Getting Your Educational Loans Forgiven. A Webinar Partnership between Equal Justice Works and Northeastern University School of Law

Transcription

1 Getting Your Educational Loans Forgiven A Webinar Partnership between Equal Justice Works and Northeastern University School of Law

2 Presented by: Mary F. Church Financial Aid Counselor Office of Financial Aid Northeastern University School of Law Valerie Kapilow Office of Career Services Northeastern University School of Law Radhika Singh Miller Equal Justice Works

3 Poll: Who s Out There?

4 Today s Agenda Know Your Student Loans College Cost Reduction & Access Act of 2007 Essentials of Public Service Loan Forgiveness Using Income-Based Repayment Loan Repayment Assistance Programs NUSL Loan Deferral/Forgiveness in-brief Essentials of relief from states and others Resources for managing high student debt

5 Know Your Loans

6 Loan Basics: What loans do I have? What types of loans do you have? Take the Poll

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 A Borrower s Life: Federal Loans Undergrad Federal Consolidation Law School Federal Consolidation Stafford (subsidized and unsubsidized) Perkins Parent PLUS (if you took one for your child) Federal Direct or FFEL One payment Acts as a new loan: think about your options Stafford (subsidized and unsubsidized) Perkins Grad PLUS Federal Direct or FFEL One Payment for All Federal Loans Acts as a new loan: think about your options

11 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:

12 Loan Basics: What loans do I have?

13 College Cost Reduction and Access Act of 2007 (CCRAA)

14 College Cost Reduction and Access Act Income-Based Repayment Public Service Loan Forgiveness

15 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.

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

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

18 PSLF: What if I have FFEL loans? Consolidate FFEL loans into Federal Direct Stafford Loans and GradPlus Loans Reconsolidate if you ve previously consolidated with a private lender

19 PSLF: Consolidating into Federal Direct This is not Special Direct Consolidation!!!

20 Special Direct Consolidation Who is eligible? Borrowers of federal loans with At least one Direct Loan or ED-held FFEL loan AND At least one commercially-held FFEL loan Do not apply through the traditional site! January June 30, 2012 You will be contacted by a federal loan servicer FED-AID

21 PSLF: Which loans are not eligible? FFEL Loans are not eligible for PSLF Alternative or commercial student loans Parent PLUS and Perkins only if consolidated But Beware! Consolidation loans that repaid a Parent PLUS loan limit options because they are not eligible for IBR Consolidating Perkins loans will lose Perkins forgiveness provisions Loans that are currently in default

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23 PSLF: Qualifying Employment Where do you work (or want to work)? Take the Poll

24 PSLF: Qualifying Employment Government 501(c)(3) Nonprofit Public Service Organization AmeriCorps Position Peace Corps

25 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)

26 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 Payments do not need to be consecutive

27 PSLF: Compare Monthly Payments Use the calculators at

28 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

29 PSLF: How to Apply Only after making 120 qualifying payments on eligible loans while working full-time in qualifying employment Procedure set by Department of Education Track your employment on an ongoing basis Use the Department of Education s certification form, and keep your pay stubs and W-2s You must be in qualifying employment at the time of forgiveness!

30 PSLF: Track Your Progress

31 PSLF: Using Income-Based Repayment A repayment plan for federal loans Reduces monthly payments for borrowers with a partial financial hardship High debt relative to income The 15% Rule Amount you owe annually is more than 15% of your discretionary income Payment cap is 15% of discretionary income Use the Department of Education s calculator: studentaid.ed.gov

32 IBR: Information at studentaid.ed.gov

33 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

34 IBR & PSLF: Dara Defender finds relief! Dara consolidates into Federal Direct She now has $120,000 in a Federal Direct Consolidation loan at 6.8% interest Dara enrolls in IBR In her first year, her payments are $359 They would be $1,381 under standard 10-year repayment

35 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 $467 Dara applies for PSLF She has paid $49,447 over 10 years The federal government forgives $150,295!

36 Pay As You Earn: New ICR Pay As You Earn Proposal The 10% rule A $360 payment on a $45,000 salary becomes $240 Forgiveness after 20 years Only certain borrowers No federal loans before 2008 and will Borrow a federal loan in 2012 or later Only Federal Direct Loans What about you? When did you borrow your first federal loan?

37 Dara is eligible for the 10% cap! Under the new Pay As You Earn Her initial payments are now $240 In year 10, her monthly payments are $313 Dara applies for PSLF She has paid $32,964 over 10 years The federal government forgives $166,037!

38 CCRAA: Using IBR/ICR and PSLF Apply for IBR or ICR As soon as you think you may be eligible Select IBR or ICR 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!

39 PSLF: Using IBR or ICR

40 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

41 IBR: Dara doesn t qualify for PSLF Dara works for a labor union and starts at $45,000, with 3% annual raises Under 15/25 IBR, Dara pays: $157,258 over 25 years Year 25: she earns $91,478 & her payment is $731 The government forgives $164,809 Under 10/20 ICR, Dara would pay: $77,266 over 20 years Year 20: she earns $91,478 & her payment is $420 The government forgives $203,336

42 What if Dara didn t use IBR or ICR? Under 30-year repayment, Dara would pay: $281,632 over 30 years $782 per month regardless of income Under 10-year repayment, Dara would pay: $165,716 over 10 years $1,381 per month regardless of income

43 Major types of federal loan forgiveness Public Service Loan Forgiveness Forgives remaining debt after 10 years of qualifying payments while working in a qualifying public service position Income-Driven Repayment Plans Current IBR and ICR Forgives remaining debt, if any, after 25 years New Pay As You Earn in ICR Forgives remaining debt, if any, after 20 years

44 Using IBR, ICR & PSLF: Considerations Not a one-size fits all solution Points of consideration: Will your choice affect your taxes? What is your likely future income? What are your career plans? Consult a tax or financial specialist

45 Loan Repayment Assistance Programs

46 LRAPs: Where can I find one? Employer LRAPs Ask your employer! State-Based LRAPs Visit for more information School LRAPs NUSL: LD/F Federal LRAPs John R. Justice Not necessarily mutually exclusive with IBR and PSLF, but check with program administrator to make sure

47 Any LRAP: Questions to Ask Basics How much assistance does the program provide? Is there a cap on total assistance? How are other LRAP benefits considered? Which student loans are eligible? What service obligation do I have? For how long? Is there a limit on how long I can participate?

48 Any LRAP: Questions to Ask Employment What employment qualifies? Must I have a law license? Must I be practicing law? Income Is there an income cap and what is it? How is income calculated? Are assets considered?

49 Any LRAP: Questions to Ask Some Additional Basic Concerns How is the LRAP funded? Loan or Grant?

50 NUSL: Loan Deferral/Forgiveness (LD/F) Program Purpose Pursue law careers in public interest Reduce debt burden Assist graduates in the ability to work in public interest (financial bridge program)

51 NUSL: 2012 LD/F Awards 2012 Award Year (Round 1): Using a $50,000 Salary Cap 72 applicants/68 awards Awards ranged from $ Average Awards: Class of 2009 and earlier: $3,200 Class of : $3,375 Average Salary: Class of 2009 and earlier: $47,646 Class of : $41,285 Expecting 5-10 applicants for Round 2

52 NUSL: LD/F Eligibility Employment Full-time: at least 35 hrs/wk Part-time: <35 but at least 20 hrs/wk only eligible for one year Qualifying Jobs Legal Services Public Defenders Government (including Prosecutors) Public Interest work in a Private Firm Judicial Clerkships: Not eligible for an award Count toward forgiveness if followed by qualifying employment

53 NUSL: LD/F Important Dates Two Rounds Must be employed at time of application Round 2 is for graduates who obtain employment after deadline for Round 1 Round 1 Application Deadline October 31 Notification in late December Round 2 Application Deadline May 31 Notification in Mid-July

54 NUSL: LD/F More Questions? Ask Mary! Mary F. Church Financial Aid Counselor Office of Financial Aid Northeastern University School of Law (617)

55 State-Based LRAPs: Question to Ask Basic Queries Is there a program where I want to work? What employment is covered? In-state only? Types? What loans are covered? Only law school? Bar loans? Must I live in the state? Are graduates of state schools given preference?

56 State-Based LRAPs: Some Examples Cal* State Full-time? Income Cap Law License? Grant/Loan Specific Law School? D.C. Yes $65,000 Yes Loan Preference Illinois Yes None Yes Loan No Mass.** Loan No Minn. Yes $47,500 Yes Loan Yes N. Car. Yes $42,000- $52,000 New York (NYSBA) Yes $55,000- $65,000 Yes Loan ABAaccredited Yes Loan ABAaccredited New York Yes None Yes Grant No (statefunded) *California has a program by law, but it has not been funded **Massachusetts Legal Assistance Corporation grantees set requirements

57 State-Based LRAPs: Some Examples

58 State-Based LRAPs: Some Examples

59 LRAPs: Employer LRAPs Consult with your employer about requirements and procedures Nearly always taxable income

60 Educational Debt Relief: Tax Issues NOT TAXABLE: Public Service Loan Forgiveness Many school LRAPs TAXABLE: IBR and ICR Forgiveness Employer LRAPs Some government LRAPs (ex. John R. Justice)

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

62 Information, Resources & Checklists

63 Additional Resources Resources:

64 Stay Connected! questions: Stay connected for news, webinars and #StudentDebtHelp Equal Justice Works

65 Presented by: Mary F. Church Financial Aid Counselor Office of Financial Aid Northeastern University School of Law Valerie Kapilow Office of Career Services Northeastern University School of Law Radhika Singh Miller Equal Justice Works