Representing the Student Loan Debtor - A Practical Guide to Federal Repayment Plan Programs

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1 Representing the Student Loan Debtor - A Practical Guide to Federal Repayment Plan Programs Presented by: Joshua R.I. Cohen, the Student Loan Lawyer, a private attorney in Rocky Hill, CT,. Moderated by : Copyright (c) 2012 NACBA NACBA President William E. Brewer, Thursday, October 18, 2012

2 Topics Covered Federal, Private, and State Loan Overview Loan Lifecycle Understanding the Federal Scheme Types of Federal Loans Repayment Plans Student Loan Forgiveness Administrative Discharge of Federal Student Loans Resources

3 Types of Student Loans Federal - a loan guaranteed by the U.S. Department of Education State Private Key difference is the available remedies!

4 Private Student Loans Not guaranteed by U.S. Department of Education Many are insured Few if any payment options pay or don t pay Lender s remedies similar to credit cards

5 Federal Loan Lifecycle Funds disbursed - no payment due while enrolled 6 month grace period after separation from school Enter repayment Pick a repayment plan, try to stay current Missed payments Day 1 to 270 = Delinquent After 270 days = Default Cure loan Pick repayment plan, stay current

6 Federal Student Loans The Players: U.S. Department of Education ED Guarantors Private Banks Servicers Third Party Debt Collectors

7 Federal Student Loan Programs Federal Family Education Loan Program FFEL Originator = Bank or Guarantor Bank is insured by Guarantor Guarantor is insured by ED Discontinued as of July 2010 William D. Ford Federal Direct Loan Program Direct Loan Originator = ED Only option as of July 2010

8 Federal Student Loans - Types Stafford Subsidized Gov t pays interest during periods of deferment Unsubsidized borrower always responsible for interest PLUS Parent Parent is borrower for child student Graduate Student is borrower Perkins Administered by the school Consolidation

9 Payment Options 10 year standard Minimum of 5 years, max of 10 If no plan picked, this one is used by default Graduated Steps up every two years 10 year term Extended For balances over $30k, 25 year term Prior to July 1, 2006 DL allowed up to 30 years Extended Graduated For balances over $30k, 25 year term Steps up every two years

10 Payment Details Minimum payment of $50 Must cover interest Can change plans at least once year

11 Repayment Plan Comparison Original Loan Amount 10-Year Standard $25,000 $50,000 $75,000 $100, ,000 $200,000 $246 $492 $738 $984 $1,476 $1,968 Extended N/A $248 $371 $495 $743 $991 Extended Graduated N/A $142 $213 $283 $425 $567 Graduated $159 $318 $477 $636 $954 $1,272 Figures assume interest rate of 3.4%

12 10-year Standard Example Loan Amount $ Interest Rate 3.4 % Months in Repayment 120 Monthly Payment $ Total Interest Payment $ Total Loan Payment $

13 Extended Plan Example Loan Amount $ Interest Rate 3.4 % Months in Repayment 300 Monthly Payment $ Total Interest Payment $ Total Loan Payment $

14 Graduated Plan Example Loan Amount $ Interest Rate 3.4 % Months in a Period 24 Months Months in Repayment 120 Total Interest Payment $ Total Loan Payment $ Period (years) Monthly Payment 1-2 $ $ $ $ $

15 Extended Graduated Plan Example Loan Amount $ Interest Rate 3.4 % Months in a Period 24 Months Months in Repayment 300 Total Interest Payment $ Total Loan Payment $ Period (years) Monthly Payment 1-2 $ $ $ $ $

16 Income Contingent Repayment Considers income and balance of loan DL only Parent PLUS cannot have ICR, but consolidated loan containing a Parent PLUS can

17 Income Based Repayment Effective July 1, 2009 Qualify for IBR if IBR payment is less than 10-year standard repayment Perkins alone cannot have IBR, but if consolidated it can Parent PLUS cannot have IBR, even if consolidated

18 Income Based Repayment Definition of family size includes all children supported at least half-time regardless of tax status or physical custody If married and file jointly, both incomes used in calculation If married and file separate, only borrower s income used in calculation Joint consolidation loans both spouses must qualify for IBR

19 Other IBR/ICR Details Balance forgiven after 25 years Balance forgiven after 20 years for loans taken on or after 2008 (The new Obama plan), so long as there was no outstanding balance prior to Economic Hardship Deferment time counts towards the 25 years Discharge amount may be taxable Interest may not be taxable

20 IBR Payment Chart Number in Household Total Household Income $25,000 $50,000 $75,000 $100, ,000 $200,000 1 $50 $420 $730 $1,050 $1,670 $2,300 2 $0 $350 $660 $970 $1,600 $2,220 3 $0 $280 $590 $900 $1,530 $2,150 4 $0 $210 $520 $830 $1,460 $2,080 The numbers above represent the monthly total household payment due. For example, if a couple with no children has a total household income of $100,000, the husband s and wife s monthly federal student loan payments would add up to $970. The portion each pays would be based on the ratio of their federal loan balances.

21 ICR Example 1 Loan Amount $ Interest Rate 3.4 % Months in Repayment 108 Initial Monthly Payments $ Final Monthly Payments $ Total Interest Payment $ Total Principal Payment $ Total Loan Payment $ The numbers above are for a couple with no children with a total household income of $100,000.

22 ICR Example 2 Loan Amount $ Interest Rate 3.4 % Months in Repayment 166 Initial Monthly Payments $ Final Monthly Payments $ Total Interest Payment $ Total Principal Payment $ Total Loan Payment $ The numbers above are for a couple with no children with a total household income of $50,000.

23 ICR Example 3 Loan Amount $ Interest Rate 3.4 % Months in Repayment 300 Initial Monthly Payments $ Final Monthly Payments $ Total Interest Payment $ Total Principal Payment $.0 Total Loan Payment $ The numbers above are for a single person living on a fixed income of $1,000 per month.

24 Real World Example 1 Father has several Parent PLUS Loans for two children. Child #1 loans are consolidated for a balance of $90,000. Child #2 is still in school with a current balance of $85,000. Father is 62, divorced with income of $60,000. ICR payment would be $755, cheapest other payment would be under the extended graduated plan starting at $593. Child #2 graduates this coming June. ICR payment would stay at $755 while the extended graduate plan would increase to $1152! Father plans to retire at 65, income would drop to $25,000, ICR would drop to $230.

25 Public Service Loan Forgiveness Qualifying employer 501(c)(3) or government full time = 30 hours a week Government contractors do not qualify Qualifying payments 120 after July 1, 2007 for DL ONLY IBR/ICR/10 year standard Applying for PSLF New form to help track Save paystubs and proof of payments Tax free discharge in 10 years!

26 Real World Example 2 Single woman in her late 40 s with income of 106,000 via three jobs. Loan balance of $80,000 Graduated extended plan starts at $453, ICR is $1054. Does not qualify for IBR because of income. Of the three jobs, one is full time teaching at non-profit with salary of $65,000. She is working three jobs because she thinks it is the only way to afford her loans (she was never told about graduated extended plan). IBR at $50,000 income is $416.

27 Real World Example 3 Wife has student loans of 110,000, husband has none. Wife works as admin assistant for public school, income of $30,000. Husband is a stock broker with income of 105,000. Filing taxes jointly she does not qualify for IBR, cheapest payment is extended graduated at $632. Filing separately she qualifies for IBR at $91. CPA did analysis of filing jointly and separately. Result of filing separately would cost couple $3,200. Filing separately saves couple $6,492 in student loan payments per year.

28 Discharge: Non-School Related Death Death of student discharges Parent PLUS loan Partial discharge allowed for joint consolidation if one party passes Total and Permanent Disability Collections must cease after notification from physician in writing New procedures and standards being considered more similar to SSDI qualification

29 Discharge: School Related Closed School Borrower must have been enrolled or withdrawn within 90 days of closure False Certification Falsified non-hs graduate s ability to benefit Enrolled student unable to meet minimum state employment requirements for the job Forgery or alter loan note or check endorsement Identity theft Unpaid refund School s failure to pay refund to student

30 Resources IBR (great IBR calculator) Repayment calculator - www2.ed.gov/offices/osfap/directloan/calc.html NCLC site: Dept of ED: NSLDS: get current federal loan status information here Joshua Cohen, ,

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