Federal Student Loan Repayment Plans Michelle Cornell Tim Marten
Agenda Income-Driven Repayment Plans Overview Pay As You Earn Plan Income-Based Repayment Plan Income-Contingent Repayment Plan Income Sensitive Repayment Plan Other Repayment Plans Standard Graduated Extended (fixed or graduated) Loan Forgiveness
Who Should Consider Income-Driven Repayment Plan? Borrowers with high student loan payments relative to income Individuals who are experiencing financial difficulties but who may not qualify for other options such as deferment or forbearance Teachers with heavy debt loads against low salaries Individuals pursuing lower paid social-service careers Recent graduates managing typical federal student loan debt in low-wage jobs or unpaid internships Law graduates earning low salaries as public defenders Medical residents earning typical resident salaries
Income-Driven Plans Overview Three main plans Income-Contingent Repayment Plan (ICR) 1994 Direct Loan Program only More information available at StudentAid.gov/ICR Income-Based Repayment Plan (IBR) 2009 Available in both the Direct Loan and FFEL Program More information available at StudentAid.gov/IBR Pay As You Earn Plan 2012 Direct Loan Program only For new borrowers in FY 2008 who receive new loans in FY 2012 Modeled on IBR, incorporating statutory IBR changes scheduled to take effect for new borrowers in 2014 More information available at StudentAid.gov/PayAsYouEarn
Income-Driven Plans Overview
Income-Driven Plan Payment Comparison
Income-Driven Repayment Examples
Married Filing Jointly Example
Married Filing Separately Example
Electronic Application IRS Interface
Electronic Application--Review
Electronic Application-Confirmation
Standard Repayment Example
Graduated Repayment Example
Extended Repayment Example
PUBLIC SERVICE LOAN FORGIVENESS
Public Service Loan Forgiveness Public Service Loan Forgiveness (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 organization Borrower must also be employed by a qualifying organization at the time that the borrower applies for and receives PSLF According to the IRS, the forgiven amount is not treated as taxable income
PSLF Qualifying Loan PSLF is only for Direct Loans All Direct Loans qualify Parent Direct PLUS Loans are eligible for PSLF, but cannot be repaid under income-driven plans Borrowers may consolidate parent PLUS Loans and repay under ICR FFEL Program and Perkins Loans do not qualify, but can be consolidated into a Direct Consolidation Loan Borrower consolidating Perkins Loans will lose Perkins-only cancellation benefits they may have otherwise been able to receive Payments made on loans that are later consolidated do not count toward 120 payments for PSLF. Borrower must make 120 qualifying payments on the Direct Consolidation Loan
PSLF Qualifying Employment Each of the 120 payments must have been made during a period of qualifying employment Qualifying employment includes any job at: A government organization A not-for-profit, 501(c)(3) organization or Any other not-for-profit organization that is not a labor union or partisan political organization and that provides public services in the following categories: Emergency management, military service, public safety, law enforcement, public interest legal services, early childhood education, public service for individuals with disabilities, public health, public education, public library services, school library services, or other school-based services
PSLF Employment Certification On January 31, 2012, the Department released a voluntary Employment Certification Form that borrowers can submit to the Department for a determination of whether their employment and payments qualify for PSLF Borrower has employer complete employment verification section Borrower submits form to FedLoan Servicing (regardless of who current servicer is) FedLoan Servicing determines whether employment qualifies If employment qualifies, borrower s loans are transferred to FedLoan Servicing, for a determination of how many qualifying payments were made during the period of employment Borrowers loans remain at FedLoan servicing permanently Borrower can submit the form as often as annually For more, including Q&As, see StudentAid.gov/PublicService
PSLF Example
PSLF-Billy Borrower Billy Borrower was single with no dependents and resides in Florida Billy has $50,000 in Direct Loans and an AGI of $35,000 Billy s income increases by 5% a year, and the poverty guidelines increase by 3% a year
PSLF-Billy Borrower
Choosing the Right Repayment Plan for You
DEFERMENTS AND FORBEARANCE
Deferment and Forbearance A borrower can temporarily postpone or lower payments with a deferment or forbearance. A borrower should contact their loan servicer to determine eligibility Deferment: Allows a borrower to temporarily stop making payments for up to 12 months. Borrowers are not charged interest on subsidized loans during deferment. Interest will continue to be charged on unsubsidized loans (including all PLUS loans) Forbearance: Allows a borrower to temporarily stop making payments or reduce monthly payment for up to 12 months. Interest will continue to be charged on subsidized and unsubsidized loans (including all PLUS loans)
Types of Deferments In school deferment Unemployment/inabi lity to find full-time employment Economic hardship (Peace Corps service) Active military service during a war, military operation, or national emergency Other military qualifications
Forbearance Discretionary Forbearance Financial Hardship Illness Mandatory Forbearance You are performing teaching service that would qualify for teacher loan forgiveness You qualify for partial repayment of your loans under the U.S. Dept. of Defense Student Loan Repayment Program You are member of National Guard and have been activated by a governor, but you are not eligible for a military deferment
QUESTIONS?