Income Driven Repayment Plans & Public Service Loan Forgiveness NYSFAAA Conference 2018 Graduate/Professional Symposium B.J Revill Director of Financial Aid & Resident Debt Advisor University of Rochester School of Medicine and Dentistry

Agenda Review of Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay as You Earn (PAYE), & Revised Pay as You Earn (REPAYE) vs. Standard Repayment In-Depth Look at Public Service Loan Forgiveness (PSLF) How to use an Income Driven Repayment plan in conjunction with PSLF Considerations prior to entering repayment

About the University of Rochester School of Medicine & Dentistry Enrollment Approximately 430 MD students Approximately 400 PhD students Approximately 200 Masters students 2018-2019 COA (for MD Program) = $76,456 Average Debt for the Class of 2017: Class of 2017 Public Private All UR SMD Percent with Debt 77% 72% 75% 79% Average Debt* $181,179 $206,204 $190,684 $155,026 * These statistics represent all education debt (including both medical and premedical education) for indebted students.

Fun Facts…

Standard Repayment Fixed Monthly Payment 10 year repayment term (standard amortization) Use to repay: Direct Loans FFEL Loans PLUS Loans Consolidation Loans Lowest cost of total repayment vs. other plans All borrowers are eligible

Income Driven Plans Income Contingent Repayment (ICR) Payments are adjusted annually, based on borrower’s household income, family size, and total loan debt. If Married – Spouse’s income included only if borrower files “joint” tax return. Maximum of 25 year repayment period Payments are the Lesser of: The amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that changes with your annual income, OR 20% of your monthly discretionary income Any remaining balance forgiven after 25 years.

Income Driven Plans Income Based Repayment (New IBR) (for new borrowers on or after 07/01/2014) The IBR program loan payments are 10% 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 If Married – Spouse’s income included only if borrower files “joint” tax return. A borrower can choose to participate in this payment plan for up to 20 years. Any remaining balance forgiven after 20 years. The same as Pay As You Earn

Income Driven Plans Income Based Repayment (IBR) (for borrowers with loans taken prior to 07/01/2014) 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 If Married – Spouse’s income included only if borrower files “joint” tax return. A borrower can choose to participate in this payment plan for up to 25 years. Any remaining balance forgiven after 25 years.

Income Driven Plans cont. Pay As You Earn (PAYE) The PAYE program loan payments are 10% of your income that exceeds 150% of the federal poverty guideline for your family size. Only borrowers who had new loans as of 10/01/2007. Capped at the 10-year standard repayment amount Adjusted annually, based on changes to your annual AGI and family size If Married – Spouse’s income included only if borrower files “joint” tax return. A borrower can choose to participate in this payment plan for up to 20 years. Any remaining balance forgiven after 20 years.

Income Driven Plans cont. Revised Pay As You Earn (REPAYE) The PAYE program loan payments are 10% of your income that exceeds 150% of the federal poverty guideline for your family size. Not capped at the 10-year standard repayment amount Adjusted annually, based on changes to your annual AGI and family size If Married – Formula looks at total household income regardless of filing status. A borrower can choose to participate in this payment plan for up to 25 years. Any remaining balance forgiven after 20 years (for Undergrad only debt) or 25 years (for Grad/Professional debt).

Income Driven Plans cont. PAYE/REPAYE/New IBR can be used to repay: Federal Direct Stafford Loans (Subsidized or Unsub.) Federal Direct GradPLUS Loans Federal Direct Consolidation Loans IBR Can be used to repay: Also available for all FFELP Loans.

Income Driven Plans cont. Partial Financial Hardship For the borrower to qualify for IBR, New IBR, or PAYE, he/she must have a “Partial Financial Hardship” (PFH) to enter the plan. PFH is based on: Adjusted Gross Income (AGI) Household size HHS Federal Poverty Guidelines (www.hhs.gov)

Income Driven Plans cont. Adjusted Gross Income (AGI) Includes: AGI of borrower AGI of borrower’s spouse if married and filing a joint tax return. (Does not include spouse’s AGI if couple files separate federal income tax returns.) – ICR, IBR/New IBR and PAYE AGI of borrower’s spouse if married (regardless of filing status) – REPAYE only Household Size Borrower Spouse (if married) Dependent children in household (including an unborn child) Other dependents living in the household (must receive at least 50% of their support from borrower)

Income Driven Plans cont. HHS Federal Poverty Guidelines (www.hhs.gov) 2018 Poverty Guidelines for the 48 Contiguous States Persons in Family Poverty Guideline 150% Poverty 1 $12,140 $18,210 2 $16,460 $24,690 3 $20,780 $31,170 4 $25,100 $37,650 5 $29,420 $44,130 6 $33,740 $50,610 7 $38,060 $57,090 8 $42,380 $63,570

Income Driven Plans cont. Partial Financial Hardship Loan payments will be limited to 10% (15% for IBR) of a borrower's “discretionary income” or 10% (15% for IBR) of the amount that a borrower's (and spouse's if applicable) Adjusted Gross Income exceeds 150 % of the poverty line, divided by 12 10% of your household’s “Discretionary” Adjusted Gross Income (AGI) (15% for IBR) “Partial Financial Hardship” (PFH) amount Your annual loan payment using the “Standard 10-Year Fixed repayment Plan” “Standard Repayment” Amount >

Income Driven Plans cont. Estimated Monthly Payment Comparison: Adjusted Gross Income Standard Monthly Payment IBR Monthly Payment (estimate) PAYE/REPAYE/New IBR Monthly Payment (estimate) $40,000 $1,162 $272 $181 $45,000 $335 $223 $50,000 $397 $265 $55,000 $460 $307 $60,000 $522 $348 $65,000 $585 $390 Assumptions: Household Size = 1 Uses 2018 Federal Poverty Guidelines Resides in Lower 48 Loan Debt at repayment = $100,760 Average Interest Rate = 6.85%

Income Driven Plans cont. Additional Details cont.: PAYE, REPAYE, IBR/New IBR & ICR repayment period can extend beyond 10 years Outstanding loan balance is forgiven after: PAYE - 20 years of repayment New IBR - 20 years of repayment IBR - 25 years of repayment ICR - 25 years of repayment REPAYE – 20 years for undergrad debt only, 25 years with grad/professional debt Monthly payment can be less than accrued interest allows for negative amortization!

Beware of Negative Amortization Income Driven Plans cont. Beware of Negative Amortization Federal Stafford Loan Debt (unsub) $50,000 $75,000 $100,000 Estimated Monthly Payment (Standard 10-year plan) $556 $834 $1,113 Interest paid in 1st month $252 $378 $504 Principal paid in 1st month $304 $456 $609 Resulting principal balance $49,696 $74,544 $99,391 PAYE/REPAYE/NEW IBR monthly payment in 1st month* $223 Unpaid interest after 1st month $29 $155 $279 Resulting Principal balance** $50,029 $75,155 $100,279 *Assumes a single household & $45,000 AGI ** When Capitalization Occurs

Income Driven Plans cont. Additional Details: Under REPAYE, PAYE, New IBR and IBR the U.S. Dept. of Education will pay some of the unpaid interest. Once in the PAYE, New IBR or IBR Plan, monthly payment is lesser of: Standard 10-year amortized amount OR, “Partial Financial Hardship” amount REPAYE PAYE New IBR/IBR ICR Subsidized Loans 100% for 3 years 50% for remaining time 0% Unsub. Loans 50% for entire time

Income Driven Plans cont. Pros and Cons: Potential Pros Lower monthly payments Possible to exclude spouse’s income (PAYE, IBRs, and ICR) Dept. of Ed. may waive some unpaid interest Loan cancellation after 20/25 years of eligible payments Good option for borrowers interested in PSLF Potential Cons Increased interest payments (vs. standard 10-year plan) Negative amortization possible May need to file separate tax returns if married (PAYE, IBRs and ICR) Income and family size need to be verified annually Monthly payments could change each year

Public Service Loan 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 a qualifying “public service” position (on or after Oct. 1st, 2007), and Made 120 qualifying loan payments on Federal Direct Loans during periods of qualifying public service employment

Public Service Loan Forgiveness cont. Eligible Loans Qualifying loan payments made on or after Oct. 1, 2007. Loans Eligible for forgiveness are: Federal Direct Stafford Loans Federal Direct Graduate PLUS Loans Federal Direct Consolidation Loans

Public Service Loan Forgiveness cont. Eligible Loans cont. The Following federal student loan programs may also be eligible for PSLF with Direct Loan Consolidation: Any FFELP Loan Stafford PLUS Consolidation Loans Federal Perkins Loans Certain Nursing & Health Professions Loans

Public Service Loan Forgiveness cont. Definition of “Public Service” In general, it’s full-time employment in: Government (federal, state, county, local, tribal, etc…) agency A 501(c)(3) organization that is exempt from taxation under section 501(a) of the Internal Revenue Code of 1986 The most common types of 501(c)(3) organizations are charitable, educational, religious, or healthcare Other non-profits that are not 501(c)(3) , but provide a qualifying public service

Public Service Loan Forgiveness cont. Qualifying Payment Requirements: Borrower must not be in default Borrowers must make 120 scheduled on-time payments (no more than 15 days late) Make qualifying payments using: Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE), or Income Based Repayment (New IBR or IBR), or Income Contingent Repayment (ICR), or Standard (10-year) Repayment plan

Public Service Loan Forgiveness cont. Additional Eligibility Provisions: 120 months do NOT have to be consecutive Borrower must be working “full-time” in qualifying public service position at time of forgiveness (Full time as defined by their employer, but no less than an average of 30 hours/week). Loan payments made on any loan prior to October 1, 2007 do NOT count toward the 120-month requirement Loan payments on non-eligible loans (e.g., FFELP loans, Federal Perkins Loans) do NOT count toward 120-month requirement Any amounts cancelled in the program are not taxable!

Income Driven Plans & PSLF (Calculations)

Public Service Loan Forgiveness cont. Example 1: enter Repayment after graduation Loan Debt Borrowed = $91,000 Approx. total at Repayment (including accrued interest) = $100,760 Average Interest Rate – 6.85% Standard Repayment Plan (10 years) Federal student loan debt (at repayment) $100,760 Estimated monthly payment - Standard Plan $1,162 Total interest paid $48,456 Total amount repaid after 10 years $139,456 Extended Repayment Plan (25 years) Federal student loan debt (at repayment) $100,760 Estimated monthly payment - Extended Plan $703 Total Interest paid $119,761 Total amount repaid after 25 years $210,761

Public Service Loan Forgiveness cont. Example 2: IBR or PAYE & PUBLIC SERVICE LOAN FORGIVENESS Loan Debt Borrowed = $91,000 Loan Debt at Repayment = $100,760 Starting Salary = $50,000 IBR PAYE/REPAYE/New IBR Estimated monthly payment: Year 1 $397 $265 Estimated monthly payment: Year 2 $416 $277 Estimated monthly payment: Year 3 $435 $290 Estimated monthly payment: Year 4 $455 $304 Estimated monthly payment: Year 5 $476 $317 Estimated monthly payment: Year 6 $497 $331 Estimated monthly payment: Year 7 $519 $346 Estimated monthly payment: Year 8 $541 $361 Estimated monthly payment: Year 9 $564 $376 Estimated monthly payment: Year 10 $587 $392 Total amount repaid over 10 years $58,664 $39,109 Total Unpaid Interest: $10,509 $29,911 Total Unpaid Principal: $100,608 $100,760 Total amount forgiven after 10 years $111,117 $130,671 Assumes a family size of 1 for entire repayment term, and a 3% income growth.

Public Service Loan Forgiveness cont. A few Points to Ponder: Borrower is required to work full-time in a qualified public service position for a minimum of 120 months. Borrower must make qualifying monthly loan payments during the entire 120 month period of public service employment.

Public Service Loan Forgiveness cont. Pros and Cons Potential Pros May make it financially possible to pursue a public service career A portion of loan debt may be forgiven Entitlement (not subject to appropriations) 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 after 10 years of repayment to forgive? Will the program exist after 10 years?

Public Service Loan Forgiveness cont. Considerations prior to entering Repayment: Consider consolidating any FFEL and/or Perkins Loans into the Direct Loan Program. Can be done at www.studentloans.gov Select either the PAYE, REPAYE, IBR/New IBR or Income Contingent Repayment (ICR) plan Start making payments Complete PSLF Employment Cert. Form annually Keep good records!

Public Service Loan Forgiveness cont. Record Keeping Complete the PSLF Employment Cert. Form PSLF Employment Certification Form allows for confirmation of employment eligibility by Dept. of Ed Annual submission recommended

Public Service Loan Forgiveness cont. Record Keeping cont. Suggested that borrowers also 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 eligible employer Documentation that they made an on-time payment

Helpful Links Income Driven Repayment Plans Q & A https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf Public Service Loan Forgiveness Q & A https://studentaid.ed.gov/sa/sites/default/files/public-service-loan-forgiveness-common-questions.pdf

Questions?

Contact Info: B.J. Revill Director of Financial Aid & Resident Debt Advisor Univ. of Rochester School of Medicine & Dentistry 585-275-4523 herbert_revill@urmc.rochester.edu