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ABA Law Student Division Advocacy. Educating students about Income Based Repayment (IBR) and Income Contingent Repayment (ICR) .

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ABA Law Student DivisionAdvocacy

Educating students about Income Based Repayment (IBR) and Income Contingent Repayment (ICR)


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Interested in pursuing a career in public service after law school?Worried that your salary won’t allow you to pay your monthly loans and afford food, rent, and gas?


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Help Is Here!

  • In September 2007, President Bush signed the College Cost Reduction and Access Act of 2007 (“CCRAA”) into law.

  • The basics of the CCRAA:

     May allow you to pay your monthly loans at a greatly reduced rate *

     May completely forgive your federal loans after 25 years of reduced payments**

     May completely forgive your federal loans after 10 years of reduced payments and “public service” **

    * Qualifying for a reduced rate depends upon an equation covered below

    ** Only applicable federal law school and undergraduate loans qualify


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Why the CCRAA is so Important

The Numbers:

  • 80% - Percentage of students that borrow to pay for law school

  • $78,763 - Average amount borrowed at private law school

  • $51,056 – Average amount borrowed at public schools

  • 65% - Percentage of students that bring undergraduate debt into law school ($45,000 average)



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“How Do I Qualify For Reduced Payments?”

  • The CCRAA uses a program called Income-Based Repayment (IBR)

  • The Idea – To help high-debt/low-income borrowers afford their monthly (or yearly) loan payments

  • The Equation: Repayment based on 15% of borrower’s discretionary income

    • 15% x (yearly adjusted gross income – 150% of poverty level)/ 12 months = your reduced monthly payment under IBR

    • Poverty Level: depends upon family size and city you live in. See www.IRS.gov

    • Continued on next slide


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Continued: “How Do I Qualify . . .”

  • Qualifying – After doing the equation, if your monthly payment is lower than it would be under a ten-year repayment plan, then you qualify for reduced payments under IBR

  • Note: Reduced payments under IBR will not be available until July 1, 2009

  • Note: Interest continues to accrue while you use IBR to make lower monthly payments, but the interest is not added to the principal unless and until you are no longer eligible for IBR

  • Note: Borrowers do not need to work as lawyers to qualify for IBR’s reduced payments


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Forgiveness Under IBR

  • If you make reduced payments through IBR for 25 years, the federal government will forgive your remaining federal loans* after the 25th year

    • See slide 9 for more details

      * Qualifying Loans: Stafford and GRAD PLUS, but not Parent PLUS. Perkins loans may also apply

      Note: Borrowers do not need to work as lawyers to qualify for forgiveness under IBR


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Here’s an Example

Joe’s Debt: $100,000

Joe’s Income: $40,000

Poverty Level in Joe’s Area: $10,210

Joe Owes (10-year plan): $1,155 per month

Under IBR, Joe Now Owes:

15% x ($40,000 - 15,315)/12 months = $309 p/month

Joe Gets a 3% raise in his second year = $318 p/month

After 10 Years: $403 p/month

25 Years: $627 p/month

Joe is a recent Law School Grad who has $100,000 worth of Law School debt


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Graph of IBR Forgiveness(Borrower enrolled in IBR for 25 years, but did not work in public service for 10 years)

Note: Numbers based on a single borrower with $100,000 in debt at 6.8% (standard repayment would require monthly payments of $1151 for 10 years, totaling $138,097)


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When Am I No Longer Eligible for Reduced Payments Under IBR?”

  • When the amount due (each month) exceeds the standard plan, you no longer qualify for reduced payments

    • Then, you simply pay under a standard payment plan, based on the original amount owing, not the higher new balance


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If I Do Not Use IBR or If I Start and Stop Using IBR, Do I Still Qualify for Debt Forgiveness?”

Yes, payments made in a standard plan count towards the 10-year public service requirement for debt forgiveness*

But, at the end of the 10 years, you only get forgiveness of the portion that you did not pay for, in the years that you were making reduced payments

* “Public Service”/ICR debt forgiveness covered further below


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How Do I Qualify For Debt Forgiveness After 10 Years?”

  • You must make 120 payments after October 1, 2007, while employed full-time in a “public service” job

    • 120 monthly payments = 10 years

  • These payments can be the low payment required by IBR, the somewhat higher payments under a different plan called “income-contingent” repayment (ICR), or a standard 10-year repayment program

    • But, to the extend that you use a standard 10-year repayment program, there will be no balance for the government to forgive after 10 years

      • Note: Borrowers need not work as lawyers to qualify for forgiveness

      • Note: ICR is a faster-pay formula than IBR, so there will be less interest accrued in the long run. ICR is also available immediately.

        Continued on next slide


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Cont’d: “How Do I Qualify For Debt Forgiveness After 10 Years?”

  • “Public service”: The term includes all full-time employment by government agencies (including emergency management and law enforcement) and tax exempt organizations, i.e. 501(c)(3)’s

    • Note: Over the next year, the Dept. of Education will issue regulations that determine how broadly (or narrowly) this term will be interpreted

  • Loan category: To use ICR, borrowers must have Federal Direct Loans or Federal Direct Consolidation Loans

  • Consolidation:

    • Federal Direct Loan recipients do not need to consolidate.

    • Federal Family Education Loan (FFEL) recipients must consolidate into a Federal Direct Consolidation Loan for their subsequent payments to qualify towards the 10 years for public service forgiveness. See www.ed.gov


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What Loans Can Be Forgiven under the CCRAA?”

  • Eligible Government Loans:

    • Stafford Loans

    • Grad PLUS (for cost of attendance minus other estimated financial assistance)

    • Perkins loans may also qualify

  • Ineligible Government Loans:

    • Parent PLUS (parents borrow to help pay for your education expenses)


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Graph of ICR Forgiveness Borrowers(Borrower who performed 10 years of public service)

Note: Numbers based on a single borrower with $100,000 in debt at 6.8% (standard repayment would require monthly payments of $1151 for 10 years, totaling $138,097)


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Here’s a Public Service Example

  • Jane owes: $200,000*

  • Jane makes: $42,000 (3.5% annual increase)

  • Jane’s 1st year monthly payment: $334

  • Jane’s 10th year monthly payment: $466

  • Total 10 year repayment: $45,572

  • Total Forgiven After Year 10: $288,428

    * Prior educational debt must be consolidated into a “federal direct

    consolidation loan” before qualifying for ICR’s 10-year forgiveness

Jane took out loans for undergrad and graduate studies, before attending law school.


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10-Year Forgiveness Recap

  • After 120 qualifying monthly payments and full-time “public service” work, your federal loans will be completely forgiven

  • 10 years of “public service” do not have to be consecutive

  • You do not have to receive reduced payments for all ten years to qualify for 10-year forgiveness of the remaining balance

  • The term “public service” has not been fleshed out in regulations yet, but by statute includes full-time employment for government agencies and tax-exempt 501(c)(3) organizations

  • Since IBR is not fully available until July 1, 2009, borrowers may make reduced payments at a higher level under ICR, and the amount not paid because of ICR can be forgiven after ten years of service. Speak with a financial aid professional for further information.


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IBR Reduced Payment Recap

  • IBR was created to help borrowers working in low-income jobs to afford their monthly loan payments

  • Monthly IBR repayments based upon 15% of the borrower’s discretionary income:

    • .15times (yearly salaryminus 150% of the poverty level) / 12 months=monthly payment

  • If the IBR payment is lower than payment under a traditional plan, you qualify for IBR

  • Interest accrues on the principal debt while enrolled in IBR but is not capitalized until the borrower leaves ICR, which limits compounding

  • The federal government will forgive qualifying remaining qualifying debt after the 25th year, even without public service


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What Can I Do To Help?

  • Toolkit: Visit abanet.org/lsd/legislation soon to find the Law Student Division’s toolkit on IBR/ICR

    • The toolkit will help you to inform students at your school about how IBR and ICR can work for them

  • ABA Day: Join the Law Student Division April 16-17 for the ABA’s lobbying day on Capitol Hill in Washington, D.C.

    • Email our Division Delegates (contact information below)

  • Personal Story: Visit abanet.org/lsd/legislation to tell your personal story on important issues facing law students


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    Conclusion

    • Hopefully this slideshow gives you a basic understanding of the College Cost Reduction and Access Act of 2007

    • Consult with your school’s Financial Aid Department before deciding to repay through IBR or ICR because each borrower has a different financial situation and to find out about Congressional updates to these programs

    • For a more in depth look at these programs, please read Georgetown Law Professor Philip Schrag’s Hofstra Law Review Article: http://www.law.georgetown.edu/news/releases/documents/Forgiveness_000.pdf

    • For more information, please visit abanet.org/lsd/legislation


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    Thank You’s

    • The Law Student Division (ABA-LSD) thanks the following persons for collaborating to create this presentation and for helping to coordinate our loan repayment lobbying efforts:

      • Ken Goldsmith, ABA Legislative Counsel

      • Philip Schrag, Professor of Law at Georgetown University and Vice Chair of the Committee on Government Relations and Student Financial Aid of the ABA’s Section of Legal Education

      • ABA-LSD Delegates and Chairs over the past seven years

      • Patty Brennan, ABA Law Student Division Director

      • Carol Simmons, ABA Marketing and Technology Manager


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    Questions?E-Mail Division Delegates

    Marc Baranov, Southwestern Law School : [email protected]

    Ashley Ligas, Florida State University: [email protected]

    Chris Sprowls, Stetson University: [email protected]


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