Direct Loan Income-Driven Repayment Plans Rose Mary Stelma College Foundation, Inc. April 2013

Before We Talk About Income- Driven Repayment Plans Do you know what types of repayment plans are available for Direct Loans – NOT just the income-driven plans?

Repayment Plans For Direct Loans  Standard  Graduated  Extended  Alternative  Income-Based Repayment (IBR)  Income- Contingent Repayment (ICR)  Pay As You Earn

Repayment Plans  Not all loans qualify for all repayment plans  All loans must be repaid under the same plan unless the loan type doesn’t qualify for the plan

Income-Driven Plans  Income-Contingent Repayment (ICR)  Income-Based Repayment (IBR)  Pay As You Earn

Income-Driven Plans – Quick Overview  Income-Contingent (ICR) – 1994  Direct Loan Program only  Income-Based Repayment (IBR) – 2009  Direct Loan and FFEL  Pay As You Earn – 2012  Direct Loan Program only  New borrowers on/after 10/1/2007 who receive a disbursement on/after 10/1/2011

Income-Contingent Repayment  Direct Loan borrowers with eligible loans  FFEL borrowers do not qualify for ICR  FFEL has Income Sensitive Repayment Plan

ICR - Direct Loans That Qualify  All Direct Loans are eligible except  Parent PLUS Loans  Pre-7/1/2006 Direct PLUS Consolidation Loans  Direct Consolidation Loans made on or after 7/1/2006 that repaid parent PLUS loans are eligible

ICR -Payment  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)

ICR – Discretionary Income  Borrower’s AGI minus 100% of the poverty guideline for the borrower’s state and family size  Example Borrower’s AGI $25, % of poverty guideline$10,000 Discretionary Income$15,000

ICR - Forgiveness  Remaining balance forgiven after 25 years of qualifying repayment  According to the IRS, the forgiven amount is considered taxable income

ICR - Qualifying Payments  Qualifying Payments include:  Payments made 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

Income-Based Repayment  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 – Loans That Qualify  All Direct and FFEL Program loans except  Parent PLUS loans  Consolidation Loans that repaid parent PLUS loans

IBR - Payment  Under IBR, borrowers pay the lesser of  15% of discretionary income (income- based payments) or  What they would have paid under the 10- year standard repayment plan (non- income-based payments)

IBR – Discretionary Income  Borrower’s AGI minus 150% of the poverty guideline for the borrower’s state and family size  Example Borrower’s AGI $20, % of poverty guideline$15,000 Discretionary Income$ 5,000

IBR - Forgiveness  Remaining balance forgiven after 25 years of qualifying repayment  According to the IRS, the forgiven amount is considered taxable income

IBR – Qualifying Payments  Qualifying Payments include:  Payments made 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

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  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”)

Pay As You Earn – Direct Loans That Qualify  All Direct Loans are eligible except  Parent PLUS loans  Consolidation Loans that repaid parent PLUS loans

Pay As You Earn - Payment  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)

Pay As You Earn – Discretionary Income  Borrower’s AGI minus 150% of the poverty guideline for the borrower’s state and family size  Example Borrower’s AGI $25, % of poverty guideline$15,000 Discretionary Income$10,000

Pay As You Earn – Forgiveness  Remaining balance is forgiven after 20 years of qualifying repayment.  According to the IRS, the forgiven amount is considered taxable income

Pay As You Earn – Qualifying Payments  Qualifying Payments include:  Payments made 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

Recap of ICR Payment Amount  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)  For more on income percentage factors in ICR, see 77 FR 30266, available at:

Recap of IBR Payment Amount  Under IBR, borrowers pay the lesser of:  15% of discretionary income (income- based payments) or  What they would have paid under the 10- year standard repayment plan (non- income-based payments)

Recap of Pay As You Earn Payment Amount  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)

IBR/Pay As You Earn/ICR Plan Request Form – Electronic and Paper  Borrower Demographics  Name  Address  SSN  Telephone Numbers  Address

IBR/Pay As You Earn/ICR Plan Request Form  Borrower can select plans for DL and FFEL  IBR  Pay As You Earn  ICR  I request that my loan holder determine which of the above plans I am eligible for, and place me on the plan with the lowest monthly payment amount.

Borrower Income  Servicer uses borrower’s Adjusted Gross Income (AGI) when calculating discretionary income  Copy of most recently filed federal income tax return or IRS tax return transcript – last two most recently completed years

Income Documentation  Uses same IRS data retrieval tool as FAFSA  Married borrowers requesting joint ICR who file separately must both provide a tax return

Alternative Documentation of Income  If borrower did not file a federal income tax return OR  If AGI does not reasonably reflect borrower’s current income OR  If servicer asked borrower to provide alternative documentation of income

IBR/Pay As You Earn/ICR Plan Request Form  No taxable income – sign the form and submit  Alternative documentation of income  One piece for each source of income (borrower and spouse if applicable)  Pay stub, letter from employer listing income, interest or bank statements, dividend statements, signed explanation listing income sources and name and address of the source

IBR/Pay As You Earn/ICR Plan Request Form  Provide spouse information if  Filed a joint tax return and your spouse has eligible loans  Joint Direct or FFEL Consolidation Loan obtained with spouse.  Borrower and spouse have Direct Loans and both want to repay under the joint ICR option.

Family Size  Borrowers must also annually certify their family size  If the family size question is blank, the loan servicer assumes a family size of one

Recertification  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

Recertification  Loan Servicer provides a notice of deadline for submission of income documentation and consequences of failure to provide  If borrower submits documentation within 10 days of deadline, servicer will maintain current payment amount until documentation is processed

Applying for Income-Driven Repayment Plans  Borrower can also submit documentation early, if their circumstances have changed, to receive a lower payment amount.  This changes the borrower’s anniversary date

Regulatory References  Final regulations published: November 1, 2012  Effective date: July 1, 2013  These provisions were implemented early. 39

StudentLoans.gov Enhanced loan counseling information Repayment estimator resources Excellent tool for borrowers