Understanding Federal Loan Repayment and Public Service Loan Forgiveness Anne Del Plato, Nelnet Scott Orris, Navient NYSFAAA Conference, October 2014

Discussion Topics Grace Periods Servicer Repayment Counseling Brief review of Standard (and other repayment plans) Income Driven Repayment Plans Other Repayment Options – Consolidation – Deferment / Forbearance Questions

Grace Periods After a student graduates, leaves school or drops below half- time enrollment, there is a period of time before repayment begins. – This “grace period” will be six months for a Federal Stafford Loan (DL or FFELP) – REMINDER: Protect the Grace Period – Of borrowers who default, most do not receive the full 6-month grace period. – Schools must know when a borrower leaves and promptly report this to NSLDS

Servicer Repayment Counseling During the grace period loan servicers: – Continue to establish a relationship with the borrower – Update and enhance borrower contact info – Promote self-service through the web – Discuss repayment plan options – Discuss consolidation options

Understanding Repayment Plans Student borrowers may repay their student loans through one of several repayment plans: – Standard Repayment Plan – Graduated Repayment Plan – Extended Repayment Plan – Income-Sensitive Repayment (FFEL Only) – Alternative Repayment Plans (Direct Loan Only) – Income Contingent Repayment (ICR) (Direct Loan Only) – Income-Based Repayment (IBR) Two versions now – Pay as You Earn (Direct Loan Only)

Repayment Estimator Available on StudentLoans.gov. 6

Standard Repayment Plan Under this plan, the borrower will pay a fixed amount of at least $50 each month for up to 10 years. For most borrowers, this plan results in the lowest total interest paid because the repayment period is shorter than it would be under any of other repayment plan.

Graduated Repayment Plan The Graduated Repayment Plan may be beneficial if the borrower’s income is low when they leave school but is likely to steadily increase. Under this plan, payments start out low and then increase every two years. The minimum payment equals the amount of interest that accrues monthly for up to the maximum repayment period. Like the Standard Plan, the maximum repayment period is 10 years for Stafford and PLUS Loans and years for Consolidation Loans depending on the total loan indebtedness.

Extended Repayment Plan A borrower may choose this plan if they did not have an outstanding balance on a FFEL or Direct Loan as of October 7, 1998 or on the date they obtained a student loan after that date and have more than $30,000 in outstanding FFEL Program loans or more than $30,000 in outstanding Direct Loans. For example… – A borrower who has $35,000 in outstanding FFEL Program loans and $10,000 in outstanding Direct Loans can choose the Extended Plan for their FFELP loans, but not for their Direct Loans. Borrower may choose to make fixed or graduated monthly payments Minimum payment of $50 for Fixed Extended Maximum repayment period is 25 years

Income Driven Repayment Plans

Income-Driven Plans - Overview Three main plans – Income-Contingent Repayment Plan (ICR) – 1994 Direct Loan Program only More information available at StudentAid.gov/ICRStudentAid.gov/ICR – Income-Based Repayment Plan (IBR) – 2009 Available in both the Direct Loan and FFEL Program More information available at StudentAid.gov/IBRStudentAid.gov/IBR – Income-Based Repayment Plan (IBR) – 2014 New borrowers on/after July 1, 2014 (will be comparable to Pay as You Earn in terms of payment amounts and forgiveness timeframe) – Pay As You Earn Plan – 2012 Direct Loan Program only For new borrowers in FY 2008 who receive new loans in FY 2012 Modeled on IBR, incorporating statutory IBR changes scheduled to take effect for new borrowers in 2014 More information available at StudentAid.gov/PayAsYouEarnStudentAid.gov/PayAsYouEarn

Income-Driven Plans – Eligible Borrowers ICR: Direct Loan borrowers with eligible loans IBR: Direct Loan and FFEL Program borrowers with eligible loans and Their payments would be lower on IBR relative to what would have been paid under the 10-year standard repayment plan (called “partial financial hardship”) IBR for New Borrowers on or after July 1, 2014 New borrower means an individual who has no outstanding balance on a Direct Loan Program or FFEL Program loan on July 1, 2014, or who has no outstanding balance on such a loan on the date he or she obtains a loan after July 1, Pay As You Earn: Direct Loan borrowers with eligible loans Must be a new borrower on/after 10/1/2007 who received new loan on/after 10/1/2011 and Their payments would be lower on Pay As You Earn relative to what would have been paid under the 10-year standard repayment plan (called “partial financial hardship”)

Income-Driven Plans – Eligible Loans ICR: – All Direct Loans are eligible except parent PLUS Loans and pre- 7/1/2006 Direct PLUS Consolidation Loans – Direct Consolidation Loans made on/after 7/1/2006 that repaid parent PLUS loans are eligible IBR: – All Direct and FFEL Program loans except parent PLUS loans and Consolidation Loans that repaid parent PLUS loans Pay As You Earn: – All Direct Loans are eligible except parent PLUS loans and Consolidation Loans that repaid parent PLUS loans

Income-Driven Plans – Payment Amounts Under ICR, borrowers pay the lesser of: – 12-year standard repayment schedule multiplied by income percentage factor (payment based on loan debt and income) or – 20% of discretionary income (payment based only on income) Under IBR, borrowers pay the lesser of: – 15% of discretionary income (income-based payments) or 10% of discretionary income for new borrowers on or after July 1, 2014 – What they would have paid under the 10-year standard repayment plan (non-income-based payments) Under Pay As You Earn, borrowers pay the lesser of: – 10% of discretionary income (income-based payments) or – What they would have paid under the 10-year standard repayment plan (non-income-based payments)

Income-Driven Plans – Interest Subsidy Benefit IBR and Pay As You Earn only Borrower eligible when payment does not cover accruing interest on subsidized loans (negative amortization) Eligibility limited to first three consecutive years of repayment under plan Subsidy amount (paid by ED) = accruing interest on subsidized loans not covered by monthly payment – Borrower must pay all interest on unsubsidized loans

Income-Driven Plans - Capitalization ICR: During periods of negative amortization, annually Interest capitalizes only until principal balance is 10% greater than original principal from when borrower entered repayment Otherwise, normal capitalization rules apply IBR: No longer qualifies for payments based on income (no longer has a partial financial hardship) or Leaves IBR entirely Pay As You Earn: No longer qualifies for payments based on income (no longer has a partial financial hardship) or Leaves Pay As You Earn entirely Interest capitalizes only until principal balance is 10% greater than original principal amount when borrower entered plan

Income-Driven Plans – Loan Forgiveness All three plans provide for forgiveness For ICR and IBR, remaining balance forgiven after 25 years of qualifying repayment For Pay As You Earn and IBR (new borrowers on/after July 1, 2014), remaining balance forgiven after 20 years of qualifying repayment For all three plans, qualifying repayment includes: Payments under an income-driven plan Payments under the 10-year standard repayment plan (or any other repayment plan with a payment amount at least equal to the 10-year standard plan amount) or Economic hardship deferment According to the IRS, the forgiven amount is considered taxable income (See IRS Pub 4681)

Income-Driven Plan – Example Borrower Jim James Is single with no dependents and lives in Texas Has an AGI of $35,000 and Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6.8% interest rate

Partial Financial Hardship calculation Single borrower with no dependents living in Texas Eligible student loan debt 6.8% Annual Loan Payment Amount (Standard) $6,900 ($575 per month) Adjusted Gross Income $35,000 HHS Poverty Guideline (family size of 1 in 48 contiguous states and D.C.) $11,170 15% x (AGI – 150% of Poverty Amount).15 x (35,000 – (1.5 (11,170)).15 x (35,000 – 16,755).15 x 18,245 = 2,737 $2,737 annual or $228 per month Borrower exhibits PFH since standard loan payment amount exceeds calculated amount under IBR plan

IBR – Example Borrower Under IBR, Jim will * : – Have an initial monthly payment of $ – Have a final monthly payment of $ – Receive $ in interest subsidy during the first three consecutive years of IBR repayment (because the payment will not cover all accruing interest on subsidized loans) – Have a payment that is no longer based on his income (no longer have a partial financial hardship) in his 16 th year of IBR – Pay off his loan at the beginning of his 21 st year of IBR (and therefore receive no loan forgiveness) – Pay a total of $101, on his $50,000 loan debt, compared to: $69, under the 10-year Standard Repayment Plan or $104, under the Extended Plan or Consolidation Standard Plan *Assumes a 5% increase in Jim’s income each year and a 3% annual increase in the poverty guidelines.

Pay As You Earn – Example Borrower – Under Pay As You Earn, Jim will * : Have an initial monthly payment of $ Have a final monthly payment of $ Receive $1, in interest subsidy, during all of the first three consecutive years of Pay As You Earn repayment (because the monthly payment will not cover all accruing interest on subsidized loans) Always have a payment that is based on his income (will always have a partial financial hardship) Receive forgiveness in the amount of $44, Pay a total of $70, on his $50,000 loan debt, compared to: – $69, under the 10-year Standard Repayment Plan or – $104, under the Extended Plan or Consolidation Standard Plan *Assumes a 5% increase in Jim’s income each year and a 3% annual increase in the poverty guidelines.

Borrower Example - Recap ICRIBRPay As You Earn Initial Payment$397.17$228.06$ Final Payment$535.23$575.40$ Time in Repayment 13 years, 8 months 20 years, 2 months 20 years Total Paid$78,444.28$101,673.34$70, Forgiveness$0 $44,979.06

Borrower Example - Recap 10-year StandardExtended & Consolidation Standard Payment$575.40$ Time in Repayment10 years25 years Total Paid$69,037.44$104, For comparison:

Sample IBR Monthly Payments

Sample Pay as You Earn Monthly Payments

Applying: Income Documentation Borrower must submit income documentation when applying Eligibility (IBR & Pay As You Earn) and payment amount (all three plans) usually based on a borrower’s AGI Borrower may document AGI through: – The electronic application (uses same method as IRS data retrieval tool for the FAFSA to document AGI) – A paper copy of a 1040, 1040A, or 1040EZ (signed or unsigned) – An IRS Tax Return Transcript

Applying: Income Documentation If AGI is not available or does not reasonably reflect current income, borrower can submit alternative documentation of income (ADOI) Borrowers must provide documentation of all taxable income, e.g., pay stubs, unemployment benefits, etc. – Loan holder estimates annual taxable income based on this documentation Borrowers do not provide documentation of untaxed income, such as Supplemental Security Income or welfare

Applying: ADOI – Additional Considerations Borrowers who use the electronic application must follow-up with their loan holder and send in documentation It is often difficult to know how frequently the borrower receives the income based only on the documentation

Applying: ADOI – Additional Considerations Projected annual income using ADOI may be higher than the borrower’s AGI will be – Loan holders cannot subtract out “above the line deductions” to income that a borrower may take when filing a tax return, which would lower AGI Loan holders might only exclude pre-tax deductions from pay if they are obvious – Loan holders can accept a signed statement from the borrower explaining pre-tax deductions Borrowers may not have held the job for the entire year, but loan holders project income to cover a 12-month period

Recertifying: Income and Family Size Under all three plans, borrowers are required to submit updated income documentation annually Failure to submit documentation timely will lead to: – A monthly payment amount that is what it would have been on the 10-year standard repayment plan (non-income-based payment) and – Interest capitalization Borrowers must also annually certify their family size or a family size of one will be used The reevaluation date is based on when the borrower initially entered the plan (anniversary date) Borrower can also submit documentation early, if their circumstances have changed, to receive a lower payment amount. This changes their anniversary date Borrowers can use the electronic application to recertify their income and family size

Recertifying: Income and Family Size Borrowers will receive educational notices about their income-driven plan Borrowers will receive notice of the deadline by which they must submit income documentation and the consequences of failing to do so Borrowers submitting income documentation within 10 days of the deadline will have their current payment amount maintained until income documentation is processed and new payment amount is calculated – Loan holder’s inability to determine a borrower’s new payment amount by the borrower’s anniversary date will no longer result in automatically increased payment amounts and capitalization of all outstanding interest

Income-Driven Application: Paper Available for borrowers who cannot or do not wish to use the electronic application Paper form can be used by both Direct Loan and FFEL borrowers to request income-driven repayment plan or provide required annual documentation and can be used to submit alternative documentation of income

Income-Driven Application: Electronic Hosted on the StudentLoans.gov website. Borrowers can access application directly or through loan servicers’ websites Uses IRS Data Retrieval Tool that is used on the FAFSA Retrieves the most recent tax information from two most recently completed tax years Electronically transmits application to loan servicer—no follow-up necessary unless AGI is unavailable or borrower wants to submit alternative documentation of income Can be used for initial applications or annual reevaluations

Reason for Request 34

Spouses 35

Link to IRS? 36

IRS Link 37

Result of IRS Link 38

Populating the Application 39

Which Income Documentation? 40

Selecting a Repayment Plan 41

Select a Repayment Plan 42

Annual Life Cycle – New Regulations 43 Month 0 Borrower applies: 2/14/2013 Month 1 Borrower enters plan: 3/1/2013 Month 2 Borrower receives educational notice about plan: 3/2/2013 Month 9 Borrower receives request to submit new income documentati on: 11/26/2013 Month 10 Soft deadline: 1/25/2014 Month 11 Hard deadline*: 2/4/2014 Month 12 Anniversary date: 3/1/2014 Regulations published on 11/1/2012 at 77 FR (available at: ) Effective 7/1/2013; federal loan servicers implemented 12/31/2012 *If borrower submits documentation by hard deadline, payment amount will not change if loan servicer cannot process it before anniversary date.

Public Service Loan Forgiveness Public Service Loan Forgiveness (PSLF) provides for forgiveness of a Direct Loan borrower’s remaining loan balance if the borrower: – Makes 120 full, on-time payments after October 1, 2007 – Makes each payment under a qualifying repayment plan – Makes each payment while employed full-time by a qualifying organization Borrower must also be employed by a qualifying organization at the time that the borrower applies for and receives PSLF According to the IRS, the forgiven amount is not treated as taxable income

PSLF – Qualifying Payments Borrower must make 120 separate monthly payments. They: – Do not need to be consecutive – Must be for the full scheduled payment under the repayment plan – Must be made within 15 days of the due date Multiple, partial payments during the borrower’s monthly billing cycle will qualify if they add up to equal the borrower’s monthly payment amount A borrower will not receive credit for more than one payment toward PSLF if the borrower makes a lump sum payment (e.g., makes a single payment equal to two or more full monthly payments) – Exception for AmeriCorps and Peace Corps borrowers who make lump sum payments using education award or transition payment

PSLF – Qualifying Repayment Plan Each of the 120 payments must be made under a qualifying repayment plan Qualifying repayment plans: – 10-year Standard Repayment Plan – IBR, ICR, Pay As You Earn plans and – Any other payment plan where the payment amount at least equals the 10- year Standard Repayment Plan amount Non-qualifying repayment plans include: – Extended (Fixed or Graduated) – Graduated and – Consolidation Standard with term greater than 10-years Income-driven plans are most likely to leave a remaining balance for forgiveness after 120 qualifying payments

PSLF – Eligible Loans PSLF is only for Direct Loans All Direct Loans qualify – Parent Direct PLUS Loans are eligible for PSLF, but cannot be repaid under income-driven plans – Borrowers may consolidate parent PLUS Loans and repay under ICR FFEL Program and Perkins Loans do not qualify, but can be consolidated into a Direct Consolidation Loan – Borrower consolidating Perkins Loans will lose Perkins-only cancellation benefits they may have otherwise been able to receive – Payments made on loans that are later consolidated do not count toward 120 payments for PSLF. Borrower must make 120 qualifying payments on the Direct Consolidation Loan

Loan Consolidation A Direct Consolidation Loan allows the borrower to consolidate (combine) multiple federal student loans into one loan. The result is a single monthly payment instead of multiple payments. Loan consolidation can greatly simplify loan repayment by centralizing multiple loans into one bill. It can lower monthly payments by giving the borrower up to 30 years to repay the loans. The borrower may be able to switch from variable interest rate loans to a fixed interest rate.

Loan Consolidation Application Steps – Applicant Through the completion of the Federal Direct Consolidation Loan Application and Promissory Note, a borrower will confirm the loans that they want to consolidate and agree to repay the new Direct Consolidation Loan. The electronic application on StudentLoans.gov consist of five steps: 1.Choose Loans & Servicer 2.Repayment Plan Selection 3.Terms & Conditions 4.Borrower & Reference Information 5.Review & Sign

Loan Consolidation Key features of the electronic application: NSLDS lookup performed and information about an applicant’s federal education loans will populate the application Ability to delay processing of the application if applicant has at least one loan still in grace Option to choose the federal servicer to complete the consolidation Ability to select a repayment plan for the consolidation loan. Applicants interested in one of the income-driven repayment plans will be able to complete the electronic request process

Loan Consolidation Borrowers should carefully consider whether loan consolidation is the best option. If they increase the length of the repayment period, they'll also make more payments and pay more in interest. They should compare their current monthly payments to what monthly payments would be if they consolidated their loans. Borrowers also should consider the impact of losing any borrower benefits offered with the original loans.

Loan Discharge Programs Death Total and Permanent Disability Closed School False Certification of Student Eligibility or Unauthorized Payment Unpaid Refund Discharge in Bankruptcy (in rare cases)

Deferments and Forbearances Borrowers may experience trouble making payments under any repayment plan. Deferment and forbearance options may be the right choice to assist them.

Deferments Deferments allow a borrower to postpone their monthly payment in certain circumstances. Some include: In-School Unemployment Economic Hardship Military During a deferment, the borrower does not need to make payments.

Deferments During a deferment, a borrower does not need to make payments. What’s more, depending on the type of loan, the federal government may pay the interest on the loan during a period of deferment (subsidized loans). – The government may pay the interest on your Federal Perkins Loan, Direct Subsidized Loan, and/or Subsidized Federal Stafford Loan. The government does not pay the interest on unsubsidized loans (or on any PLUS loans). The borrower is responsible for paying the interest that accrues (accumulates) during the deferment period, but payment is not due during the deferment period. If the borrower doesn’t pay the interest on the loan during deferment, it may be capitalized (added to the principal balance), and the amount paid in the future will be higher.

Forbearances A borrower who is willing but unable to make payments and does not meet the qualifications for a deferment may request forbearance. Forbearance allows a borrower to temporarily postpone payments for a specified period of time. The forbearance will eliminate any delinquency that currently exists on the account but won’t reverse any derogatory credit information previously reported. The borrower is responsible for the interest that accrues during a forbearance. Recommendation: pay at least the interest, as it accrues during forbearance.

Thank you! Scott Orris Navient Senior Client Relationship Manager (t) (c) Navient.com Navient.com Anne Del Plato Nelnet Regional Director, Partner Solutions (t) (c) NelnetLoanServicing.com NelnetLoanServicing.com