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Income-Driven Repayment (IDR) Plans & Public Service Loan Forgiveness (PSLF)

Session 21. Income-Driven Repayment (IDR) Plans & Public Service Loan Forgiveness (PSLF). Ian Foss and Barbara Hoblitzell | Nov.-Dec. 2017 U.S. Department of Education 2017 FSA Training Conference for Financial Aid Professionals. The Rise of IDR. Details Of Income-driven Repayment Plans. 3.

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Income-Driven Repayment (IDR) Plans & Public Service Loan Forgiveness (PSLF)

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  1. Session 21 Income-Driven Repayment (IDR) Plans & Public Service Loan Forgiveness (PSLF) Ian Foss and Barbara Hoblitzell | Nov.-Dec. 2017 U.S. Department of Education 2017 FSA Training Conference for Financial Aid Professionals

  2. The Rise of IDR

  3. Details Of Income-driven Repayment Plans 3

  4. The Plans Revised Pay As You Earn (REPAYE) 2015 Pay As You Earn (PAYE) 2012 Income-Based Repayment Plan (IBR) 2009 Income-Contingent Repayment Plan (ICR) 1994

  5. Eligible Borrowers IBR REPAYE PAYE ICR Eligible Loan Show Need Recent Borrower

  6. Eligible Loan Programs REPAYE IBR PAYE ICR Direct Loans FFELP Perkins

  7. Eligible Loan Type ICR IBR PAYE REPAYE Loan received as student Loan received as parent Consolidation (no parent loans) Consolidation (parent loans)

  8. Payment Amounts Most IDR plans have two formulas – for those that do, borrowers always pay the lesser of the two.

  9. Interest Subsidy Benefits 50% of negative amortization No time limit After 3 years, 50% of negative amortization 100% of negative amortization For first 3 years under plan Only during negative amortization Subsidized loans Only No subsidy REPAYE [U] REPAYE [S] ICR IBR PAYE 9

  10. Interest Capitalization Capitalization while in plan is limited to 10% of balance Capitalization of negative amortization interest is limited to 10% of balance Interest accruing due to negative amortization is capitalized annually Normal rules apply (upon expiration of deferment/forbearance) Interest capitalizes when leaving the plan While normal rules suspended, only trigger is conversion to standard plan amount ICR IBR REPAYE PAYE While payment is income-based, normal rules are suspended 10

  11. Loan Forgiveness 25 years ICR IBR REPAYE: Any grad loans 20 years PAYE REPAYE: All undergrad loans Amount forgiven is income for tax purposes. 11

  12. Billy Borrower 12

  13. Billy Borrower • Is single with no dependents and lives in DC • Has $65,500 in Direct Loan debt ($23,000 of which is subsidized), which has a weighted average interest rate of 5.5% • Borrowed for graduate school to get an MSW • Has an AGI of $40,000 that rises at 5% per year

  14. ICR

  15. IBR

  16. PAYE

  17. REPAYE

  18. Repayment Estimator 18

  19. IDR Application Process 19

  20. Process Overview Step Three Step Four Step Five Step One Step Two Step Six Submit AGI or ADOI Select reason for submitting form Select plan, if submitting form to initially apply Certify family size Provide information about spouse, if applicable Determine what kind of documentation to submit 04 05 06 01 02 03 20

  21. Spouses Almost all married borrowers provide spouse’s income documentation Only used by servicer when relevant Exception for those who are separated or cannot access spouse’s income

  22. Spouses

  23. 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 5.5% • Billy and his spouse decide to file separately

  24. Effect of Billy’s Marriage

  25. In Year 6, Spouse Pays Off

  26. Spouses & REPAYE If a spouse’s income is excluded from calculation: • 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

  27. Income Documentation

  28. Income Documentation

  29. Failing to recertify

  30. Billy Doesn’t Recertify for Year 4

  31. PSLF Basics 120 Qualifying Payments …When Applying For & Receiving PSLF In Qualifying Repayment Plans Per IRS, forgiven amount is not taxable income On Direct Loans While Working For A Qualifying Employer… 31

  32. PSLF Eligible Loans Perkins Loans - NO Federal Direct Student Loan FFELP Loans - NO Parent PLUS Loans – YES* Direct Consolidation Loan - YES PSLF is only for Direct Loans, but all Direct Loans qualify 32

  33. PSLF Qualifying Employment It matters where you work, not what you do… Other not-for-profit organizations providing specific qualifying services as primary purpose 501(c)(3) not-for-profit organization Any government organization 33 33

  34. PSLF Full-Time Employment • Full-time is the greater of: • Employer’s definition of full-time • 30 hours per week • May work multiple qualifying part-time jobs that equal full-time • For borrowers at a non-profit organization, hours spent in religious instruction, worship services, or proselytizing do not count 34

  35. PSLF Qualifying Repayment Plans • 10-Year Standard • IBR • ICR • Pay As You Earn • REPAYE • Others ≥ 10 Year Standard • Income-driven plans are most likely to yield a balance for forgiveness 35

  36. PSLF Qualifying Payments 120 separate monthly payments* Do not need to be consecutive Must be made within 15 days of due date After October 1, 2007 Must be for full amount due under plan *Exception for AmeriCorps, Peace Corp, and DOD 36

  37. PSLF Payment Amount • Multiple partial payments • Count as one payment • All must be received within 15 days of due date • Payments made when not required • Do not qualify • Lump sum payments • Count as one payment • Exceptions for AmeriCorps, Peace Corp, and Department of Defense borrowers 37

  38. Modeling PSLF - Billy Borrower • Is single with no dependents and lives in DC • Has an AGI of $40,000 that rises at 5% per year • Has $65,500 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 5.5% interest rate • Borrowed for graduate school 38

  39. Modeling PSLF Without PSLF REPAYE ICR IBR PAYE Time in Repayment Total Paid $49,021 $7,834 $0 Total Forgiven $0 With PSLF REPAYE ICR IBR PAYE Time in Repayment Total Paid Total Forgiven $71,357 $26,789 $54,922 $67,523

  40. PSLF Employment Certification Borrower submits another Employment Certification Form Borrower submits form to FedLoan Servicing FedLoan determines qualifying payments were made during employed period FedLoan determines qualifying payments were made during employed period FedLoan Servicing determines borrower has direct loans FedLoan Servicing determines employment qualifies All federally-held loans transfer to FedLoan Servicing Borrowers who want confirmation that employment and payments qualify should submit the Employment Certification Form to FedLoan Servicing

  41. PSLF Application Process Borrower submits form to FedLoan Servicing FedLoan determines qualifying payments were made during employed period FedLoan Servicing determines borrower has direct loans FedLoan Servicing determines employment qualifies All federally-held loans transfer to FedLoan Servicing FSA reviews applications FedLoan wants to approve FedLoan writes off debt Application process is very similar to employment certification process because borrower must be employed in full-time qualifying employer when applying for and receiving forgiveness.

  42. Common Issues • Inaccurate or Missing End Date on ECF Form • Blank end date when the borrower is still employed vs. checking “still employed” • Missing required fields (such as EIN number) • Payment Tracking • Must submit an ECF for an updated qualifying payment count • Payments made to other servicers (not just FedLoan) can be counted toward PSLF

  43. Common Program Misconceptions Eligible Loan Types All Federal loans can be eligible through Direct Loan Consolidation. Employer Eligibility Qualifying employment for the PSLF Program is not about the specific job a borrower does, but rather, who the employer is. Qualifying Payment Plans Qualifying repayment plans include all income-driven repayment plans and the 10-year Standard Repayment Plan. Consolidation and PSLF Consolidating Direct Loans will erase any qualifying payments made. Appropriate Time to Begin Tracking for PSLF Borrowers shouldn’t wait to submit an ECF until after they have made 10 years of qualifying payments. 43

  44. PSLF Portfolio Source: FedLoan Servicing as of September 2017

  45. PSLF Portfolio 739,719 as of 9/2017 Source: FedLoan Servicing as of September 2017

  46. PSLF Qualifying Employment Source: FedLoan Servicing as of September 2017

  47. Processed ECFs 1,230,937(66%) Approved 1,864,377 Processed 633,440 (34%) Denied Source: FedLoan Servicing as of September 2017

  48. PSLF Processed ECF’s Missing/Incorrect Information: 47% No Eligible Loans: 32% Employer Not Qualified: 21% Source: FedLoan Servicing

  49. PSLF Qualifying Payments Source: FedLoan Servicing as of September 2017

  50. Other Interesting Facts • Of borrowers who submitted at least one approved ECF: • Nearly 68% have submitted only one form; • 19.4% have submitted two forms; • 7.6% have submitted three forms; and • 5.0% have submitted four or more forms. • For borrowers who have submitted only one ECF: • The average period of employment covered by the form is 4 years, 9 months. • The entire period of time will not necessarily provide credit towards PSLF. • The average period of time since the borrower submitted the form is more than 17 months. Source: NSLDS as of January 2017.

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