DRIVER’S ED INCOME DRIVEN LOAN REPAYMENT AND FEDERAL LOAN FORGIVENESS MASFAA GPCC 2016 Stephen Brown, Fordham Law School

Who Cares !

In the interest of simplification this has all become too confusing !

Goals for this session… Philosophy, politics and players History and economics? “Partial Economic Hardship” ICR, IBR and PAYE, New Borrower IBR, REPAYE - the good, the bad and the ugly... and how it relates to your students! Federal Public Service Loan Forgiveness Looking beyond 2016 Overall goal: To know enough to be able to help your students and alumni !

Some background… PL Omnibus Budget Reconciliation Act 1993 Direct Loans and Income Contingent Repayment Gives authority to the Secretary of Education to establish: “an income contingent repayment plan” for the Direct Loans First forgiveness 2018 Section 455 (e) - interesting read

Some background… 2007 College Cost Reduction and Access Act PL Income Based Repayment option (IBR) Effective July 1, 2009 Defines “Partial Economic Hardship” for federal loan repayment programs Creates Public Service Loan Forgiveness Program (PSLF) Effective October 1, 2007 First forgiveness in November 2017November 1, 2017

PAYE President Obama introduces “New” ICR(a) program – PAYE (Pay as You Earn) Announced by Campaign Oct 24, 2011 – We can’t wait ! Subjected to Negotiated Rulemaking Final Rules issued Nov 1, 2012 Effective December 23, 2012 Adds “another ICR

PAYE eligibility requirements “ New Borrower” as of October 1, 2007 No outstanding balance on FFELP or Direct as of October 1, 2007 or no outstanding balance on FFELP or Direct Loan when you received new loan after 10/1/07 Received disbursement of Direct Loan after October 1, 2011 October 1, 2011 includes Direct Consolidation Loan DIRECT LOANS ONLY !

Health Care Education and Reconciliation Act (2010) DIRECT LOANS Changes the terms for IBR “New” Borrowers as of July 1, 2014

“New Borrower IBR” Created by Health Care Education and Reconciliation Act of 2010 “New Borrowers” after July 2014 Looks Like IBR EXCEPT 10% of discretionary income 20 Year Cancellation

REPAYE Revised Pay As You Earn (REPAYE) – 2015 Negotiations February – April, 2015 Consensus reached NPRM published July 9, 2015 Final Rule published October 30, 2015 Early implementation announced (December 2015)

REPAYE No income requirement ?!? But 10% of income above 150% of poverty level Payments ALWAYS 10% of income above poverty level 20 Years cancellation undergrad only loans 25 years cancellation if $1 or more in grad loans Combined income of borrower and spouse If negative amortization, interest subsidy 100% for sub loans (3 years) then 50% 50% for unsub loans

Figuring all of this out…

Partial Economic Hardship and “discretionary income” Borrower in repayment is experiencing partial economic hardship when… Loan payments exceed 15% of income above 150% of poverty level PAYE / REPAYE 10 % of income above 150% Borrower experiencing partial economic hardship may elect to pay under IBR or PAYE or REPAYE

Poverty Levels 2015 Family SizeAmount150% 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

Monthly Payments AGIIBRPAYE New IBR REPAYE $30,000 $ 154 $ 103 $40,000 $ 279 $ 186 $50,000 $ 404 $ 270 $60,000 $ 529 $ 353 $70,000 $ 654 $ 436 $80,000 $ 779 $ 520 $90,000 $ 904 $ 603 $100,000 $ 1,029 $ 686

WOW !

Minimum Loans for PFH (2015) IncomeIBR Min LoansPAYE Min loans $30,000$13,646$9,098 $40,000$24,699$16,466 $50,000$35,752$23,835 $60,000$46,805$31,204 $70,000$57,858$38,573 $80,000$68,911$45,941 $90,000$79,965$53,310 $100,000$91,018$60,679

Aggregate Loan Limits Dependent Undergrads $31,000 Independent Undergrads $57,500 Graduate/Professional $138,500 Plus Grad PLUS! Ten year amort – monthly payment $357 $662 $1,566 Priceless!

Now that I have your attention… The details !

Partial Economic Hardship Borrower in repayment is experiencing partial economic hardship when… Loan payments exceed 15% of income above 150% of poverty level PAYE 10 % if income above 150% Borrower experiencing partial economic hardship may elect to pay under IBR or PAYE Yes, you have seen this before

Who is Eligible? ProgramYearsLoans ICRAnyDirect, Consolidation (including PLUS) IBRAnyDirect, FFELP PAYEAfter October 2007 AND after October 2011 Direct “New Borrower PAYE”After July 1, 2014Direct REPAYEAnyDirect

Payment Amounts 23 Repayment PlanPayment based only on income Payment based on loan debt ICR20% of discretionary income 12-year standard payment adjusted based on income IBR15% of discretionary income 10-year standard amount PAYE / “new” IBR10% of discretionary income 10-year standard amount REPAYE10% of discretionary income None What do you pay? Thanks to USDE

Interest Subsidy Benefits USDE 24 ICR No subsidy IBR Sub. Loans only Only during negative amortization Only for first 3 years under plan 100% of negative amortization PAYE Sub. Loans only Only during negative amortization Only for first 3 years under plan 100% of negative amortization REPAYE For sub. loans Only during negative amortization For first 3 years under plan 100% of negative amortization After 3 years, 50% of negative amortization REPAYE For unsub. loans Only during negative amortization No time limit 50% of negative amortization

Interest Capitalization USDE While payment is income-based, normal rules are suspended While normal rules suspended, only trigger is conversion to standard plan amount Interest capitalizes when leaving the plan IBR Normal rules apply (upon expiration of deferment/forbearance) Interest accruing due to negative amortization is capitalized annually Capitalization of negative amortization interest is limited to 10% of balance ICR While payment is income-based, normal rules are suspended While normal rules suspended, only trigger is conversion to standard plan amount Capitalization caused by conversion is limited to 10% of balance Interest capitalizes when leaving the plan PAYE Normal rules apply (upon expiration of deferment or forbearance) Interest capitalizes when leaving the plan REPAYE 25

26 IRS: “it’s taxable” IBR: 25 years REPAYE: 20 or 25 years ICR: 25 years PAYE / “new” IBR: 20 years 20 years is for undergraduate borrowers and 25 years is for graduate borrowers Loan Cancellation USDE

Adjusted Gross Income and Marriage Prior year Adjusted Gross Income If married filing jointly, both incomes* If married, filing separately, only filer IBR PAYE REPAYE includes both incomes regardless of tax status Lender may accept alternative documentation Changes in income * After July 1, 2010, both education loan debts also count

Annual Reapplication Must apply annually to ICR, IBR and PAYE or REPAYE! Online - studentloans.gov Release prior year tax forms electronically Must affirm that “The information on my prior year tax form substantially represents my current financial situation” or similar Can use alternative documentation of income form if prior year tax form inaccurate (paper) Big issue with non reapplying% don’t renew !!!

Negative Amortization “Negative” – sounds bad And it is! Payments do not cover the interest due on the loans $100,000 at 6.8% = $6,800/yr = $40k income = $186 (PAYE 2015) $ = $381/mo accruing interest not paid Capitalized when leave IBR or PAYE or no Partial Financial Hardship REPAYE cancellations depend on year and sub/ubsub

For example… $40,000 income = $186 payment $100,000 debt (at 6.8%) = $1,151 monthly payment 4 years of partial financial hardship Then rich and famous! Will have paid $8,928 towards loans * $118,288 still due Will take 155 additional months to repay * Assumes 3% increase in poverty level, 0% increase in income

Cancellation after 25 years If borrower made 25 years of payments under IBR (Income Based Repayment) ICR (Income Contingent Repayment) Standard Repayment (10 year term) REPAYE Graduate Loan Debt – or consolidation of Grad Loan and still has a balance… The remainder is canceled, BUT taxable!

Cancellation after 20 years If borrower made 20 years of payments under PAYE (Pay as You Earn) IBR (Income Based Repayment) ICR (Income Contingent Repayment) Standard Repayment (10 year term) New Borrower IBR REPAYE – Undergrad Loans and still has a balance… The remainder is canceled, BUT taxable!

And if I become rich and famous? May no longer be experiencing PFH May choose to leave IBR or PAYE Loans become due by end of prior repayment plan – but may switch May choose to stay in IBR or PAYE Pay original 10 year amortized payment But may take longer than initial 10 years to repay Continue to pay 10% of discretionary under REPAYE

Direct Loan MPN OMB NO Income-Based Repayment (IBR) Plan – Under this plan, your required monthly payment amount will be based on your income during any period when you have a partial financial hardship. Your monthly payment amount may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If your loan is not repaid in full after you have made the equivalent of 25 years of qualifying monthly payments and at least 25 years have elapsed, you may qualify for cancellation of any outstanding balance on your loans. To initially qualify for this plan and to continue to make income-based payments, you must have a partial financial hardship. An IBR Plan calculator is available at The calculator evaluates your eligibility for the IBR Plan and estimates your initial IBR Plan payment amount. The calculator is for informational purposes only. Your servicer will make the official determination of your eligibility and payment amount.

Questions – ICR, IBR,PAYE,REPAYE Moving right along…

Federal Public Service Loan Forgiveness

Federal Loan Forgiveness for Public Service A full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education (including early childhood education), social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences, school ‐ based library sciences and other school ‐ based services, or at an organization that is described in section 501(c)(3) of the IRS Code and exempt from taxation, or teaching as a full-time faculty member at a Tribal College or University and other faculty teaching in high-needs areas, as determined by the Secretary.

Too much text… Full Time Government Federal, State, local, tribal Non-Profit 501(c)3 corporation Perhaps other “public service” for other types of employers

Federal Loan Forgiveness for Public Service Greatest thing since sliced bread! Or maybe not! Only Federal Direct Loans Can use PAYE, IBR, ICR REPAYE or 10 year standard Or other with minimum 10 year amort payment 120 payments while in eligible employment Need not be consecutive IBR and PAYE -If no PFH, revert to original monthly payment (10 year amortization) Not a taxable event

Remember… Negative amortization Maximum payment is original 10 year amortized monthly payment Once no longer partially economically hardship may have to repay for more than 10 more years! ONLY eligible jobs!

Remember… Monthly Payments AGIIBRPAYE New IBR REPAYE $30,000 $ 154 $ 103 $40,000 $ 279 $ 186 $50,000 $ 404 $ 270 $60,000 $ 529 $ 353 $70,000 $ 654 $ 436 $80,000 $ 779 $ 520 $90,000 $ 904 $ 603 $100,000 $ 1,029 $ 686

Other issues If you borrow more, more is forgiven ! How clear is the crystal ball?!? Guaranteed forgiveness? Politics. Record keeping “combination of public service organizations” What if life happens??

Direct Loan MPN A public service loan forgiveness program is also available. Under this program, the remaining balance due on your eligible Direct Loan Program loans may be cancelled after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed in certain public service jobs.

Resources studentaid.ed.gov and fact sheets and Q&A GREAT INFO

Have I exhausted you yet? Questions Comments Snide Remarks

Stephen G. Brown Stephen Brown Assistant Dean Fordham Law