656$31,970$47,955Monthly Payments - 2014

AGIIBRPAYE$30,000$156$104$40,000$281$187$50,000$406$271$60,000$531$354$70,000$656$437$80,000$781$521$90,000$906$604$100,000$1,031$687

PAYE monthly payment amounts for larger familiesFamily Size Annual AGI1 234 5$30,000$104$53$3$0$0$40,000$187$137$86$35$0$50,000$271$220$169$119$72$60,000$354$303$253$202$155$70,000$437$387$336$285$239$80,000$521$470$419$369$322$90,000$604$553$503$452$405$100,000$687$637$586$535$489$110,000$771$720$669$619$572Minimum Loans for PFH (2014)IncomeIBR Min LoansPAYE Min loans$30,000$13,573 $9,049 $40,000$24,435 $16,290 $50,000$35,297 $23,532 $60,000$46,159 $30,773 $70,000$57,021 $38,014 $80,000$67,883 $45,256 $90,000$78,745 $52,497 $100,000$89,607 $59,738 $110,000$100,469 $66,980 WOW !Now that we have your attentionThe details !

Income Driven Federal RepaymentIBR and PAYE formulas for calculating monthly payments on federal student loansFFELP or Direct for IBRDirect, Stafford, Grad PLUS, Federal ConsolidationNot parent PLUS or consolidation loan containing PLUS Borrower experiencing partial economic hardship

PAYE eligibility requirementsNew Borrower as of October 1, 2007No outstanding balance on FFELP or Direct as of October 1, 2007 or no outstanding balance on FFELP or Direct Loan when you received new loan after 10/1/07Received disbursement of Direct Loan after October 1, 2011October 1, 2011 includes Direct Consolidation LoanDIRECT LOANS ONLY !IMPORTANTMust apply annually to IBR and PAYE!Online - studentloans.govRelease prior year tax forms electronicallyMust affirm that The information on my prior year tax form substantially represents my current financial situation or similarCan use alternative documentation of income form if prior year tax form inaccurate (paper)Economic HardshipBorrower in repayment is experiencingpartial economic hardship whenLoan payments exceed 15% of income above 150% of poverty levelPAYE 10 % if income above 150%Borrower experiencing partial economic hardship may elect to pay under IBR or PAYE

Yes, you have seen this before!

Adjusted Gross IncomePrior year Adjusted Gross Income1040 line 371040A line 211040EZ Line 4If married filing jointly, both incomes*If married, filing separately, only filer (PL110-153)Lender may accept alternative documentationChanges in income

After July 1, 2010, both education loan debts also countProposed changes going forward

Federal Loan Payments IBRMonthly payments on FFELP or Federal Direct Loans, Stafford, Grad PLUS and/or Federal Consolidation Loans

DIRECT ONLY FOR PAYE

Interest subsidyIf payments do not cover outstanding interestNegative amortizationSecretary of Education pays remaining interest due on subsidized loansOr sub portion of ConsolidationUp to 3 years

Negative AmortizationNegative sounds badAnd it is!Payments do not cover the interest due on the loans$100,000 at 6.8% = $6,800/yr = $566.67/mo@ $40k income = $187 (PAYE 2014) $567-187 = $380/mo accruing interest not paidCapitalized when leave IBR or PAYE or no Partial Financial Hardship

Loan CancellationYes, after enough eligible payments under IBR or PAYEIf $0 calculated payment, payment countsCurrently considered a taxable event

IBR after 25 yearsIf borrower made 25 years of payments underIBR (Income Based Repayment)ICR (Income Contingent Repayment)Standard Repayment (10 year term)and still has a balanceThe remainder is forgiven, BUT taxable!PAYE after 20 yearsIf borrower made 20 years of payments underPAYE (Pay as You Earn)IBR (Income Based Repayment)ICR (Income Contingent Repayment)Standard Repayment (10 year term)and still has a balanceThe remainder is forgiven, BUT taxable!

And if I become rich and famous?May no longer be experiencing PFHMay choose to leave IBR or PAYELoans become due by end of prior repayment plan but may switchMay choose to stay in IBR or PAYEPay original 10 year amortized paymentBut may take longer than initial 10 years to repay

For example$40,000 income = $187 payment$100,000 debt (at 6.8%) = $1,151 monthly payment4 years of partial financial hardshipThen rich and famous!Will have paid $8,677 towards loans *$118,631still dueWill take 155 additional months to repay

* Assumes 3% increase in poverty level, 0% increase in income

Questions IBR or PAYEMoving right along

Federal Public Service Loan Forgiveness

3636Finallythe moment most of you have been waiting forwere going to talk about Forgiveness for Public Service Employees

Unlike IBR where your loans can be in either the FFEL or DL program, your loans MUST be in the DL program in order to qualify for Public Service Loan ForgivenessFederal Loan Forgiveness for Public ServiceA full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education (including early childhood education), social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences, schoolbased library sciences and other schoolbased services, or at an organization that is described in section 501(c)(3) of the IRS Code and exempt from taxation, or teaching as a full-time faculty member at a Tribal College or University and other faculty teaching in high-needs areas, as determined by the Secretary.Too much textFull TimeGovernmentFederal, State, local, tribalNon-Profit501(c)3 corporationPerhaps other public service for other types of employers

Federal Loan Forgiveness for Public ServiceGreatest thing since sliced bread!Or maybe not!Only Federal Direct LoansCan use PAYE, IBR, ICR or 10 year standardOr other with minimum 10 year amort payment120 payments while in eligible employmentNeed not be consecutive IBR and PAYE -If no PFH, revert to original monthly payment (10 year amortization) Not a taxable event

RememberNegative amortizationMaximum payment is original 10 year amortized monthly paymentOnce no longer partially economically hardship may have to repay for more than 10 more years!

Look Familiar? Monthly Payments - 2014AGIIBRPAYE$30,000$156$110$40,000$281$187$50,000$406$270$60,000$531$355$70,000$656$437$80,000$781$520$90,000$906$604$100,000$1,031$687

Other issuesMoral HazardIf you borrow more, more is forgiven !How clear is the crystal ball?!?Guaranteed forgiveness? Politics.Proposals from earlier slidescombination of public service organizations

What if life happens?How does it all fit?If 120 months in PSLF jobAll is goodIf need for absolute lowest paymentPAYEThen increase payments as income increasesA real student ?JDSalary: 60,000Marital Status: SingleDependent: 1Career Plans: Legal Aid Society - help poor peopleTotal Education Loan Debt: = 271,500Date of 1st Loan: 6/2/2008

$271,500 debt$1,538 monthly accruing interest at 6.8%IBR = $535PAYE = $35610 year = $3,124Net income = $ 3,464Resourcesstudentaid.ed.govand fact sheets and Q&Afinaid.org GREAT calculators!equaljusticeworks.org

Have we exhausted you yet?

QuestionsCommentsSnide Remarks

Lori A. MooreManager, Financial Literacy & Member Services RepresentativeAccess Group , Inclmoore@accessgroup.orgStephen G. BrownFordham University School of Law sbrown@law.fordham.edu