Repayment, IBR, And PSLF

7/27/2019 Repayment, IBR, And PSLF

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Educational Debt Management

Repayment and ForgivenessOptions

B.J RevillDirector of Financial Aid

Univ. of RochesterSchool of Medicine and Dentistry



Agenda

Repayment Options

In-Depth Look at Income Based

Repayment (IBR)

In-Depth Look at Public Service LoanForgiveness (PSLF)



Repayment Options

Once you enter repayment (after graceperiod), you may make payments throughany of the following repayment plans:

Standard Repayment

Graduated Repayment

Extended Repayment

Income-Contingent Repayment

Income-Based Repayment



Repayment Options cont.

Standard Repayment: A fixed payment that remains the same during the

repayment period of 10 years for Stafford loans.

Consolidated loans are typically longer. $50/month minimum payment.

NOTE: Standard Repayment is the schedule your loanservicer will select for you unless you specifically

request another option. It's also the option that willallow you to pay the least amount of total interest.




Graduated Repayment: A repayment plan that allows for smaller payments early

on (usually when your income is lower), and higher

payments in later years (when your income is likely tobe greater).

Payments usually increase every 2 years

10-year repayment period.

Minimum payment will never be less than the amount of interest that accrues between your payments.

Maximum payment under this plan will not exceed threetimes that of the Standard Repayment plan.




Extended Repayment Borrowers with an outstanding loan balance of more

than $30,000 may extend their repayment term up to

25 years.

Actual repayment period depends on total federaleducational debt.

Will result in higher total interest repaid vs. Standard

Repayment




Income-Contingent Repayment Payments are adjusted annually, based on borrower's

household income, family size, and total loan debt.

Not available for Parent PLUS loan payments Maximum 25-year repayment period.

Lesser of:

The amount you would pay if you repaid your loan in

12 years multiplied by an income percentage factorthat changes with your annual income or

20 percent of your monthly discretionary income .




Income Based Repayment The IBR program loan payments are 15% of your

income that exceeds 150% of the federal poverty

guideline for your family size. Capped at the 10-year standard repayment amount

Adjusted annually, based on changes to your annual AGI and family size

Payments are usually lower than they are under otherplans

A borrower can choose to participate in this paymentplan for up to 25 years.




Questions on Repayment Plans?



Income Based Repayment

& Public Service

Loan Forgiveness



College Cost Reduction and Access Act (CCRAA)

Signed into law on Sept. 27, 2007

Included:

Income Based Repayment (effective July 1,2009)

Public Service Loan Forgiveness (effective

Oct. 1, 2007)



Income-Based Repayment

Can be used to repay: Federal Stafford Loans (Subsidized or Unsub.)

Federal GradPLUS Loans

Federal Consolidation Loans

Borrower must have “Partial Financial Hardship” (PFH) to enter the IBR plan. PFH is based on:

Household Adjusted Gross Income (AGI)

Household size HHS Federal Poverty Guidelines (www.hhs.gov)



Income-Based Repayment cont.

Partial Financial Hardship Loan payments will be limited to 15 % of a borrower's “disposable

income” or 15 % of the amount that a borrower's (and spouse's if applicable) Adjusted Gross Income exceeds 150 % of the povertyline, divided by 12

Your annual loan paymentusing the “Standard 10- Year Fixed repayment

Plan”

“Standard-Standard” Amount

15% of your household’s “Disposable” Adjusted

Gross Income (AGI)

“Partial FinancialHardship” (PFH) amount

>




Household Adjusted Gross Income (AGI) Includes:

AGI of borrower

AGI of borrower’s spouse (if married) only if filling a joint

return. (Does not include spouse’s AGI if couple files separate federal income tax returns.)

Household Size

Includes:

Borrower Spouse (if married)

Dependent children in household (including an unborn child)

Other dependents living in the household (must receive atleast 50% of their support from borrower)




HHS Federal Poverty Guidelines (www.hhs.gov)

Persons in Family Poverty Guideline 150% Poverty

1 $11,170 $16,755

2 $15,130 $22,695

3 $19,090 $28,635

4 $23,050 $34,575

5 $27,010 $40,515

6 $30,970 $46,455

7 $34,930 $52,395

8 $38,890 $58,335

2012 Poverty Guidelines for the 48 Contiguous States

http://www.hhs.gov/

http://www.hhs.gov/



Income-Based Repayment cont. Estimated Monthly Payment Comparison:

AGI Standard MonthlyPayment

IBR MonthlyPayment (estimate)

$45,000 $1,841 $353

$50,000 $1,841 $415

$55,000 $1,841 $478

$60,000 $1,841 $540

$65,000 $1,841 $603 Assumptions: Household Size = 1 Uses 2012 Federal Poverty Guidelines

Resides in Lower 48 Loan Debt at repayment = $160,000




Once in the IBR Plan, monthly payment is lesser of: Standard 10-year amortized amount OR ,

“Partial Financial Hardship” amount

Outstanding loan balance is forgiven after 25 years of repayment

Any interest due and not paid by the borrower shall bepaid by the Secretary for up to three years (Subsidized Loans only)

waived interest is taxable IBR repayment period can extend beyond 10 years

Monthly payment can be less than accrued interest allows for negative amortization!

Additional Details:



Beware of Negative Amortization

Federal Stafford Loan Debt $100,000 $150,000 $200,000

Estimated Monthly Payment

(Standard 10-year plan)

$1,151 $1,726 $2,302

Interest paid in 1st month $567 $850 $1,133

Principal paid in 1st month $584 $876 $1,168

Resulting principal balance $99,416 $149,124 $198,832

IBR payment in 1st month* $415 $415 $415

Unpaid interest after 1st month $152 $435 $718

Resulting Principal balance $100,152 $150,435 $200,718

* Assumes a $50,000 AGI




Pros and Cons:Potential Pros

Lowest initial monthly

paymentPossible to exclude spouse’sincome

Dept. of Ed. will waive anyunpaid interest on subsidized

loans for up to 3 years

Loan cancellation after 25years of eligible payments

Potential Cons

Increased interest payments

(vs. standard 10-year plan)Negative amortization possible

May need to file separate taxreturns (if married)

Income and family size needto be verified annually

Monthly payments couldchange each year



Public ServiceLoan Forgiveness Program



Public Service Loan Forgiveness

Borrowers will qualify for loan forgiveness if: Have outstanding debt through the Direct Loan

Program, and

Worked full-time for a total of 120 months in aqualifying “public service” position (on or afterOct. 1st, 2007), and

Made 120 qualifying loan payments on FederalDirect Loans during periods of qualifying publicservice employment



Public Service Loan Forgiveness cont.

Effective for qualifying loan payments made onor after Oct. 1, 2007.

Loans Eligible for forgiveness are: Federal Direct Stafford Loans

Federal Direct GradPLUS Loans

Federal Direct Consolidation Loans Any amounts cancelled in the program are not

taxable!

General Provisions:




Reconsolidation into Direct Loans

Borrowers wishing to take advantage of the

Public Service Loan Forgiveness Program willbe able to reconsolidate their existing FFELP(Federal student loans made through private lending agencies) Loans into the Federal

Direct Loan Program. Direct Loan Consolidation at:

www.loanconsolidation.ed.gov




Borrower must be working full-time in an

eligible public service position, AND Make qualifying payments using:

Income Contingent Repayment (ICR), or

Income Based Repayment (IBR), or Standard (10-year) Repayment plan

Qualifying Payment Requirements:




120 months do NOT have to be consecutive

Borrower must be working “full-time” in qualifying

public service position at time of forgiveness (Fulltime defined as an average of 30 hours/week).

Loan payments made on any loan prior to October1, 2007 do NOT count toward the 120-monthrequirement

Loan payments on non-eligible loans (e.g., FFELPloans, Federal Perkins Loans) do NOT count toward120-month requirement

Additional Eligibility Provisions:




In general, it’s full -time employment in:

A 501(c)(3) organization that is exempt fromtaxation under section 501(a) of the InternalRevenue Code of 1986, or

Government (federal, state, county, local, tribal,etc…) agency

Definition of “Public Service”




Federal student loan debt (at repayment) $227,439Estimated monthly payment - Standard Plan $2,617

Total interest paid (includes accrued interest prior to repayment) $154,085

Total amount repaid after 10 years $314,085

Example 1: ENTER REPAYMENT AFTER RESIDENCY• Loan Debt Borrowed = $160,000 • Opts for forbearance during residency (4 years)• Total at Repayment (including accrued interest) = $227,439

Standard Repayment Plan (10 years)

Extended Repayment Plan (25 years)Federal student loan debt (at repayment) $227,439

Estimated monthly payment - Extended Plan $1,579

Total Interest paid (includes accrued interest prior to repayment) $313,577

Total amount repaid after 25 years $473,577

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Example 2: IBR & PUBLIC SERVICE LOAN FORGIVENESS• Loan Debt Borrowed = $160,000• Loan Debt at Repayment = $182,850• Enters Income Based Repayment during Residency• Starting Salary = $50,000 (Residency)• Starting Salary = $200,000 (Post-Residency)

Estimated monthly payment: Year 1 $415




Estimated monthly payment: Year 5 - 10 $2,104

Total interest paid in IBR over 10 years $90,236

Total principal paid in IBR over 10 years $82,604

Total amount repaid over 10 years $172,840Total subsidized interest paid by Dept. of Ed. $4,027

Public Service Loan Forgiveness $124,621

Total amount forgiven after 10 years $128,648

Assumes a family size of 1 for entire time in repayment.




A few Points to Ponder:

Borrower is required to work full-time in a

qualified public service position for a minimumof 120 months.

Borrower must make qualifying monthly loanpayments during the entire 120 month periodof public service employment.




Pros and Cons

Potential Pros•May make it financiallypossible to pursue a public

service career

• A portion of loan debt may beforgiven

•Entitlement (not subject toappropriations)

Potential Cons •It is an “All or Nothing” benefit.Borrower must put in the full 10

years (120 months).

•Only Direct Loans can be forgiven

•Will there be any debt left after10 years of repayment to forgive?

•Will the program exist after 10years?




Consolidate any privately held federal loans youmay have into the Direct Loan Program. Can bedone at www.loanconsolidation.ed.gov

Select either the IBR or Income ContingentRepayment (ICR) plans

Start making payments Complete PSLF Employment Cert. form annually

Keep good records!

Steps to Participate:

http://www.loanconsolidation.ed.gov/

http://www.loanconsolidation.ed.gov/




Suggested that borrowers keep the following: Evidence they worked full-time in every month they

made a qualifying loan payment

Documentation that their position meets the “full-time” employment standard

Documentation that their employer is an eligibleemployer

Complete the PSLF Employment Cert. Form PSLF Employment Certification Form allows for

confirmation of employment eligibility by Dept. of Ed.

Record Keeping



Questions?

Documents

Repayment, IBR, And PSLF