Educational Debt Management Income Driven Repayment and Public Service Loan Forgiveness

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1 Educational Debt Management Income Driven Repayment and Public Service Loan Forgiveness Iowa Association of Financial Aid Administrators April 4, 2018 Dave Dahlen Director of Financial Aid/Registrar Mayo Clinic College of Medicine and Science Mayo Clinic Rochester, MN, Scottsdale, AZ, Jacksonville, FL

2 Disclosures & Stuff to Know! No financial incentives All my stories and examples are true I m not creative Married to a Practicing Financial Aid Administrator Anne Dahlen, St. Olaf College, Current MAFAA President Elect Minnesota Association President in Bunch of other stuff Practicing Financial Aid Professional 28 years Large Land Grant Institution Small Public Vocational/Technical College Medium Public Community College Smallish School in a Huge Medical Center Mayo Clinic and Mayo Clinic College of Medicine and Science

3 Disclosures & Stuff to Know! No financial incentives All my stories and examples are true I m not creative Married to a Practicing Financial Aid Administrator Anne Dahlen, St. Olaf College, Current MAFAA President Elect Minnesota Association President in Bunch of other stuff Practicing Financial Aid Professional 28 years Large Land Grant Institution Small Public Vocational/Technical College Medium Public Community College Smallish School in a Huge Medical Center Mayo Clinic and Mayo Clinic College of Medicine and Science

4 About Mayo Clinic 1,100 Student FTE 2,700 Medical Resident/Fellows 65,000 Employees 1.3M unique patient visitors per year Largest Private Employer in Minnesota

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8 Educational Debt Refresher You all know this!

9 Types of Loans Federal Federal Direct Subsidized, Unsubsidized and Grad PLUS FFELP Subsidized, Unsubsidized and Graduate PLUS Perkins SLS, GSL, NDSL etc. (for the old FAOs in the room) Non-Federal Private Loans Institutional Loans Credit Card Debt

10 Know the details! Federal Loans Discharged upon death or permanent disability Private Loans In many cases debt cannot be discharged.

11 I D R Eligible Loans ~ Income DRIVEN Repayment IBR and PAYE, REPAYE Note There are others. Eligible Federal Loans: Stafford (DL and FFELP), SLS, Grad PLUS, Federal Consolidation Loans (DL and FFELP) Ineligible Loans Private/Alternative Loans Credit Card Debt Signature Loans

12 IDR Repayment Plans Available on Federal Student Loans Direct and FFELP Not Available on non-federal Student Loans Income DRIVEN Repayment: Income Based Repayment (IBR), Pay As You Earn (PAYE) & Revised Pay As You Earn (REPAYE) Monthly payments are driven off of income rather than amount borrowed, interest rate and loan term. Question: Does a borrower OWE more than you EARN???? If YES, they will most likely qualify for an IDR payment

13 How are payments calculated? IBR Payments are capped at 15% of whatever the borrower earns above 150% of the poverty level for the applicable family size PAYE & REPAYE Payments will be capped at 10% of whatever the borrower earns above 150% of the poverty level for the applicable family size Very Different than standard loan payments!

14 2018 HHS Poverty Guideline

15 How are Payments Calculated? 3 ½ Steps 1 st Step HHS Poverty Amount X 150% = Income Protection Allowance (IPA) 2 nd Step Adjusted Gross Income (AGI) IPA = Discretionary Income (DI) 3 rd Step DI X 15% in IBR OR DI X 10% in PAYE or REPAY = Annual Pmt. ½ Step! Divide Annual Pmt. by 12 months

16 Paul R. Student: Adjusted Gross Income = $30,000 Family Size = 1 Total Federal Debt 5% = $294.78/month ~ Standard Repayment 2018 HHS Poverty guideline = $12,140 (family size = 1)

17 Paul: Income Based Repayment Example The Math: $12,140 x 150% = $18,210 (IPA) $30,000 - $18,210 = $11,790 (DI) $11,790 x.15 = $ (Annual Payment) $ / 12 months = $ (Monthly Payment)

18 Paul PAYE and REPAYE Example The Math: $12,140 x 150% = $18,210 (IPA) $30,000 - $18,210 = $11,790 (DI) $11,790 x.10 = $1,179 (Annual Payment) $1,178 / 12 months = $98.25 (Monthly Payment)

19 Annual Renewal ~ Important Payments are determined for 12 months Annual renewal is needed Failure to renew = Standard Payment 10-Year Payment, or Consolidated Payments

20 Before we proceed

21 Shifting Gears: PSLF

22 IDR and PSLF Income Driven Repayment can exist without Public Service Loan Forgiveness BUT Public Service Loan Forgiveness cannot exist without Income Driven Repayment

23 Public Service Loan Forgiveness The Four Rights The right loans The right KIND of payment The right number of payments The right type of work 71% of those survey thought private loans qualified for PSLF

24 Public Service Loan Forgiveness College Cost Reduction and Access Act of 2007 created this program Eligible Loans: Direct Loan Program ONLY Prior to 2010 there were two Federal loan programs: Direct Loan Program Federal Family Educational Loan Program: FFELP Periods of Deferment and Forbearance do not count Time does not have to be consecutive Discharges any remaining debt after 120 qualifying payments ~ while working full-time employment in public service.

25 What kind of work counts? Eligible Jobs Include: Must be Full-Time = 30+ Hours per Week Federal, State, Local, or Tribal Government military, police, fire fighters, emergency management Public child or family service agency Public interest law; early childhood education Public health and public schools education But not members of Congress Full-Time AmeriCorps or Peace Corps Tax-Exempt 501(c)(3) organizations Most Residency Training Programs Most not-for-profit colleges and universities

26 The future of PSLF March 14, 2018

27 The Great American Give-Away? Mathematically PSLF benefits borrowers with large debts Who are they? Are borrowers accessing too much debt? More than they can repay?

28 Past Recommendations: Limiting qualifying payments to IDR only Capping PSLF at $57,500 Eliminating the program all together None of these have been enacted!

29 PROSPER ACT Aid Like a Paycheck One Loan One Grant Aid Like a Paycheck Changes to PSLF Issue of grandfathering _short_summary_-_ pdf

30 Questions/Comments Remember All of us are smarter than any of us!

31 David L. Dahlen Director of Student Financial Aid/Registrar Mao Clinic College of Medicine (507)