Student Loan Debt Management

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1 Student Loan Debt Management Jointly presented by 360 Degrees of Financial Literacy, AICPA Personal Financial Planning Division 360 Degrees of Financial Literacy AICPA Personal Financial Planning Division 1

2 Today s Speakers James Sullivan, CPA/PFS Core Capital Solutions LLC Melissa Towell Consumer Debt Counselors 2

3 Disclaimer and Caveat Nothing in these slides or any accompanying presentation is to be considered tax, legal, investment or other professional advice. The information is merely provided for educational purposes and no action should be taken without the individual consulting his or her own tax, estate, legal, financial, investment, insurance and other advisors. The American Cancer Society and the AICPA, and any hosts, sponsors, or others associated with this program are NOT responsible for its content or accuracy. 3

4 Trends and Stats Over 1.45 trillion dollars in student loan debt Over 44.2 million student loan borrowers Average Monthly Student Loan Payment is $350 per month Over half of loan borrowers are in some type of postponement Deferment Forbearance Kicking the can - limitations on time allowed to be in postponement leads to delinquency and default Over 15 million borrowers are delinquent borrower becomes delinquent after 30 days past due after 90 days past due negative marks on credit report 7 million borrowers in default 270 days past due results in charge off and irreparable damage to credit report 4

5 Understanding Loans Complexity Over 30 different loan types Over 19 different broad categories of repayment options Over 50 different loan status' Over 10 different origination date ranges Results in over 700 different unique solutions with varying rules to navigate Dynamic constant revision to rules and regulations surrounding student loan repayment new rules can result in a borrower qualifying when previously did not qualify or vice versa 5

6 Key Players DOE (Department of Education) Acts as lender, processor, and servicer Servicers Contracted with DOE to oversee loans Still handling old portfolio of FFEL as well Slowly consolidating into only a handful Collection Agencies Contracted with DOE (roughly 20-25) More aggressive in past new laws eased up 1 Billion $$$ industry Private Loan Companies No federal backing Relative same BK protection but not the same help Some loan servicers also generate their own private loans Feeling pressure to start offering better hardship plans but still no major across the board changes (case by case basis) 6

7 Key Players Proprietary Schools 1979 Amendment to give federal $ to private colleges Large portion of funding (over 85%) from federal student loans High default rates led to hiring of resolution companies to lower Cohort Default Resolution Group Collection arm of DOE is website where defaulted borrowers can access State Guaranty Agencies State corporations designed to administer FFELP Loans (typically the state education authority) NSLD Directory of records for all federal student loans FSA ID 7

8 Understanding Repayment Plans Student borrowers may repay their student loans through one of the several repayment plans: Standard Repayment Plan Graduated Repayment Plan Extended Repayment Plan Income Contingent Repayment Plan Income Based Repayment Plan New Income Based Repayment Plan Pay As You Earn Repayment Plan Revised Pay As You Earn Repayment Plan Which plan is right for you? Consolidation Borrowers have a repayment period of years depending on their total student loan indebtedness 8

9 Consolidation Simplify repayment by reducing number of lenders/servicers For example, you may have borrowed FFEL Loans as an undergraduate Convert variable-rate Stafford Loans into fixed-rate Direct Consolidation Loan Convert FFEL loan(s) into Direct loan debt for Public Service Loan Forgiveness Program and PAYE eligibility Convert Perkins, HPLS, LDS, NSL loan(s) into Direct loan debt for Public Service Loan Forgiveness Program, IBR and PAYE eligibility Lengthen repayment period to reduce monthly payment on federal student loan debt Consolidate Parent PLUS Loans to become eligible for Income Contingent Repayment - this will forfeit eligibility for other income payment options Consolidation versus Refinancing Federal loans can not be refinanced through the Department of Education Refinanced federal student loans lose eligibility for forgiveness, income payment plans etc. Beware: Including certain loans into the consolidation can forfeit rights to eligible forgivness (i.e. Perkins loan) Borrowers who are eligible for TLF and want to consolidate have to be careful of "resetting the clock" 9

10 Loan Discharges Discharge or cancellation is the release of a borrower from their obligations to repay their student loans. Closed School If college closed while you were attending up to 120 days after withdrawal Unpaid Refund If you withdrew and the college owed a refund but never returned the funds to the lender Death If the borrower ( or the student for whom a parent borrowed a Parent PLUS loan) dies Total and Permanent Disability If a doctor certifies that the borrower is a totally and permanently disabled, social security administration deems you disabled, or if a veteran is unemployable due to a service connected condition False Certification Disqualifying Status If the college improperly certified your ability to benefit from higher education Unauthorized Signature Identity Theft 10

11 Bankruptcy Discharge Minimal number of bankrupt borrowers succeed in getting student loans discharged because of the requirement to demonstrate undue hardship Bruner's Test Undue hardship is a present and future inability to repay the debt and maintain a minimal standard of living even after exhausting options for repayment relief and cutting living costs Discharge is more likely if: The financial difficulty was due to circumstances beyond borrowers control Academic institution was a private for - profit school that either lost accredidation or had unethical means of enrolling students 11

12 Public Service Loan Forgiveness Established to encourage individuals to enter and continue in full-time public service employment by forgiving the outstanding balance on an eligible Direct Loan if the borrower: Is not in default Makes 120 separate, full monthly payments, within 15 days of the due date, after October 1, 2007 under one or more specified repayment plans Is employed full-time at a public service organization while making the 120 required payments, when requesting forgiveness, and when forgiveness is granted Eligible public service includes: Service in a position in AmeriCorps or the Peace Corps Local, State, Federal or Tribal government position (excluding time served as a member of the U.S. Congress) Employment, in any position, by any other public service organization Goverment Agency or Jurisdiction somewhere in the US 501 (c)(3) organization expempt from taxation Other qualifying private nonprofit that provides public service Employment must meet the definition of full-time. Full-time generally means the borrower is working an average of at least 30 hours per week or the number of hours the employer considers full-time 12

13 Public Service Loan Forgiveness Following Loans qualify for PSLF: Federal Direct Sub/Unsub Loans Federal Direct Grad PLUS Loans Federal Direct Consolidatoin Loans FFEL, Perkins, HPSL, LDS and NSL loans must be consolidated through the Federal Direct Loan Program to qualify for PSLF. 13

14 Public Service Loan Forgiveness Qualifying Payments Pay As You Earn Repayment (PAYE) Revised Pay As You Earn Income Based Repayment (IBR) Income Contingent Repayment (ICR) Standard Repayment (10-year fixed plan) OR Amount paid each month must be no less than payment based on a 10-year loan period 14

15 Penalities for Defaulting on Your Loans Garnishment of up to 15% of wages and Social Security benefits Income tax refunds may be intercepted (offset) Collection charges of up to 25% deducted from each payment, slowing repayment trajectory Can t renew professional licenses The default will prevent you from getting credit cards, auto loans and mortgages and may make it harder to rent an apartment or get a job You will be ineligible for more federal student aid 15

16 Loan Rehabilitation Rehabilitation is a one-time opportunity to remove a federal student loan default from your credit history and to regain student aid eligibility Regain eligibility for federal student aid after making 9 consecutive full and voluntary on-time payments After making 9 of 10 consecutive on-time payments, you can apply to have the loan rehabilitated and the default can be removed from your credit history Use to base monthly payment on percentage of the total student loan debt July 1, 2014 now can qualify for financial hardship and request the 15% repayment plan or the FIS program 16

17 Consolidation out of Default Make 3 consecutive (doesn t need to be consecutive for Affected Individuals ) reasonable and affordable payments based on total financial circumstances; or. Agree to forced ICR or IBR AND consent to the IRS disclosing to DOE certain tax information (Make sure to select IBR in most cases and if put into ICR, then immediately request IBR) Default status must remain on borrower's credit report for 7 years and will show as paid collection account Borrower no longer subject to tax intercepts, garnishments, or other collection efforts Balance of new loan will increase due to addition of collection fees (around 18.5%) Judgment must be vacated and/or garnishment order must be lifted for loan to be consolidated Direct Consolidation Loans may not be re-consolidated (with execptions listed in Repayment Section), which means borrowers only have ONE chance of consolidating out of default (is possible for borrower to rehabilitate a loan out of default, then if goes back default to consolidate out of default, then that new consolidation loan would be eligible to be rehabilitated out of default again) 17

18 Rehabilitation Vs. Consolidation Time to see benefits Consolidation days/ Rehabilitation 9-10 months Amount of paperwork and hassle Consolidation almost none/ Rehabilitation potential financial disclosures and haggle with agency Size of payment Both should be close to same as rehabilitation now calculated using similar method of IBR Payment type Consolidation forced to IBR or ICR/ Rehabilitation can choose once complete Affect on credit 18 Consolidation default status remains but quicker resolution of current delinquency stage/ Rehabilitation removal of default status but longer to resolve delinquency/collection stage

19 A 3-step approach to tackling student loan debt issues 19

20 Analysis Student Loan borrowers utilize client access to client portal to walk through the analysis process Registration Personal Information AGI/Family Size Upload of NSLDS Questionnaire Student loan borrowers are delivered a packet that includes ALL available solutions Loan Summary/ Servicer Contact Information Monthly Repayment Calculators Solution Descriptions Steps to Implement Solutions Key points to consider before and during implementation 20

21 Counseling Counseling provides guided one-one analysis of student loan options Counselor does full financial assessment and gathers important information on goals to help borrower decide what solutions to apply to their loans Counselor and client look at both long and short term goals of client to create a unique repayment plan tailored to the clients needs Counselor helps client implement a strategy toward resolution of student loan debt burden 21

22 Implementation Every student loan solution can be implemented by the borrower, however implementation can be just as confusing as analysis Implementation is the third service that can be offered Document Preparation Submission to agencies on behalf of the borrower Follow - up with agency on status of solution 22

23 Counseling Dilema You never have to pay for student loan help US Department of Education and Loan Servicers will help borrowers reach their student loan goals For Profit vs. Non Profit Counseling For-profit companies charge up to $1000 for student loan assistance Focus on Consolidation and IBR Unethical misrepresentations created stigma for student loan counseling Non-profit initiative to train and certify qualified student loan counselors Focus on navigation of confusing student loan landscape Look at ALL possible solutions along with full financial assessment 23

24 Conclusion Student loan debt is a huge committment and has a significant economic impact on you and your family: Have a repayment strategy in place Analysis is essential for long term, successful repayment Servicer Representatives versus expert financial advice Interested in getting started please visit: Special pricing for webinar participants of $19.95 Also access additional counseling by calling Consumer Debt Counselors toll free and mention the AICPA Student Loan Webinar 24

25 Where to Turn for Help 25

26 A CPA Financial Planner and a CPA/PFS are trusted advisors who Operate at the highest professional level when delivering personal financial planning services to clients, acting in the clients best interest. Adhere to high standards as required by the Code of Professional Conduct and the Statement on Standards in Personal Financial Planning Services through the application of objectivity, integrity, due care and competence required by CPAs. Are regulated by state boards of accountancy. Integrate advanced planning concepts, including tax and business considerations, with the entire financial plan. 26

27 Resources AICPA resources findacpapfs.org aicpa.org/pfp/consumer 360financialliteracy.org Among them: Checklists to use with your own return. Today s PowerPoint presentation. Archived recording of today s webcast. Tips on choosing the right financial advisor. 27

28 Questions? 28

29 Appendix: Software Examples 29

30 Appendix: Sample Software Output 30

Exit Counseling M I D D L E B U R Y I N S T I T U T E O F I N T E R N A T I O N A L S T U D I E S S T U D E N T F I N A N C I A L SERVICES

Exit Counseling M I D D L E B U R Y I N S T I T U T E O F I N T E R N A T I O N A L S T U D I E S S T U D E N T F I N A N C I A L SERVICES Exit Counseling FALL 2017 M I D D L E B U R Y I N S T I T U T E O F I N T E R N A T I O N A L S T U D I E S S T U D E N T F I N A N C I A L SERVICES Agenda Loan types and interest rates Grace periods Repaying