Ian Foss and Brian Smith | Dec. 2015

U.S. Department of Education

2015 FSA Training Conference for Financial Aid Professionals

Income-Driven Repayment Plans/Pay As You Earn (PAYE)

Session 33

Details of Income-Driven Repayment Plans

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Overview

• Income-Contingent Repayment Plan (ICR) – 1994• Income-Based Repayment Plan (IBR) – 2009• Pay As You Earn Plan (PAYE) – 2012

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Overview

• Revised Pay As You Earn (REPAYE) – 2015• Negotiations February – April, 2015• Consensus reached• NPRM published July 9, 2015• Final Rule published October 30, 2015• Early implementation announced (December 2015)

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Eligible Borrowers

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Eligible Borrowers

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Eligible Loan Programs

Loan Program ICR IBR PAYE REPAYE

Direct Loans X X X X

FFELP X

Perkins Loans

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Eligible Loan Type

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

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Payment Amounts

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Repayment Plan Payment based only on income

Payment based on loan debt

ICR 20% of discretionary income 12-year standard payment adjusted based on income

IBR 15% of discretionary income 10-year standard amount

PAYE / “new” IBR 10% of discretionary income 10-year standard amount

REPAYE 10% of discretionary income None

Most IDR plans have two formulas--for those that do, borrowers always pay the lesser of the two.

Interest Subsidy Benefits

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Interest Capitalization

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20 years is for undergraduate

borrowers and 25 years is for graduate

borrowers

20 years is for undergraduate

borrowers and 25 years is for graduate

borrowers

Generally, payments on an IDR plan, 10-year standard plan, or periods of economic hardship

deferment count toward forgiveness

Generally, payments on an IDR plan, 10-year standard plan, or periods of economic hardship

deferment count toward forgiveness

Loan Forgiveness

• Billy Borrower:• Is single with no dependents and lives in Georgia• 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

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Billy Borrower

Billy - ICRYear Interest Payment

1 $250 $3872 $242 $4053 $231 $4104 $220 $4155 $208 $4196 $195 $4247 $181 $4298 $166 $4349 $150 $440

10 $132 $44511 $112 $45112 $91 $45713 $69 $46314 $45 $46915 $18 $475

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Billy – “old” IBRYear Interest Payment Subsidy

1 $250 $217 $152 $250 $236 $63 $250 $254 $04 $250 $273 5 $250 $293 6 $248 $314 7 $244 $336 8 $239 $359 9 $231 $384

10 $222 $410 11 $210 $438 12 $196 $467 13 $180 $497 14 $160 $530 15 $137 $555 16 $112 $555 17 $84 $555 18 $55 $555 19 $24 $555

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Billy – PAYE/“new” IBRYear Interest Payment Subsidy

1 $250 $145 $492 $250 $158 $433 $250 $170 $374 $250 $182 5 $250 $195 6 $250 $209 7 $250 $224 8 $250 $240 9 $250 $256

10 $250 $273 11 $250 $292 12 $250 $311 13 $250 $331 14 $250 $353 15 $250 $376 16 $250 $400 17 $243 $425 18 $231 $452 19 $218 $480 20 $202 $510

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Billy - REPAYEYear Interest Payment Subsidy

1 $250 $145 $772 $250 $158 $683 $250 $170 $594 $250 $182 $345 $250 $195 $276 $250 $209 $207 $250 $224 $138 $250 $240 $59 $250 $256 $0

10 $250 $273 $011 $250 $292 $012 $250 $311 $013 $249 $331 $014 $247 $353 $015 $241 $376 $016 $233 $400 $017 $222 $425 $018 $210 $452 $019 $195 $480 $020 $177 $510 $021 $157 $541 $022 $133 $574 $023 $106 $609 $024 $75 $646 $025 $40 $685 $0

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Billy – All IDR PlansYear IBR ICR PAYE REPAYE

1 $217 $387 $145 $1452 $236 $405 $158 $1583 $254 $410 $170 $1704 $273 $415 $182 $1825 $293 $419 $195 $1956 $314 $424 $209 $2097 $336 $429 $224 $2248 $359 $434 $240 $2409 $384 $440 $256 $256

10 $410 $445 $273 $27311 $438 $451 $292 $29212 $467 $457 $311 $31113 $497 $463 $331 $33114 $530 $469 $353 $35315 $555 $475 $376 $37616 $555 $0 $400 $40017 $555 $0 $425 $42518 $555 $0 $452 $45219 $555 $0 $480 $48020 $0 $0 $510 $51021 $0 $0 - $54122 $0 $0 - $57423 $0 $0 - $60924 $0 $0 - $64625 $0 $0 - $685

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StudentAid.gov/Repayment-Estimator

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Income-Driven Repayment Plans

Application Process

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ADOI = “alternative documentation of income;” not AGI.

Applying: Electronic or Paper

Income-Driven Repayment Plans

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Application Process: Spouses

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Repayment Plan Married borrower filing jointly Married borrower filing separately

ICR Use joint AGI Use borrower’s AGI

IBR Use joint AGI Use borrower’s AGI

PAYE Use joint AGI Use borrower’s AGI

REPAYE Use joint AGI Combine AGI of borrower and borrower’s spouse

Application Process: Spouses

Billy gets Married in Year 5 • Spouse has $20,000 in income, and $40,000 in Direct

Loans, all of which are unsubsidized, and which has an interest rate of 6%

• Billy and his spouse decide to file separately

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Effect of Billy’s Marriage

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In Year 6, Spouse Pays Off Loans

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A married borrower is not required to provide spouse’s AGI if the borrower is:

Application Process: Spouses

REPAYE—If a borrower is separated or unable to reasonably access spouse’s income information:

The borrower’s spouse is not counted in family size If the spouse has eligible loans, the spouse’s loans are not

considered in the monthly payment amount adjustment

Application Process: Spouses (REPAYE)

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Application Process: Income Documentation

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Application Process: Income Documentation

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Application Process: Annual Life Cycle

Consequences of failing to recertify

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Billy Doesn’t Recertify – Year 4 End

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QUESTIONS?

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Ian Foss – Ian.Foss@ed.gov – 202-377-3681

Brian Smith – Brian.Smith@ed.gov – 202-502-7551