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Demystifying the Rules ofPublic Service Loan Forgiveness

Jodi Kaus, JD, CTFA -DirectorPowercat Financial

June 2018 Federal Student Aid Reporton PSLF Program

28,000 borrowers submitted

almost 33,000 PSLF

applications with 29,000 processed

More than 70% were denied due to –

• Ineligible loans• Non-qualifying

employment• Non-qualifying

payments• Missing

information

300 approved applications resulted in

$5.52 million discharges for 96 borrowers

THUS 99% of loan

forgiveness applications were denied

https://ifap.ed.gov/eannouncements/091918FSAPostsNewReportstoFSADataCenter.html

Keep in Mind . . .• PSLF only applies to Federal Direct loans not

all student loan types• Many of the noncompliance issues can be

corrected• Most of the issues were regarding non-

qualifying payments or non-qualifying employment– Use Employment Certification form!– Verify 120 payments have been made!

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Student Loan Types

Federal

• Apply with the annual FAFSA

• Direct federal loans v. FFEL federal loans

• Perkins, unsubsidized, subsidized, PLUS loans

Private

• Credit-based student loans

• Go to annualcreditreport.comif unsure of lender

Go to www.studentaid.ed.gov for all information regarding

federal student loans

ØKNOW WHO YOUR LOAN SERVICERS ARE!!!

Note: Parent Plus loans areunder parent’s SSN & FSA ID

Federal Student Loan Servicers

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Public Service Loan ForgivenessThe Public Service Loan Forgiveness (PSLF)

Program forgives the remaining balance on your Direct Loans after you have made 120 qualifyingmonthly payments under a qualifying repayment

plan while working full-time for a qualifyingemployer.

studentaid.ed.gov/publicservice

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Public Service Loan Forgiveness§ Right Loans – Right Job – Right Payments

§ Direct Loans Only§ may need to consolidate FFEL type loans

§ Effective 10/1/07§ Public Service – full-time employment§ 120 qualifying payments (ICR, IBR, PAYE, or

Standard Repayment plans only) made within 15 days of the due date – only payments made after 10/1/2007 count

§ Balance of loans forgiven – not taxable (currently)

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Loans Eligible for PSLF

Federal Direct Subsidized

Stafford Loans

Federal Direct Unsubsidized Stafford Loans

Federal Direct PLUS Loans

Federal Direct Consolidation

Loans

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Parent PLUS Loans are Eligible for PSLF too!

§ BUT it is based on parent’s employment,

payments, etc.

§ May also need to consolidate into a Direct

Consolidation Loan to get access to repay

under income-contingent repayment plan

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FFEL Subsidized/Unsub

Stafford Loans

FFEL PLUS Loans for

grad/professional students

FFEL Consolidation

Loans (excluding joint spousal consolidation

loans)

Federal Perkins Loans (pros/cons

though!)Certain Health

Professions and Nursing

Loans

Other federal loans may qualify for PSLF if consolidated into a direct consolidation loan

BUT start over counting towards 120 qualified payments once consolidate

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Summary§ DIRECT LOANS ONLY

§ FFEL Loans must be consolidated into a Direct Loan

§ Perkins Loans are only eligible if part of a Direct Consolidation Loan (pros/cons)

§ Alternative/Commercial Loans are NOT eligible loans for PSLF – BEWARE IF REFINANCE VIA PRIVATE PROVIDER AS YOU’LL LOSE ALL FEDERAL SAFETY NETS

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PSLF – Qualifying Employment

Full-time

Paid Work

Non-Profit Organizations§ Universities§ Hospitals§ Government – local, state or federal§ Foundations§ 501(c)(3) Charitable Organizations§ Qualified Public Service Organizations

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Qualified Public Service Organizations Whose Primary Purpose Is:

• Emergency management• Military service• Public safety• Law enforcement• Public interest law services• Early childhood education• Public service for individuals with disabilities• Public service for the elderly• Public health• Public education• Public library services• Other school-based services

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Definition of “Full-time”for Qualifying Employment

§ Full-time means working in qualifying employment in one or more jobs for the greater of:§ An annual average of at least 30 hours weekly or§ For a contractual or employment period of at least 8

months, an average of 30 hours per week; or§ Unless the qualifying employment is with two or more

employers, the number of hours the employer considers full-time

PSLF – Employment Certification

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§ FedLoan Servicing

§ Track Employment

§ Must be in qualified employment at time of forgiveness

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Qualifying Repayment Plans for PSLF

Revised Pay As You Earn Repayment

Plan (REPAYE

Plan)

Pay As You Earn

Repayment Plan (PAYE

Plan)

Income-Based

Repayment Plan (IBR

Plan)

Income-Contingent Repayment

Plan (ICR Plan)

Standard 10-year

Repayment Plan

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Income-Contingent Repayment (ICR)§ Direct Loans ONLY - Consider Loan Consolidation§ Monthly payment is based on:

§ Annual income (plus spouse if married)§ Family size§ Total loan amount

§ Lesser of 12-year standard plan amount X income % factor or 20% discretionary income.

§ As your income changes, so do the payments.§ After 25 years, any remaining balance on the loan will be

forgiven, but you may have to pay taxes on the amount discharged.

§ StudentAid.ed.gov/ICR

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Income-Based Repayment (IBR)§ Direct Loans and FFEL Loans§ Monthly payment based on your income during any

period of partial financial hardship (PFH) – may be $0 per month

§ Maximum payments are 10% or 15% of discretionary income depending on when first loans received

§ Monthly payment may be adjusted annually§ Maximum repayment period up to 25 years§ Will qualify for cancellation of any outstanding loan

balance after 20 or 25 years but may be taxable§ StudentAid.ed.gov/IBR

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Pay As You Earn Repayment (PAYE)§ Direct Loans ONLY – Consider Loan Consolidation§ New borrower as of 10/1/2007 AND received a new loan

on/after 10/1/2011§ Monthly payment based on income during any period of

partial financial hardship – may be $0 per month§ Maximum payments are 10% of income§ Monthly payment may be adjusted annually§ Maximum repayment period is up to 20 years§ Will qualify for cancellation of any outstanding loan

balance after 20 years but may be taxable§ StudentAid.ed.gov/PAYE

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Revised Pay As You Earn Repayment (REPAYE)

§ Direct Loans ONLY – Consider Loan Consolidation§ Maximum payments are 10% of discretionary income§ Monthly payment may be adjusted annually§ Maximum repayment period is up to 20 years § Will qualify for cancellation of any outstanding loan

balance after 20 years or 25 years if loans were for grad/prof study but may be taxable

§ StudentAid.ed.gov/REPAYE

What are some differences between ICR, IBR, and PAYE?

§ IBR- available for FFEL and Direct Loans. ICR/PAYE- Direct Loans Only

§ To qualify for IBR/PAYE, you must have a “partial financial hardship”. There is no comparable requirement for ICR.

§ The amount of loan debt is not considered in determining the IBR/PAYE payment amount –(only family size and income).

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What are some differences between ICR, IBR, and PAYE?

§ The required monthly payment under ICR is generally higher than under IBR/PAYE, and in some cases may be higher than the monthly payment under 10-year standard repayment plan.

§ IBR/PAYE – if the calculated monthly payment does not cover the full amount of interest that accrues on the loans government pays remaining unpaid accrued interest on subsidized loans for up to 3 consecutive years. This benefit is not available under ICR.

§ Under IBR/PAYE unpaid interest is capitalized only if you are determined to no longer have a “partial financial hardship”, or if you choose to leave the IBR/PAYE Plan. Under ICR, unpaid interest is capitalized annually (10% cap).

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How do I apply for ICR/IBR/PAYE/REPAYE?

§ Apply to your loan servicer(s)§ If there are multiple loan servicers, the

borrower must apply to each loan holder to qualify on all loans or consolidate loans

§ StudentLoans.gov

IBR/REPAYE/PAYE/ICRRepayment Plan Request Form

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How to Apply§ StudentLoans.gov

§ Online process

§ Check with Servicer

§ Check Box on Plan Request Form

Servicer will determine plan eligibility & can indicate lowest monthly payment

Use the Studentloans.govRepayment Estimator

to compare all repayment plans

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What is loan consolidation?§ Multiple federal loans are combined into one new

Direct Consolidation Loan§ A simple way to manage debt - One servicer - One payment§ Changes interest rate from variable (DL/FFEL prior to 06-

07) to a fixed rate – calculates a weighted average § Must be in grace period, repayment, or deferment (not

in-school deferment status) to consolidate§ Married borrowers CANNOT consolidate loans

together§ Select 1 of 4 federal loan servicers (FedLoan Servicing -

PSLF) studentaid.ed.gov/sa/repay-loans/consolidation#how-apply

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Perkins Loans & Consolidation§ Perkins has a fixed interest rate of 5% which is

weighted into the new interest rate

§ May lose deferment subsidies if consolidate (9 month grace period) – may request processing delay

§ Loan becomes unsubsidized when consolidated

§ Lose valuable loan cancellation options. Your school’s cashier’s office provides cancellation options that you should review before consolidation.

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Proposals for Changes to PSLF§ Limiting PSLF and then borrower pays for

additional years for forgiveness of the remainder of the debt

§ Making the forgiven amount taxable§ Grandfathering perhaps§ Contact your Congressional Representatives§ Stay informed!

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New PSLF Help Tool• Help understand more about the PSLF Program

and what you need to do to participate/qualify;• Help to assess whether your employer qualifies

for PSLF;• Help to assess whether your loans qualify for

PSLF;• Help you decide which PSLF form to submit; • Uses the information about your federal student

loans to explain other actions you should or must take if you want to receive PSLF

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Temporary Expanded Public ServiceLoan Forgiveness (TEPSLF) Opportunity• If your PSLF application was denied because

some or all of your payments were not made on a qualifying repayment plan for PSLF, you may be able to receive loan forgiveness under a temporary opportunity.

• First come, first serve• Limited funding ($350 million originally)• Email TEPSLF@myfedloan.org

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Other Loan Forgiveness Options§ Teacher Student Loan Forgiveness§ Perkins Loan Cancellation§ Volunteer Work

§Americorps§Peace Corps§VISTA

§ Military Service§ State Programs

PowercatFinancial@k-state.edu(785)532-2889

302 K-State Student Union, Third Floorwww.k-state.edu/powercatfinancial

Powercat FinancialPeer-to-Peer Financial Education