Public Service Loan Forgiveness NYSFAAA Region 2 B.J Revill Director of Financial Aid Univ. of Rochester School of Medicine and Dentistry

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

Public Service Loan Forgiveness Program

Public Service Loan Forgiveness Borrowers will qualify for loan forgiveness if: Borrowers will qualify for loan forgiveness if: Have outstanding debt through the Direct Loan Program, and 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. 1 st, 2007), and Worked full-time for a total of 120 months in a qualifying “public service” position (on or after Oct. 1 st, 2007), and Made 120 qualifying loan payments on Federal Direct Loans during periods of qualifying public service employment Made 120 qualifying loan payments on Federal Direct Loans during periods of qualifying public service employment

Public Service Loan Forgiveness cont. Qualifying loan payments made on or after Oct. 1, Qualifying loan payments made on or after Oct. 1, Loans Eligible for forgiveness are: Loans Eligible for forgiveness are: Federal Direct Stafford Loans Federal Direct Stafford Loans Federal Direct GradPLUS Loans Federal Direct GradPLUS Loans Federal Direct Consolidation Loans Federal Direct Consolidation Loans Any amounts cancelled in the program are not taxable! Any amounts cancelled in the program are not taxable! Eligible Loans

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

Public Service Loan Forgiveness cont. In general, it’s full-time employment in: A 501(c)(3) organization that is exempt from taxation under section 501(a) of the Internal Revenue Code of 1986 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 The most common types of 501(c)(3) organizations are charitable, educational, religious, or healthcare Government (federal, state, county, local, tribal, etc…) agency Government (federal, state, county, local, tribal, etc…) agency Definition of “Public Service”

Public Service Loan Forgiveness cont. Borrower must not be in default Borrower must not be in default Borrowers must make 120 required payments Borrowers must make 120 required payments Make qualifying payments using: Make qualifying payments using: Pay As You Earn (PAYE), or Pay As You Earn (PAYE), or Income Based Repayment (IBR), or Income Based Repayment (IBR), or Income Contingent Repayment (ICR), or Income Contingent Repayment (ICR), or Standard (10-year) Repayment plan Standard (10-year) Repayment plan Qualifying Payment Requirements:

Public Service Loan Forgiveness cont. 120 months do NOT have to be consecutive 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, and not to me less than an average of 30 hours/week). Borrower must be working “full-time” in qualifying public service position at time of forgiveness (Full time as defined by their employer, and not to me 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 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 Loan payments on non-eligible loans (e.g., FFELP loans, Federal Perkins Loans) do NOT count toward 120-month requirement Additional Eligibility Provisions:

Income Driven Plans Income Based Repayment Income Based Repayment The IBR program loan payments are 15% of your income that exceeds 150% of the federal poverty guideline for your family size. 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 Capped at the 10-year standard repayment amount Adjusted annually, based on changes to your annual AGI and family size Adjusted annually, based on changes to your annual AGI and family size Payments are usually lower than they are under other plans Payments are usually lower than they are under other plans A borrower can choose to participate in this payment plan for up to 25 years. A borrower can choose to participate in this payment plan for up to 25 years. Any remaining balance forgiven after 25 years. Any remaining balance forgiven after 25 years.

Income Driven Plans cont. Pay As You Earn (PAYE) 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. The PAYE 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 Capped at the 10-year standard repayment amount Adjusted annually, based on changes to your annual AGI and family size Adjusted annually, based on changes to your annual AGI and family size Payments are usually lower than they are under other plans (including IBR) Payments are usually lower than they are under other plans (including IBR) A borrower can choose to participate in this payment plan for up to 20 years. A borrower can choose to participate in this payment plan for up to 20 years. Any remaining balance forgiven after 20 years. Any remaining balance forgiven after 20 years.

Pay As You Earn Repayment Can be used to repay: Can be used to repay: Federal Direct Stafford Loans (Subsidized or Unsub.) Federal Direct Stafford Loans (Subsidized or Unsub.) Federal Direct GradPLUS Loans Federal Direct GradPLUS Loans Federal Direct Consolidation Loans Federal Direct Consolidation Loans Borrower must have “Partial Financial Hardship” (PFH) to enter the IBR plan. PFH is based on: Borrower must have “Partial Financial Hardship” (PFH) to enter the IBR plan. PFH is based on: Household Adjusted Gross Income (AGI) Household Adjusted Gross Income (AGI) Household size Household size HHS Federal Poverty Guidelines ( HHS Federal Poverty Guidelines (

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

Pay As You Earn Repayment cont. Household Adjusted Gross Income (AGI) Household Adjusted Gross Income (AGI) Includes: Includes: AGI of borrower AGI of borrower AGI of borrower’s spouse (if married) only if filling a joint return. (Does not include spouse’s AGI if couple files separate federal income tax returns.) AGI of borrower’s spouse (if married) only if filling a joint return. (Does not include spouse’s AGI if couple files separate federal income tax returns.) Household Size Household Size Includes: Includes: Borrower Borrower Spouse (if married) Spouse (if married) Dependent children in household (including an unborn child) Dependent children in household (including an unborn child) Other dependents living in the household (must receive at least 50% of their support from borrower) Other dependents living in the household (must receive at least 50% of their support from borrower)

Pay As You Earn Repayment cont. HHS Federal Poverty Guidelines ( Persons in Family Poverty Guideline 150% Poverty 1$11,770$17,655 2$15,930$23,895 3$20,090$30,135 4$24,250$36,375 5$28,410$42,615 6$32,570$48,855 7$36,730$55,095 8$40,890$61, Poverty Guidelines for the 48 Contiguous States

Pay As You Earn Repayment cont. Estimated Monthly Payment Comparison: Estimated Monthly Payment Comparison: Adjusted Gross Income Standard Monthly Payment IBR Monthly Payment (estimate) Pay As You Earn (estimate) $30,000$397.03$154.31$ $35,000$397.03$216.81$ $40,000$397.03$279.31$ $45,000$397.03$341.81$ $50,000$397.03$397.03$ Assumptions: Household Size = 1 Uses 2015 Federal Poverty Guidelines Resides in Lower 48 Loan Debt at repayment = $34,500 Resides in Lower 48 Loan Debt at repayment = $34,500 Interest Rate = 6.8% Interest Rate = 6.8%

Pay As You Earn Repayment cont. Once in the PAYE (or the IBR) Plan, monthly payment is lesser of: Once in the PAYE (or the IBR) Plan, monthly payment is lesser of: Standard 10-year amortized amount OR, Standard 10-year amortized amount OR, “Partial Financial Hardship” amount “Partial Financial Hardship” amount Outstanding loan balance is forgiven after 20 years of repayment (25 years for Income Based Repayment) Outstanding loan balance is forgiven after 20 years of repayment (25 years for Income Based Repayment) Any interest due and not paid by the borrower shall be paid by the Secretary for up to three years (Subsidized Loans only) Any interest due and not paid by the borrower shall be paid by the Secretary for up to three years (Subsidized Loans only) waived interest is taxable waived interest is taxable PAYE & IBR repayment period can extend beyond 10 years PAYE & IBR repayment period can extend beyond 10 years Monthly payment can be less than accrued interest Monthly payment can be less than accrued interest allows for negative amortization! allows for negative amortization! Additional Details:

Pay As You Earn Repayment cont. Additional Details: Additional Details: Must be a new borrower as of 10/1/2007. Must be a new borrower as of 10/1/2007. Cannot have loans with outstanding balances from prior to 10/1/2007 Cannot have loans with outstanding balances from prior to 10/1/2007 Must have received a disbursement of a Direct Loan on or after 10/1/2011. Must have received a disbursement of a Direct Loan on or after 10/1/2011. IBR For New Borrowers: IBR For New Borrowers: For new borrowers as of 7/1/2014 For new borrowers as of 7/1/2014 IBR will mirror the current PAYE plan. IBR will mirror the current PAYE plan.

Beware of Negative Amortization Federal Stafford Loan Debt $35,000$50,000$65,000 Estimated Monthly Payment (Standard 10-year plan) $402$575$748 Interest paid in 1 st month $198$283$368 Principal paid in 1 st month $204$282$380 Resulting principal balance $34,796$49,708$64,620 PAYE payment in 1 st month* $145$145$145 Unpaid interest after 1 st month $53$138$223 Resulting Principal balance** $35,053$50,138$65,223 *Assumes a $35,000 AGI ** When Capitalization Occurs

Pay As You Earn Repayment cont. Pros and Cons: Pros and Cons: Potential Pros  Lowest initial monthly payment  Possible to exclude spouse’s income  Dept. of Ed. will waive any unpaid interest on subsidized loans for up to 3 years  Loan cancellation after 20 years of eligible payments Potential Cons  Increased interest payments (vs. standard 10-year plan)  Negative amortization possible  May need to file separate tax returns (if married)  Income and family size need to be verified annually  Monthly payments could change each year

Income Driven Plans & PSLF (Calculations)

Public Service Loan Forgiveness cont. Federal student loan debt (at repayment) $36,744 Estimated monthly payment - Standard Plan $423 Total interest paid $13,988 Total amount repaid after 10 years $50,742 Example 1: ENTER REPAYMENT AFTER GRADUATION Loan Debt Borrowed = $34,500 Loan Debt Borrowed = $34,500 Approx. Total at Repayment (inc. accrued interest) = $36,745 Approx. Total at Repayment (inc. accrued interest) = $36,745 Standard Repayment Plan (10 years) Extended Repayment Plan (25 years) Federal student loan debt (at repayment) $36,744 Estimated monthly payment - Extended Plan $255 Total Interest paid $39,765 Total amount repaid after 25 years $76,509

Public Service Loan Forgiveness cont. Example 2: IBR or PAYE & PUBLIC SERVICE LOAN FORGIVENESS Loan Debt Borrowed = $34,500 Loan Debt Borrowed = $34,500 Loan Debt at Repayment = $36,745 Loan Debt at Repayment = $36,745 Starting Salary = $35,000 Starting Salary = $35,000 IBRPAYE Estimated monthly payment: Year 1 $228$152 Estimated monthly payment: Year 2 $239$160 Estimated monthly payment: Year 3 $251$167 Estimated monthly payment: Year 4 $263$176 Estimated monthly payment: Year 5 $276$184 Estimated monthly payment: Year 6 $289$193 Estimated monthly payment: Year 7 $303$202 Estimated monthly payment: Year 8 $318$212 Estimated monthly payment: Year 9 $333$222 Estimated monthly payment: Year 10 $349$233 Total amount repaid over 10 years $34,220$22,814 Total Unpaid Interest: $0$1,780 Total Unpaid Principal: $24,843$36,196 Total amount forgiven after 10 years $24,813$37,976 Assumes a family size of 1 for entire repayment term, and a 4% income growth.

Public Service Loan Forgiveness cont. A few Points to Ponder: 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 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. 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. Consolidate any FFEL and/or Perkins Loans into the Direct Loan Program. Can be done at Consolidate any FFEL and/or Perkins Loans into the Direct Loan Program. Can be done at Select either the PAYE, IBR or Income Contingent Repayment (ICR) plans Select either the PAYE, IBR or Income Contingent Repayment (ICR) plans Start making payments Start making payments Complete PSLF Employment Cert. Form annually Complete PSLF Employment Cert. Form annually Keep good records! Keep good records! Considerations prior to entering Repayment:

Public Service Loan Forgiveness cont. Complete the PSLF Employment Cert. Form Complete the PSLF Employment Cert. Form PSLF Employment Certification Form allows for confirmation of employment eligibility by Dept. of Ed PSLF Employment Certification Form allows for confirmation of employment eligibility by Dept. of Ed Suggested that borrowers keep the following: Suggested that borrowers keep the following: Evidence they worked full-time in every month they made a qualifying loan payment 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 position meets the “full-time” employment standard Documentation that their employer is an eligible employer Documentation that their employer is an eligible employer Record Keeping

Questions?