Income-driven repayment plans

Transcription

1 Income-driven repayment plans Options to help students manage repayment Agenda Comparison of IBR, ICR and PAYE Application process Application process Borrower example Factors a borrower should consider Resources 1

2 Learning objectives Who qualifies? What types of loans qualify? When should a borrower apply for an income-driven repayment plan? How does a borrower apply? Why should a borrower consider one of these plans? Setting the stage 2

3 Staggering growth of student loans FY Year official national student loan default rates Year Issued 3

4 Comparison of key features Income-driven repayment plans Primarily intended for borrowers: Entering repayment with high student loan debt relative to income Having difficulty making payments under Standard repayment plan Ineligible for deferment and/or forbearance 4

5 Eligible borrowers and loan types Criteria IBR Pay as You Earn ICR Who qualifies FFELP and Direct Loan borrowers who have a partial financial hardship (PFH) New * borrowers who have a PFH Direct Loan borrowers Eligible loans FFELP and Direct Loans except: - Defaulted loans - Parent PLUS loans - Consolidation loans that repaid parent PLUS loans Direct Loans except: - Defaulted loans - Parent PLUS loans - Consolidation loans that repaid parent PLUS loans Direct Loans except: - Defaulted loans - Parent PLUS loans - Consolidation loans that repaid parent PLUS loans made before 10/1/2006 New borrower For purposes of PAYE, a New 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/

6 Partial financial hardship (PFH) Borrower s annual payment amount using the standard 10-year repayment plan / 12 15% (for IBR) or 10% (for PAYE) of borrower s (Adjusted Gross Income 150% of poverty line amount) / 12 Based on income and family size PFH (cont d.) A borrower s PFH is determined based on the greater of either: The original loan balance when the borrower initially entered repayment OR The current loan balance at the time the borrower requests IBR or PAYE 6

7 Payment amounts Under ICR, borrower s monthly payment is the lesser of: 20% of discretionary i income (monthly payment based only on income) OR 12-year standard repayment schedule multiplied by income percentage factor (monthly payment based on loan debt and income) For more on income percentage factors in ICR, see Federal Register available at: 13 Monthly payment amounts (cont d.) Under IBR and PAYE Payment less than $5.00 = $0 payment due Payment between $5.00 and $10.00 = $10.00 payment due Under ICR Payment of $0 = $0 payment due Payment greater than $0 up to $5.00 = $5.00 payment due Payment greater than $5.00 = exact amount that results from calculation 7

8 Temporary interest subsidy Under IBR and PAYE only When monthly payment does not cover accruing interest t on subsidized d loans (paid by ED) Limited to first three consecutive years of repayment: Includes periods of deferment/forbearance, except during periods of economic hardship deferment Regardless of whether borrower changes from IBR to PAYE, or vice versa Borrower must pay all interest on unsubsidized loans 15 Capitalization Under IBR when borrower: No longer has a partial financial hardship, or Leaves IBR entirely Under PAYE when borrower: No longer has a partial financial hardship, or Leaves PAYE entirely Interest capitalizes only until principal balance is 10% greater than original principal amount when borrower entered plan 16 8

9 Capitalization (cont d.) Under ICR: Annually when payments do not cover accrued interest Interest capitalizes only until principal balance is 10% greater than original principal when borrower entered repayment 17 Repayment terms Repayment can extend beyond 10 years regardless of the amount of the eligible debt Annual evaluation may result in monthly payment going up or down depending on change in annual income and/or family size Borrower can change repayment plan, but could have consequences Borrower can elect to remain in IBR or PAYE even when he or she no longer meets PFH 9

10 Loan forgiveness All three plans provide for forgiveness Under ICR and IBR, remaining balance forgiven after 25 years of qualifying payments Under PAYE, remaining balance forgiven after 20 years of qualifying payments Under current IRS rules, the forgiven amount is considered taxable income 19 Application process 10

11 Application process Common request form IBR/PAYE/ICR Repayment Plan Request Borrower may complete: Paper application Electronic application if borrower has: ED-held loans; FFELP lender that contracts with Great Lakes Educational Loan Services, Inc., FedLoan Servicing (PHEAA), Granit State, MOHELA, Nelnet, or Sallie Mae; or Any other FFELP lender that applies to use this process sometime after March 2013 Borrower example 11

12 Borrower example Billy Borrower: Is single with no dependents Lives in Texas Has an AGI of $35,000 and Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6.8% interest rate *Assumes a 5% increase in Billy s income each year and a 3% annual increase in the poverty guidelines. Source: 2012 FSA Conference 23 Borrower example ICR IBR PAYE Initial Payment $ $ $ Final Payment $ $ $ Time in Repayment 13 years, 8 months 20 years, 2 months 20 years Total Paid $78, $101, $70, Forgiveness $0 $0 $44, For comparison: 10-year Standard Extended & Consolidation Standard Payment $ $ Time in Repayment 10 years 25 years Total Paid $69, $104, Source: 2012 FSA Conference 24 12

13 Summary Potential borrower benefits More manageable, lower monthly payment Avoidance of delinquency and default Healthier credit history 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) 13

14 Borrower considerations Repayment period could be more than 10 years More interest could be paid over time Required annual submission of information on income and family size to prove continued eligibility for reduced payments Resources 14

15 Resources TG Online Repaying Your Student Loan Ways to Repay Your Loan Adventures in Education (AIE) Paying for College After Graduation graduation/repay-your-student-loan.cfm Resources Federal Student Aid Repaying your Loans Information For Financial Aid Professionals (IFAP) GEN E-ANN dated 12/21/2012 E-ANN dated 01/11/2013 NCHER Income-driven repayment comparison chart Repayment-Comparison-Now-Available.htm 15

16 Questions? This presentation is available for download at 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)