Drowning in Debt? How to Take Control of Your Future and Manage Your Educational Debt

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1 Drowning in Debt? How to Take Control of Your Future and Manage Your Educational Debt

2 Today s Agenda Resources for managing educational debt Know Your Loans Entering Repayment Broad Federal Relief Programs Essentials of Income-Driven Repayment Essentials of Public Service Loan Forgiveness Loan Repayment Assistance Programs Where to Begin: Some essentials

3 Know Your Loans

4 Average Borrowed for Law School

5 Median Entry-Level Salaries in 2012 Type of Employment Median Starting Salary Civil Legal Services $42,800 Public Interest Organizations $45,000 Prosecuting Attorneys $50,000 Public Defenders $50, Person Firm $78, Person Firm $110, Person Firm $100,000

6 Loan Basics: How do I repay my loans? Repayment plans Standard Repayment Graduated Repayment Payments increase every 2 years Extended Repayment (Standard or Graduated) Greater than $30,000 (up to 25 years) Income-Driven Repayment Consider Interest Accrual and capitalization

7 Loan Basics: Sources of Student Loans State Loans States may have different repayment options Federal Loans May be eligible for federal relief programs Private Loans Never eligible The government cannot forgive or write off debt that it does not own

8 Federal Loans Grad PLUS Subsidized Stafford Federal Loans Unsubsidized Stafford Federal Consolidation

9 Loan Basics: Sources of Federal Loans Federal Family Education Loan (FFEL): Government-guaranteed loans but funds came from banks and other financial institutions. FFEL ended in Federal Direct: Funds for the loans come directly from the US Department of Education.

10 Loan Basics: What loans do I have? Federal Student Loans National Student Loan Data System: Contact your servicer and ask Private Student Loans Look for private loans at:

11 Loan Basics: What loans do I have?

12 Which loans are eligible? Federal Direct FFEL Never Eligible IBR ICR Pay As You Earn PSLF IBR Commercial/ Private loans Loans in Default Consolidate FFEL into Federal Direct Stafford and Grad Plus Reconsolidate a FFEL Consolidation Loan Consider keeping Parent PLUS & Perkins separate

13 PSLF: Consolidating into Federal Direct

14 Student Debt Relief from the Federal Government

15 Broad Federal Student Debt Relief Public Service Loan Forgiveness Income-Driven Repayment

16 What is Income-Driven Repayment? Repayment plans for your federal loans Income is a factor when determining monthly payment amounts Income-Based Repayment Pay As You Earn Income-Contingent Repayment No required type of employment Taxable discharge after 20 or 25 years

17 Considering Income-Based Repayment Can I choose IBR? How much will I pay? How do I apply?

18 Can I choose IBR? Partial Financial Hardship The 15% Rule Amount you owe annually on a 10-year repayment plan is more than 15% of your discretionary income Discretionary income: Adjusted Gross Income (basically what you file on your taxes) 150% of the federal poverty level for your family size Eligible Loans: FFEL and Federal Direct

19 IBR: How much will I pay? Affordable payments the 15% Rule Limited to paying 15% of discretionary income Your payment calculation does not depend on how much you owe IBR only considers income and family size Forgiveness after 25 years

20 IBR: How much will I pay? Source: United States Department of Education (assume $120,000 eligible debt) Annual Income Family Size (using 2012 poverty guidelines) $10,000 $0 $0 $0 $0 $0 $0 $0 $15,000 $0 $0 $0 $0 $0 $0 $0 $20,000 $41 $0 $0 $0 $0 $0 $0 $25,000 $103 $29 $0 $0 $0 $0 $0 $30,000 $166 $91 $17 $0 $0 $0 $0 $35,000 $228 $154 $80 $5 $0 $0 $0 $40,000 $291 $216 $142 $68 $0 $0 $0 $45,000 $353 $279 $205 $130 $56 $0 $0 $50,000 $416 $341 $267 $193 $119 $44 $0 $55,000 $478 $404 $330 $255 $181 $107 $33 $60,000 $541 $466 $392 $318 $244 $169 $95 $65,000 $603 $529 $455 $380 $306 $232 $158 $70,000 $666 $591 $517 $443 $369 $294 $220

21 Pay As You Earn Like IBR but better The 10% rule A $353 payment on a $45,000 salary becomes $235 Forgiveness after 20 years Only certain borrowers & certain loans No federal loans before Oct. 1, 2007 and will Borrow a federal loan on or after Oct. 1, 2011 Only Federal Direct Loans What about you? When did you borrow your first federal loan?

22 Income Contingent Repayment (ICR) Also a repayment plan based on your income 25-Year Forgiveness No partial financial hardship required Only Federal Direct Loans Total Direct Loan debt affects payment amount Won t ever pay more than 20% of your income

23 IBR: Information at studentaid.ed.gov

24 How do I apply? Apply as soon as you think you are eligible Check the box and fill out the form to select IBR, ICR or Pay As You Earn when you begin repayment Contact your student loan servicer(s) Don t know your servicer?

25 IBR, ICR & PAYE: studentloans.gov

26 IBR, ICR & PAYE: How do I apply?

27 Yay! But UGH! PAYE 10% Rule 20-Year Forgiveness IBR 15% Rule FFEL and Federal Direct Partial Financial Hardship Certify! Only Federal Direct 25-Year Forgiveness ICR Considers total debt 20% Cap

28 Annual Certification Requirements You must certify your income and family size every year! You have rights! Notice One standard form

29 Choosing an Income-Driven Plan: Additional Considerations

30 Tax considerations What will they count? Filing Jointly or Singly Your Income & Federal Debt Spouse s Income & Federal Debt AGI & Total Debt Your Income & Federal Debt AGI & Total Debt

31 Tax considerations Forgiveness under IBR, ICR & PAYE is Taxable Income

32 Interest Accrual Interest does accrue in income-driven plans Your payment may not be enough to pay all the interest accruing on your loans Payments are applied first to interest Your repayment period may be extended You may pay more total interest

33 Interest Protections IBR PAYE ICR As long as you have a PFH: Your interest will not capitalize The government pays any unpaid interest on subsidized loans the first three years As long as you remain in the plan: Interest capitalization is capped at 10% of the original loan amount

34 I no longer have a PFH You can remain in ICR, IBR or Pay As You Earn Interest capitalizes Recalculated monthly payment amount Payment amount is no longer based on income Capped at what would have been required had you initially entered a 10-year plan Still eligible for 25- or 20-year forgiveness

35 What if I exit an Income-Driven Plan? All Plans: Accrued interest capitalizes No longer eligible for 25- or 20-year forgiveness IBR Only: You are placed in a standard plan Monthly payments are accelerated You may be able to change into an extended plan You are required to make a standard payment before switching negotiate this! IBR & PAYE: Re-entry only upon another partial financial hardship

36 Compare Costs of Different Plans Use the calculators at

37 Broad Federal Student Debt Relief Income-Driven Repayment Public Service Loan Forgiveness

38 Public Service Loan Forgiveness If You: Make 120 qualifying loan payments while working full-time in a qualifying public service position after October 1, 2007 The Federal Government will: Forgive the balance remaining on your eligible Federal Direct Loans.

39 PSLF: Requirements for Forgiveness Eligible Loans Qualifying Employment Qualifying Employment Qualifying Payments Eligible Loans Qualifying Payments Forgiveness

40 PSLF: Which loans are eligible? Only Federal Direct FFEL Loans are Not Eligible

41 PSLF: Qualifying Employment Government Public Interest Organization 501(c)(3) Peace Corps AmeriCorps

42 PSLF: Full-time Employment Working in qualifying employment for: An annual average of at least 30 hours per week; or For a contractual or employment period of at least 8 months, an average of 30 hours per week; or Unless the qualifying employment is with two or more employers, the number of hours the employer considers full-time. Can combine/change positions Must be paid by the qualifying employer(s)

43 PSLF: Qualifying Payments 120 times separate monthly payments, on time in a Qualifying Repayment Plan 10-Year Standard Repayment Plan Plan under which your payments are at least as much as they d be under 10-Year Repayment Income-Contingent Repayment Income-Based Repayment Pay As You Earn Payments do not need to be consecutive

44 PSLF: Nonqualifying Payments What payments don t count toward the 120 payments required for PSLF? Late payments (more than 15 days) Payments made on the wrong kind of loans Payments made while in the wrong kind of job Payments made in the wrong repayment plan

45 Put It All Together: Dara Defender

46 IBR & PSLF: Dara Defender finds relief! Dara has $120,000 in federal loans $100,000 unsubsidized Federal Direct $20,000 subsidized FFEL Dara takes a public defender position Her salary starts at $45,000 But she knows about IBR & PSLF

47 IBR & PSLF: Dara Defender finds relief! Dara consolidates into Federal Direct She now has $120,000 in a Federal Direct Consolidation Loan Dara enrolls in IBR In her first year, her payments are $353 They would be $1,381 under standard 10-year repayment

48 IBR & PSLF: Dara Defender finds relief! Dara remains in public service She receives annual raises of 3% Her payments gradually rise In year 10, her monthly payments are $461 Dara applies for PSLF She has paid $48,570 over 10 years The federal government forgives $151,133!

49 Dara is eligible for the 10% cap! Under the new Pay As You Earn Her initial payments are now $235 In year 10, her monthly payments are $307 Dara applies for PSLF She has paid $32,380 over 10 years The federal government forgives $166,595!

50 PSLF: Using income-driven plans Apply for IBR or ICR As soon as you think you may be eligible Select the plan when you begin repayment Contact your loan servicer(s) and request to switch into the plan Apply for PSLF After making 120 qualifying payments Track your employment!

51 PSLF: Track Your Progress

52 What if I don t qualify for PSLF? Benefits of IBR and ICR even without Public Service Loan Forgiveness: Lower monthly payment No required type of employment Forgiveness after 25 years Pay as You Earn in ICR has 20 year forgiveness

53 Loan Repayment Assistance Programs

54 LRAPs: Where can I find one? Employer LRAPs Ask your employer! State-Based LRAPs Visit for more information School LRAPs Ask your school! Federal LRAPs Federal programs based on profession Not necessarily mutually exclusive with income-driven repayment and PSLF, but check to make sure

55 Repayment, Forgiveness & LRAPs Not a one-size fits all solution: Repayment Plans Forgiveness LRAPs Think about: Interest Accrual Likely future income Career plans Consult a tax or financial specialist

56 Educational Debt? Remember the Steps Know your loans Know your career plans Know options for managing high student debt Public Service Loan Forgiveness Income-Driven Repayment Loan Repayment Assistance Programs Think about your future, then take the right steps to get there!

57 Information, Resources & Checklists

58 Get our new e-book: Take Control of Your Future Now Available in the Kindle Store!

59 Additional Resources Resources:

60 Stay Connected! Questions? Get our new ebook and post on our forum: Stay connected for news, webinars and #StudentDebtHelp Equal Justice Works

61 Presented by: Radhika Singh Miller