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IBR: A TOOL TO HELP STUDENTS MANAGE REPAYMENT. Webinar Wednesday | September 28, 2011. IBR: A TOOL TO HELP STUDENTS MANAGE REPAYMENT. A Servicer Perspective. IBR. IBR: Ins and Outs Applying for IBR IBR vs. the Alternatives Educating Borrowers. IBR: Ins & Outs. WHAT IS IBR?.

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ibr a tool to help students manage repayment

IBR: A TOOL TO HELP STUDENTS MANAGE REPAYMENT

Webinar Wednesday | September 28, 2011

ibr a tool to help students manage repayment1
IBR: A TOOL TO HELP STUDENTS MANAGE REPAYMENT

A Servicer Perspective

| Nelnet Education Loan Services

slide3
IBR
  • IBR: Ins and Outs
  • Applying for IBR
  • IBR vs. the Alternatives
  • Educating Borrowers

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ibr ins outs
IBR: Ins & Outs

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what is ibr
WHAT IS IBR?
  • Income-Based Repayment Plan was created by Congress under The College Cost Reduction and Access Act of 2007 (with an implementation date of July 1, 2009)
  • Ideal for individuals entering careers with relatively high loan debt compared to starting salaries, such as:
    • Medicine
    • Law
    • Elementary/secondary education
    • Social work
  • Potential tool for individuals whose loans are in a delinquent status

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what is ibr1
WHAT IS IBR?
  • Payments significantly lower under IBR, but would also take longer than standard 10 years to repay, resulting in paying more over the life of the loan
  • Must have a “partial financial hardship” (PFH) to qualify for IBR
  • Provides interest subsidy on subsidized loans for up to 3 years if IBR payment is less than accrued interest on those loans*
  • Provides forgiveness of remaining balance after 25 years (300 eligible payments)

* IBR Subsidy is for the amount of interest that the scheduled payment amount does not cover. This differs from interest subsidy for deferments and other periods where all in the interest is covered. All interest would be covered if payment amount is $0.

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loans eligible for ibr
LOANS ELIGIBLE FOR IBR

Eligible:

  • FFELP / Direct Stafford
  • FFELP / Direct Grad PLUS
  • Supplemental Loans (SLS)
  • FISL
  • FFELP / Direct Consolidation

Non-eligible:

  • Parent PLUS
  • Consolidations w/ Parent PLUS
  • Non-FFELP or Non-RDL
  • State loans
  • Perkins Loans
  • Private loans

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partial financial hardship pfh
PARTIAL FINANCIAL HARDSHIP (PFH)

Borrower’s annual loan payment using the Standard 10-year Repayment Plan

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15% of (borrower’s adjusted gross income – 150% of poverty line amount)

Based on income and family size

  • Final rules effective 07/01/2010 allow for the PFH to be determined based on the greater of either: the amount due at the time the loans entered repayment or at the time the borrower or spouse requests the IBR plan.
ibr and married borrowers filing a joint tax return
IBR AND MARRIED BORROWERS (FILING A JOINT TAX RETURN)
  • Adjusted Gross Income (AGI) is used to determine qualification
  • Prior to 7/1/10, for married borrowers filing a joint tax return, we considered both spouses AGI, but only the borrower’s debt in determining Partial Financial Hardship (PFH).
  • Under the rules effected on 7/1/10, we use the AGI on the joint tax return and are able to use both of the borrower’s eligible loan balances to determine PFH.
  • NOTE: This change is allowed even if only one spouse applies for IBR.

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changes under the student aid and fiscal responsibility act safra
CHANGES UNDER THE STUDENT AID AND FISCAL RESPONSIBILITY ACT (SAFRA)
  • New borrower’s payment will not exceed 10% of the discretionary income (currently 15%)
  • Outstanding balance will be discharged after 20 years (currently at 25 years)
  • These changes were only applicable to NEW borrowers that receive their loan on or after 7/1/2014. However, on 10/25/11, The White House and Department of Education accelerated this change to 2012. This plan does not override the current IBR plan, but has the programs running concurrently, with the more generous terms only available to borrowers who received a federal loan since 2008 and also receive a federal loan in 2012. 

The Student Aid and Fiscal Responsibility Act (SAFRA) is included in the Health Care and Education Reconciliation Act (HCERA).

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ibr loan forgiveness
IBR: LOAN FORGIVENESS
  • The earliest a borrower may qualify for loan forgiveness under IBR is 2034 (July, 1, 2009 + 25 years)
  • Servicer Perspective: Specific claim filing instructions have not yet been determined, but it is assumed the servicer files a discharge request with the guarantor and payment for remaining balance of principal & interest is paid. There will be no claim filing process for ED servicers.
  • School Perspective: Research & modeling show that the likelihood that borrowers will have a balance after making payments for 25 years is low
  • Portion left over after the forgiveness years is taxable income

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ibr loan capitalization
IBR: LOAN CAPITALIZATION
  • Interest accrues while a borrower is in a period of Partial Financial Hardship (PFH). Capitalization occurs if/when PFH status ends.
  • Capitalization occurs:
    • if they no longer qualify for PFH
    • if they go back to a regular repayment schedule (Permanent Standard)
    • at end of deferment or forbearance
    • if they were to go to another repayment plan
  • Since interest does not capitalize until you end a PFH status, there is a benefit to staying in a PFH payment as long as possible.

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applying for ibr
Applying for IBR

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ibr forms ibr requests
IBR FORMS (IBR REQUESTS)
  • IBR FFELP or Direct Loan Application form, which is a standard form from DOE (The servicers stopped using our own repayment option forms).
  • Borrower may request IBR off system letters, e-mail, online (via Manage My Account)
  • Borrower can also call into our customer service line and verbally request IBR with an associate over the phone.

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ibr forms ibr requests1
IBR FORMS (IBR REQUESTS)
  • Borrower will have to prove their income by submitting their tax information (1040) from the previous year of consent to the IRS releasing their tax information.
  • If a borrower did not file taxes for the previous year or the AGI does not reasonably reflect the borrower’s current income, then they must also use the alternate documentation of income form
  • Though ED servicers notify borrowers to renew their paperwork every year to maintain a PFH payment, it is important that the borrower submits the appropriate information annually.

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alternative documentation of income
ALTERNATIVE DOCUMENTATION OF INCOME
  • Utilized when the borrower’s current income does not reflect what was reported as AGI on their most recently filed income tax return (i.e., lost their job, cut in pay, etc.) or borrower did not file taxes or current income.
  • Used to determine eligibility for IBR and PFH payment amount.
  • Disadvantage: Proof of income required via the Alternative Documentation of Income form does not typically provide tax deductions
  • Using this documentation may be the only way to get a borrower into IBR or reduce their PFH payment to a manageable level.
  • CIC representatives are trained on when it would be appropriate for a borrower to complete alternative documentation of income.

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timing of processing ibr
TIMING OF PROCESSING IBR
  • As soon as all documentation is received, the IBR can be processed immediately. 
  • IBR will not take effect until, at least, 30 days after process date due to setup tied to disclosure process.
  • The IBR start date is their next payment due date so no past due payments are required by the borrower for their initial IBR request. 

Note: There is no admin forbearance if the borrower is in IBR and requesting a recalculation or renewal of their PFH. Borrower can make payments or apply for a forbearance/deferment to cover any past due payments.

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slide24

IBR: SPLIT & MULTIPLE LOANS

  • The borrower must request IBR with each holder of their loans
  • The servicer must apply IBR to all the loans they hold, unless the borrower specifically requests to leave a loan or loans out of IBR
  • FSA has advised all DL loans be in the same repayment plan, if eligible
  • Although rare, borrowers do have the option to have different repayment plans for their loans to clarify between DL and FFELP

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ibr vs alternatives
IBR vs. Alternatives

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ibr vs alternatives1
IBR VS. ALTERNATIVES
  • There are no standard answers when counseling borrowers
  • Decision depends on the situation of the individual borrower and assumes they qualify for PFH/IBR
  • Consideration:
    • 3-year subsidy clock with IBR
    • If request forbearance while in IBR, the 3-year subsidy clock keeps ticking and months in forbearance are not counted towards forgiveness
    • Unemployed deferment has 3-year deferment clock
    • IBR can result in payments well beyond 10 years resulting in paying more over life of loan
    • Any forgiven amount is taxable income

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ibr vs alternatives2
IBR VS. ALTERNATIVES

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ibr vs isr
IBR vs. ISR
  • Income-Sensitive Repayment (ISR) is a plan for FFELP loans only
  • ISR has two restrictions (that often limit the servicer’s ability to offer lower payments:
    • Payments cannot be less than the amount of interest that accrues every month
    • Payment cannot be 3x more than any other payment
  • ISR is based on the borrower’s income and varies in how the payment is determined. IBR is determined based on calculations set by regulations that all lenders/servicers must follow.

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ibr vs icr
IBR vs. ICR
  • Income-Contingent Repayment (ICR) is a plan for FDLP only. IBR is available under both FFELP and FDLP.
  • To initially qualify for IBR, you must have a PFH. There is not comparable requirement for ICR. Any Direct Loan borrower (other than a PLUS borrower) may choose ICR.
  • The amount of loan debt is not considered in determining IBR payment amount during any period you have a PFH. IBR payment is determined based on income and family size. In contrast, payment under ICR considers total Direct Loan debt in addition to income and family size (so, payment is generally higher than in IBR).
  • Under ICR, you are responsible for paying all of the interest that accrues on your loans. With ICR unpaid negative amortized interest up to the 10% limit is capitalized. Under IBR, the government pays the remaining unpaid interest on sub loans for up to 3 consecutive years from the date you begin repayment.
  • Under ICR, unpaid interest is capitalized annually. IBR, unpaid interest is capitalized only if you are determined to no longer have a PFH.

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using forbearance to bring loan eligible for ibr
USING FORBEARANCE TO BRING LOAN ELIGIBLE FOR IBR
  • While it is up to each servicer, Nelnet will allow forbearances to bring the account current and out of default.
  • A separate written forbearance agreement and an agreement to repay the debt must be obtained before the claim is paid.
  • If claim was paid, the lender may recall the claim, process the forbearance, and grant the borrower IBR (provided the borrower qualifies).
  • However, servicers are not required to use this discretionary forbearance. This process is approved by the guarantor, as it is not our practice to process a forbearance if the claim has been paid.

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rehabilitation to resolve defaults for ibr
REHABILITATION TO RESOLVE DEFAULTS FOR IBR
  • The borrower would become eligible for IBR after the loan is purchased by the rehabilitation lender.
  • Borrower will need to apply for IBR with their new lender.
  • Any monthly payments eligible for forgiveness made or covered by an Economic Hardship Deferment (EHD) prior to the borrower defaulting will be passed to the rehabilitation lender and count.
  • 9 payments on the defaulted loans during rehabilitation would not count as eligible payments for IBR forgiveness
  • 3-year IBR interest subsidy period does not start over at the time of rehabilitation.

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educating borrowers
Educating Borrowers

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ibr how nelnet educates borrowers
IBR: HOW NELNET EDUCATES BORROWERS
  • Correspondence regarding all repayment plans via mail/e-mail
  • During counseling calls with borrowers, IBR is discussed if it seems appropriate to the borrower’s situation
  • Via Manage My Account (www.nelnet.com or the mobile website)
  • Self-service borrower tools: iPhone/Droid repayment calculator apps
  • Financial literacy materials & literature, funneled through schools
  • Student webinars (Money Mondays)
  • Our Nelnet Partner Solutions webinars and on-site counseling sessions where possible

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our roadmap for schools on counseling ibr
OUR “ROADMAP” FOR SCHOOLS ON COUNSELING IBR
  • First, familiarize your students with NSLDS and encourage them to review their portfolio. How much many loans? Amounts? Number of ED Servicers? Errors?
  • They have to have solid communication with their servicer
  • Help them understand ALL options, as IBR may not always fit
  • Borrowers must request IBR and provide their 1040 Tax form or alt doc income form – complete, accurate, and signed
  • In regards to IBR, remind borrowers to continually apply or renew their plan on a yearly basis; and that while a partial financial hardship (PFH) payment is low, there could be a higher payment applied in the future, should they no longer qualify for PFH.
  • Schools can promote internal/external IBR resources & tools

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ibr resources
IBR RESOURCES
  • §682.215 and §685.221 — Income-Based Repayment Plan
  • ED: Repayment plan information

www.studentloans.gov

  • Nelnet: Repayment and debt management

www.nelnet.com

  • TG: IBR webpage

www.tgslc.org

  • Project on Student Debt: IBR information

www.ibrinfo.org

slide36

Questions?

Thank you!

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