Income-Driven Repayment Plans

Income-Driven Repayment Plans

Agenda Income-Driven Repayment Plans Overview Income-Based Repayment Plan (IBR) Income-Contingent Repayment Plan (ICR) Pay As You Earn Plan (PAYE) Revised Pay As You Earn Plan (REPAYE) Applying for an Income-Driven Plan Other Repayment Plans Income Sensitive Repayment Plan Standard Graduated Extended (fixed or graduated) Counseling Tips Direct Loan Consolidation Resources 2

Borrower Considerations Pros More manageable, lower monthly payment Cons Repayment period could be more than 10 years Avoidance of delinquency and default Remaining principal and interest is forgiven after 20 or 25 years of payments Possibility of Public Service Loan Forgiveness (after 10 years of qualifying payments) More interest could be paid over time Required annual submission of information on income and family size to prove continued eligibility for reduced payments Non-PSLF Forgiveness IS taxable 3

Who Should Consider Income-Driven Repayment Plans? Borrowers with high student loan payments relative to income, such as: Teachers with heavy debt loads against low salaries Individuals who are experiencing financial difficulties but who may not qualify for other options such as deferment or forbearance Recent graduates managing typical federal student loan debt in lowwage jobs or unpaid internships Individuals pursuing lower paid social-service careers Law graduates earning low salaries as public defenders Medical residents earning typical resident salaries 4

Income-Based Repayment (IBR) Under IBR, borrowers pay the lesser of: 15% of discretionary income or what they would have paid under the 10-year Standard repayment plan (Not a new borrower on/after 7/1/2014) 10% of discretionary income or what they would have paid under the 10-year Standard repayment plan (New borrowers only on/after 7/1/2014) Discretionary income for this plan is the difference between the borrower s Adjusted Gross Income (AGI) and 150 percent of the poverty guideline amount for his/her state of residence and family size. Loan forgiveness If the borrower makes 25 years of qualifying payments and meets certain other requirements, any remaining balance will be cancelled (20 years for new borrowers only on/after 7/1/2014) 5

Income-Based Repayment The IBR Partial Financial Hardship (PFH) payment amount is determined by the AGI and family size If the borrower is married and files a joint federal tax return, the AGI includes both spouse s incomes together If the spouse has eligible student loan debt, this debt may also be taken into consideration when determining whether the borrower has a PFH Annual IBR repayment amount is 15% of the difference between the borrower s AGI and 150% of the Department of Health and Human Services Poverty Guideline for their family size and state The IBR payment amount will be adjusted yearly based on income and family size but will never be more than what would be required to be paid under a 10-year Standard Plan based on the balance of the eligible loans when the borrower began repayment under the IBR plan 6

Income-Based Repayment Leaving IBR If borrowers leave IBR and have unpaid interest, it will capitalize to principal, increasing principle balance The borrower is placed into the Standard Plan based on the term remaining for their loan type For example, Stafford/PLUS Loans will have 10 years minus the time in repayment. Consolidation Loans may have 10-30 years minus the time in repayment. Borrowers may request a reduced payment forbearance if they cannot afford the payment amount on the standard repayment plan. Borrowers who leave IBR can come back if they demonstrate "partial financial hardship". 7

Income-Contingent Repayment (ICR) Does not require borrower to show PFH for eligibility Each year the monthly payments are recalculated based on: AGI (spouse s income will only be included if they file federal taxes jointly or are repaying under joint ICR) Family size Total amount of the borrower s Direct Loans Lesser one of the following: 12-year standard repayment schedule multiplied by income percentage factor, or 20 percent of discretionary income Loan balance is discharged after 25 years 8

Pay As You Earn (PAYE) Who qualifies: New borrowers who have a PFH Has no outstanding balance on a Direct or FFELP loan as of 10/1/2007, or has no outstanding balance on a Direct or FFELP loan when he or she obtains a new loan on/after 10/1/2007 AND Receives a disbursement of a Direct Subsidized or Unsubsidized Stafford, or Grad PLUS loan on or after 10/1/2011; or receives a Direct Consolidation Loan based on an application received on/after 10/1/2011 9 Eligible Loans: Direct Loans except: Defaulted loans Parent PLUS loans Consolidation loans that repaid Parent PLUS loans

Pay As You Earn Under Pay As You Earn, borrowers pay the lesser of: 10% of discretionary income or what they would have paid under the 10- year Standard repayment plan. Discretionary income for this plan is the difference between the borrower s AGI and 150% of the poverty guideline amount for his/her state of residence and family size. For Pay As You Earn, the remaining balance is forgiven after 20 years of qualifying repayment 10

Revised Pay As You Earn (REPAYE) Who Qualifies: Any borrower with eligible federal student loans may make payments under this plan. Eligible Loans: Direct Subsidized/Unsubsidized Loans Direct PLUS Loans made to graduate or professional students Direct Consolidation Loans that did not repay any PLUS loans made to parents These loan types are eligible if consolidated into a Direct Consolidation Loan Subsidized/Unsubsidized Federal Loans from the FFEL program FFEL PLUS Loans made to graduate or professional students FFEL Consolidation Loans that did not repay any PLUS Loans made to parents Federal Perkins Loans 11

Revised Pay As You Earn Payment Amounts Generally 10% of discretionary income There is no cap on the payment amount (may be higher than the 10-year Standard Repayment amount) Loan Forgiveness 20 years if all loans you are repaying under the plan were for undergraduate study 25 years if any loans you are repaying under the plan were for graduate or professional study 12

Interest Subsidy Benefits ICR IBR PAYE REPAYE REPAYE No subsidy Sub. Loans only Sub. Loans only For sub. loans For unsub. loans Only during negative amortization Only during negative amortization Only during negative amortization Only during negative amortization Only for first 3 years under plan 100% of negative amortization Only for first 3 years under plan 100% of negative amortization For first 3 years under plan 100% of negative amortization No time limit 50% of negative amortization After 3 years, 50% of negative amortization 13

Interest Capitalization If monthly payment is less than the amount of interest that accrues, any unpaid interest is capitalized if; IBR Borrower no longer qualifies to make payments based on income, or leaves the plan There is no limit on the amount of unpaid interest that may be capitalized under these conditions ICR When the monthly payment is less than the amount of interest that accrues, the amount of unpaid interest that is capitalized annually is limited to 10% of the original loan balance at the time entered the ICR Plan PAYE Borrower no longer qualifies to make payments that are based on income, or leaves the plan The amount of unpaid interest that may be capitalized if borrower no longer qualifies to make payments based on income is limited to 10% of original loan principal balance at the time entered the PAYE Plan REPAYE 14 Borrower is removed from the plan for failing to recertify income by the annual deadline, or voluntarily leaves the plan There is no limit on the amount of unpaid interest that may be capitalized under these conditions

Income-Driven Repayment Example - Tyler Tyler completed college with a total of $50,000 in Direct Loan debt ($23,000 of which is unsubsidized). The interest rate on all of his loans is 6%. He is single with no dependents and has an adjusted gross income (AGI) of $35,000 that rises at 5% per year. He lives in the state of Missouri and also has graduate school debt. 15 Assumptions: Tyler qualifies for repayment under the Standard Repayment Plan, the Income-Based Repayment (IBR) Plan, the Pay As You Earn (PAYE) Repayment Plan, the Revised Pay As You Earn (REPAYE) Repayment Plan and the Income-Contingent Repayment (ICR) Plan. Repayment under all of the following plans would take place as each plan exists under regulations effective December 1, 2015.

Payment Amounts StudentAid.gov/Repayment-Estimator 16 16

Income-Driven Repayment Application Borrowers may apply for an IDR on studentloans.gov or complete a paper application. Can be used by borrowers with Direct Loans or FFEL Loans Uses IRS Data Retrieval Tool that is used on the FAFSA Retrieves the most recent tax information from two most recently completed tax years If a borrower selects a specific repayment plan that they are not eligible for, the borrower will be placed on the lowest monthly payment amount IDR plan for which they are eligible. 17

Application Process: Electronic or Paper Select reason for submitting form Provide information about spouse, if applicable Determine what kind of income documentation to submit Select plan, if submitting form to initially apply Certify family size Submit documentation of AGI or ADOI ADOI = alternative documentation of income; not AGI. 18

Application Process: Spouses Almost all married borrowers provide spouse s income documentation Only used by servicer when relevant Exception for those who are Separated; or Cannot access spouse s income Repayment Plan Married borrower filing jointly Married borrower filing separately ICR Use joint AGI Use borrower s AGI IBR Use joint AGI Use borrower s AGI PAYE Use joint AGI Use borrower s AGI REPAYE Use joint AGI Combine AGI of borrower and borrower s spouse 19

Consequences of Failing to Recertify IBR ICR PAYE REPAYE Interest capitalization Stay in plan Interest capitalization Interest capitalization Stay in plan Stay in plan Kicked out of plan Payment no longer incomebased; 10-year standard amount Payment no longer incomebased; 10-year standard amount Payment no longer incomebased; 10-year standard amount Loan reamortized over lesser of 10 years or time to forgiveness 20

Other Repayment Options Income Sensitive FFEL loans only Monthly payment is based on monthly gross income Select a monthly payment amount between 4% 25% of your monthly income. Your payment must be greater than or equal to the interest accruing on your loan. You must reapply for this schedule every year. It is available to you for up to 5 years. After 5 years, you will need to choose another repayment schedule. You may have up to 10 additional years under your new schedule. 21

Standard & Graduated Repayment Plans Standard Repayment Assigned to borrowers automatically unless otherwise specified Fixed (equal) payment amount each month, although it could vary due to interest rate changes on a variable rate loan Monthly payments will be at least $50 10-year repayment term (Standard Repayment for Direct Consolidation Loans is 10 to 30 years based on balance) Graduated Repayment Payments start low and generally increase every two years 10-year repayment term (Direct Consol. Loans may have a term of 10 to 30 years based on balance) Monthly payment is never less than the amount of interest that accrues each month No single payment will be more than three times greater than any other payment 22

Extended Repayment Plan Extended Repayment Will pay a fixed or graduated payment amount Repayment term not to exceed 25 years FFEL borrowers must have more than $30,000 in outstanding FFEL Program loans (for new borrowers as of 10/07/1998) Direct borrower must have more than $30,000 in outstanding Direct Loans (for new borrowers as of 10/07/1998) 23 Examples from studentaid.ed.gov calculators

Exit Counseling Repayment Plan Selection The Department shares the borrower s repayment plan preference from Exit Counseling on StudentLoans.gov with the federal loan servicers and Federal Family Education Loan (FFEL) Program lenders, lender servicers, and guaranty agencies. Repayment plan selection will be considered by the servicer, and if possible, applied to the borrower s account. 24

StudentLoans.gov Repayment Plan Comparison Calculator The Repayment Estimator on StudentLoans.gov takes a student s current loan balance and shows what her monthly and total payments would be using various repayment plans. Borrowers can use the repayment estimator tool during Exit Counseling or the Financial Awareness Counseling Tool. 25

Repayment Schedule Estimators Check out the Repayment Estimators available at FedLoan Servicing and StudentLoans.gov 26

Public Service Loan Forgiveness (PSLF) 10 years The borrower may qualify for loan forgiveness earlier than 20 or 25 years if they work full-time for a qualifying public service organization and make on-time full monthly payments under the repayment plans listed below. Payments made under these plans will count toward the 120 monthly payments that are required to receive loan forgiveness through PSLF. 10-year Standard Repayment Plan Income-Based Repayment (IBR) Plan Income-Contingent Repayment (ICR) Plan Pay As You Earn Plan Revised Pay As You Earn (REPAYE) Any other repayment plan if the monthly payment amount is paid is not less than what would have been paid under the 10-year Standard repayment plan For more information on PSLF, please refer to the PSLF Fact Sheet and Q&As: studentaid.ed.gov/publicservice 27

Direct Loan Consolidation Direct Loan Consolidation allows borrowers to combine one or more existing student loans into a single new loan. Consolidation may be the right option for your borrower if: If student loan debt is significant. If borrower has more than one type of student loan. Has trouble making the minimum monthly payments on multiple loans. Pros Lower monthly payments Fixed interest rate One bill, one payment Cons Longer repayment schedule More interest to pay Loss of loan incentives 28

Servicing Resources Find Servicer Contact Information on IFAP or call 1-800-433-7327. Loan Servicing Centers for Schools Loan Servicing Centers for Students 29

Additional Resources Income-Driven Repayment Plans: Frequently Asked Questions studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf Repayment Schedule Estimator myfedloan.org/billing-payment/payment-plans/repayment-schedule-estimator.shtml Repayment Options myfedloan.org/billing-payment/payment-plans/index.shtml Repayment Calculators studentaid.ed.gov/repay-loans/understand/plans finaid.org/calculators/ myfedloan.org/make-a-payment/calculators/index.shtml Federal Student Aid (FSA) Repayment Information studentaid.ed.gov/portalswebapp/students/english/repaying.jsp Department of Health and Human Services Poverty Guidelines - 2016 aspe.hhs.gov/poverty/16poverty.cfm Repayment Plan Preference Info Shared w/ Loan Servicers ifap.ed.gov/eannouncements/102813lsirepayplaninfoloansevicersbeginjan2014.html 30

Your Dedicated Sector Representatives Public & Proprietary Private/Graduate & Professional Diona Brown 717-720-3546 dbrown1@pheaa.org Facebook.com/fedloanpublic Facebook.com/fedloanproprietary Lisa Ciritella 717-720-2309 lciritel@pheaa.org Facebook.com/fedloanprivate