Options to help borrowers manage repayment

Transcription

1 Income-driven repayment plans Options to help borrowers manage repayment Agenda Compare plans key features Payment calculation borrower example Application process Public Service Loan Forgiveness Group exercise 1

2 Comparing plans Summary of income-driven repayment plans Repayment Plan Revised Pay As You Earn (REPAYE) Available? Eligibility Monthly Payment December 17, 2015 All Direct student loan borrowers. No partial financial hardship (PFH) requirement 10% of discretionary income Discharge After 20 years if repaying only undergraduate debt; 25 years if repaying any graduate debt Income-Based Repayment ( New 2015 IBR) July 1, 2014 Borrowers who take out their first loan on or after July 1, 2014, and have a PFH 10% of discretionary income, up to the fixed 10- year payment amount 20 years Pay As You Earn (PAYE) Since 2012 Direct student loan borrowers who took out their first loan after September 30, 2007 and at least one loan after September 30, 2011, and have a PFH 10% of discretionary income, up to the fixed 10- year payment amount 20 years Income-Based Repayment ( Original IBR) Since 2009 All federal student loan borrowers (Direct or FFEL) with a PFH 15% or discretionary income, up to the fixed 10- year payment amount 25 years Income-Contingent Repayment (ICR) Since 1994 All Direct Loan borrowers; no PFH requirement The lesser of 20% of discretionary income and 12-year repayment amount x income percentage factor 25 years Source: ibrinfo.org 2

3 Eligible borrowers ICR Eligible loan IBR Eligible loan Show need PAYE Eligible loan Show need Recent borrower REPAYE Eligible loan Eligible loans Loan Program ICR IBR PAYE REPAYE Direct Loans X X X X FFELP X Perkins Loans Loan Type ICR IBR PAYE REPAYE Loan received as student X X X X Loan received as parent Consolidation (no underlying parent loans) X X X X Consolidation (underlying parent loans) X 3

4 Need = partial financial hardship (PFH) Borrower s annual payment amount using the 10-year standard repayment plan 12 15% (for IBR) or 10% (for PAYE and new IBR) of borrower s discretionary income (AGI 150% of poverty line amount for family size) 12 Recent borrower For purposes of PAYE, a recent borrower is one who: 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 4

5 Adjusted gross income (AGI) Borrower must provide AGI annually ICR, IBR and PAYE for married borrower: Married/file joint: * generally, both spouses AGI are considered in determining payment amount * Exception: if borrower is separated, or is not reasonably able to access spouse s income information, borrower can provide alternative documentation of just his/her income Both the borrower s and spouse s eligible ibl loans are used in determining PFH Married/file separate: only the borrower's AGI is considered in determining payment amount AGI (continued) REPAYE for married borrower Both incomes are considered when calculating AGI, regardless of tax filing status * Exception: if borrower is separated, or is not reasonably able to access the spouse s income information, borrower can provide alternative documentation of just his/her income 5

6 Family size Includes borrower, spouse, children, unborn children if receiving > 50% support, and others who live with the borrower and receive > 50% support during that year Support includes money, gifts, loans, housing, food, clothes, car medical and dental care, and payment of college costs Borrower must self-certify family size annually Defaults to one (1) if borrower does not provide required information * Exception: for REPAYE, if spouse s income is not included, spouse is also not included in family size Interest subsidy benefits ICR IBR PAYE REPAYE REPAYE No subsidy For Subsidized loans only For Subsidized loans only For Subsidized loans For Unsubsidized loans Only during negative Only during negative Only during negative Only during negative Only for first 3 years under plan Only for first 3 years under plan For first 3 years under plan No time limit 100% of negative 100% of negative 100% of negative 50% of negative After 3 years, 50% of negative Source: Department of Education, 2015 FSA Conference 6

7 Loan forgiveness All IDR plans provide for forgiveness Under ICR and original IBR, remaining balance forgiven after 25 years of qualifying payments Under new IBR and PAYE, remaining balance forgiven after 20 years of qualifying payments Under REPAYE, remaining balance forgiven after: 20 years if repaying only undergraduate loans 25 years if repaying any graduate loans Loan forgiveness (continued) Qualifying payments include: Payments under an income-driven plan Payments under the 10-year Standard repayment plan (or any other repayment plan with a payment amount at least equal to the 10-year Standard plan amount) or Periods of economic hardship deferment Under current IRS rules, the forgiven amount is considered taxable income 7

8 Borrower example Borrower example Billy Borrower: Is single with no dependents and lives in Texas Has an AGI of $35,000 that rises at 5% per year Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6% interest rate Borrowed for graduate school Source: Department of Education, 2015 FSA Conference 8

9 Borrower example ICR Original IBR New IBR PAYE REPAYE Initial Payment $387 $217 $145 $145 $145 Final Payment $471 $555 $508 $508 $683 Time in Repayment 14 years, 10 months 18 years, 11 months 20 years 20 years 25 years Total Paid $76,660 $92,040 $71,446 $71,446 $108,008 Forgiveness $0 $0 $37,029 $37,029 $617 For comparison: 10-year Standard Payment $555 $372 Time in Repayment 10 years 25 years Total Paid $66,612 $111,645 Extended & Consolidation Standard d Application process 9

10 Application process Borrower will use the Income-Driven Repayment Plan Request form to: 1. Initially apply to repay under an IDR plan 2. Meet annual income documentation requirement 3. Request the recalculation of the monthly payment amount due to a change in borrower s financial circumstances 4. Change to a different IDR plan Application process: income documentation AGI Electronic Application Tax Return Tax Return Transcript Alternative Pay stubs, unemployment benefits, etc. Self-certification of zero income Provide electronically only if zero income Source: Department of Education, 2015 FSA Conference 10

11 Consequences of failing to recertify IBR ICR PAYE REPAYE Interest capitalization Stay in plan Payment no longer incomebased; 10-year standard amount Stay in plan Payment no longer income- based; 10-year standard amount Interest capitalization Stay in plan Payment no longer incomebased; 10-year standard amount Interest capitalization Removed from plan to Alternative plan Loan re-amortized over lesser of 10 years or time to forgiveness Source: Department of Education, 2015 FSA Conference Public Service Loan Forgiveness 11

12 Public Service Loan Forgiveness (PSLF) PSLF provides for forgiveness of a Direct Loan borrower s remaining loan balance if the borrower: Makes 120 full, on-time payments after October 1, 2007 Makes each payment under a qualifying repayment plan Makes each payment while employed full-time by a qualifying i organization It matters where you work, not what you do! Public Service Loan Forgiveness Borrower must also be employed by a qualifying organization at the time the borrower applies for and receives PSLF Borrower encouraged but not required to submit Employment Certification form for tracking qualifying service and payments Under current IRS rules, the forgiven amount is not treated as taxable income 12

13 PSLF borrower example Without PSLF ICR Original IBR PAYE & New IBR REPAYE Initial Payment $387 $217 $145 $145 Final Payment $471 $555 $508 $683 Time in Repayment 14 years, 18 years, 20 years 25 years 10 months 11 months Total Paid $76,660 $92,040 $71,446 $108,008 Forgiveness $0 $0 $37,029 $617 With PSLF ICR Original IBR PAYE & New IBR REPAYE Initial Payment $387 $217 $145 $145 Final Payment $471 $555 $508 $683 Time in Repayment 10 years 10 years 10 years 10 years Total Paid $50,501 $36,927 $24,618 $24,618 Forgiveness $22,456 $45,065 $55,333 $51,746 IDR GROUP EXERCISE 13

14 QUESTIONS? Laura Kowalski TG Senior Policy Advisor , ext Texas Guaranteed Student Loan Corporation To order additional copies, or to request permission to reproduce any of the information provided, please call TG Communications at (800)