Income-Driven Repayment Sue O’Flaherty | Dec. 2014 U.S. Department of Education Student Loan Servicing Summit

IDR Topics Overview of IDR Application Processing Borrower Awareness Review of ‘Billy Borrower’ Discussion

Repayment Plan Usage $133B of the $436B Direct Loan portfolio in repayment is in an IDR plan (30.4%). As expected based on the relatively “better” benefits of the IBR and PAYE repayment plans, the increase in IDR usage is driven by increased participation in the IBR and PAYE repayment plans. IBR portfolio has increased from $51B (2013 Q3) to $101B (15 Sep 14). PAYE portfolio has increased from $1.3B (2013 Q3) to $11.8B (15 Sep 14). Level 10-year (standard) as a percentage of total DL portfolio has been trending downward.

Income-Driven Plans - Overview 4/17/2017 Income-Driven Plans - Overview Three main plans Income-Contingent Repayment Plan (ICR) – 1994 Direct Loan Program only Income-Based Repayment Plan (IBR) – 2009 Available in both the Direct Loan and FFEL Program New terms and conditions for “new borrowers” on/after July 1, 2014 Pay As You Earn Plan (PAYE) – 2012 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 Negotiated rulemaking in 2015 4

ICR IBR PAYE Capitalization Negative amortization 10% limit 4/17/2017 Capitalization ICR Negative amortization 10% limit Normal rules apply IBR Income-based  Non-income-based payment Leaving the plan Normal rules suspended PAYE

Loan Forgiveness IRS: “it’s taxable” Qualifying repayment includes: 4/17/2017 Loan Forgiveness IRS: “it’s taxable” IBR: 25 years ICR: 25 years PAYE / “new” IBR: 20 years Qualifying repayment includes: Repayment under an income-driven plan Repayment 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

Applying: Reasons & Plan Selection Initial application Annual recertification Early recertification Direct Loans FFEL Program Loans IBR □ Pay As You Earn Not Available ICR Place me on plan with lowest payment Only IBR will be considered for FFEL Program Loans

Applying: Electronic or Paper 4/17/2017 Applying: Electronic or Paper Select reason for submitting form Select plan, if submitting form to initially apply Provide information about spouse, if applicable Certify family size Determine what kind of income documentation to submit Submit documentation of AGI or ADOI ADOI = “alternative documentation of income”; not AGI.

Applying: Income Documentation File tax return in two most recent years? Yes AGI significantly different from current income? Alternative Documentation of Income No AGI Alternative Documentation of Income (ADOI)

Applying: Income Documentation AGI Electronic Application Tax Return Tax Return Transcript ADOI Pay stubs, unemployment benefits, etc. Self-certification of zero income Provide electronically only if zero income If borrower is married and files a joint tax return, also need ADOI of spouse.

Application: Electronic 4/17/2017 Application: Electronic Who Borrowers with ED-held loans Borrowers with commercially held loans serviced by ED servicer Borrowers with other commercially held FFELP loans if servicer signs up When IBR-only: September 2011 ICR/PAYE: December 2012 Where StudentLoans.gov How Pulls most recent return from two most recent years Allow self-certification of no income Produces pre-populated paper application for ADOI borrowers

Annual Life Cycle Month 0 Borrower applies: 2/14/2014 Month 1 Borrower enters plan: 3/1/2014 Month 2 Borrower receives educational notice about plan: 3/2/2014 Month 9 Borrower receives request to submit new income documentation: 11/26/2014 Month 10 Soft deadline: 1/25/2015 Month 11 Hard deadline*: 2/4/2015 Month 12 Anniversary date: 3/1/2015 *If borrower submits documentation by hard deadline, payment amount will not change if loan servicer cannot process it before anniversary date.

Repayment Estimator_v3

Repayment Estimator Repayment plan selection in loan consolidation Repayment plan selection in Exit Counseling, along with ability to request repayment plan type Repayment Estimator located outside of log-in

2013-14 E-mail Campaign Results ACTION TAKEN COHORT 16% made a payment 3% applied for IDR 90 -180 days delinquent 12% made a payment 2% applied for IDR 181- 270 days delinquent 37% made a payment 9% applied for IDR Owe more than $50K and entered repayment in the last year 35% changed status to in repayment In deferment or forbearance for reasons of financial hardship or unemployment 13% applied for IDR In grace period and owe more than $25K 11% made a payment 26% changed status to repayment, deferment or forbearance Defaulted loan status or greater than 270 days delinquent *Campaign results as of May 2014

Billy Borrower Billy Borrower: 4/17/2017 Billy Borrower Billy Borrower: Is single with no dependents and lives in Georgia Has an AGI of $35,000 that rises at 5% per year and Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 4.66% interest rate Billy is not a new borrower on/after July 1, 2014 Note: The repayment estimator projects the poverty guidelines and the income percentage factors uses a fixed 3.3%. Beginning mid- December, it will use the Congressional Budget Office’s (CBO) estimates of future inflation. The comparisons on the next few slides uses the CBO estimates.

Billy - All IDR Plans 4/17/2017 Year IBR ICR PAYE 1 $219 $373 $146 2 $237 $378 $158 3 $256 $383 $171 4 $275 $388 $183 5 $296 $393 $197 6 $317 $398 $211 7 $339 $403 $226 8 $363 $408 $242 9 $414 $259 10 $419 $276 11 $442 $425 $295 12 $472 $431 $314 13 $503 $437 $335 14 $522 $443 $357 15 $449 $380 16 - $404 17 $430 18 $457 19 $486 20 $516 21 22 23 24 25

Billy Borrower – Comparison 4/17/2017 Billy Borrower – Comparison ICR IBR PAYE Initial Payment $373 $219 $146 Final Payment $449 $522 $516 Time 14 yrs., 2 mos. 16 yrs., 7 mos. 20 years Total Paid $69,004 $76,391 $72,529 Forgiveness $0 $17,816 Standard Extended Payment $522 $333 Time in Repayment 10 years 25 years Total Paid $62,647 $99,743

Discussion, Q&A, New Ideas?