1. IBR – One Year Later and Public Service Loan Forgiveness EASFAA 2010 May 17, 2010 Stephen G Brown Fordham University School of Law

2. What is IBR?  2007 College Cost Reduction and Access Act PL 110-84 Income Based Repayment option  Effective July 1, 2009  Defines “Economic Hardship” Creates Public Service Loan Forgiveness Program  Effective October 1, 2007

3. IBR  New formula for calculating monthly payments on federal student loans FFELP or Direct Stafford, GradPLUS, Federal Consolidation  Not parent PLUS or consol. containing PLUS Borrower experiencing “partial economic hardship”

4. Partial Economic Hardship  Federal loan payments exceed 15% of AGI above 150% of poverty level for family size  Huh?

5. Federal Loan Payments  Monthly payments on Stafford, GradPLUS and/or Federal Consolidation Loans  10 year Standard amortization

6. Adjusted Gross Income  Prior year Adjusted Gross Income 1040 – line 37 1040A – line 21 1040EZ Line 4  If married filing jointly, both incomes*  If married, filing separately, only filer (PL110-153)  Lender may accept alternative documentation Changes in income  * After July 1, 2010, both education loan debts also count

7. Poverty Levels 2009 48 states Family SizeAmount150% 1$10,830$16,245 2$14,570$21,855 3$18,310$27,465 4$22,050$33,075 5$25,790$38,685 6$29,530$44,295

8. Monthly maximum payments  AGI - (assumes family size of 1) $30,000$172 $40,000$297 $50,000$422 $60,000$547 $70,000$672 $80,000$797 $90,000$922 $100,000$1,005

9.  If borrower made 25 years of payments under IBR (Income Based Repayment) ICR (Income Contingent Repayment) Standard Repayment (10 year term)  and still has a balance… The remainder is forgiven!

10. Interest subsidy  If payments do not cover outstanding interest Negative amortization Secretary of Education pays remaining interest due on subsidized loans  Or sub portion of Consolidation Up to 3 years

11. 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 = $566.67/mo  @ $40k income = $297  $567-297 = $270/mo accruing interest not paid  Capitalized when leave IBR or no PFH

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

13. For example…  $40,000 income = $297 payment  $100,000 debt (at 6.8%) = $1,155 monthly payment  4 years of partial financial hardship  Then rich and famous!  Will have paid $14,907 towards loans  $109,000 still due  Will take 136 additional months to repay  Full disclosure – not counting -$5,202 forgiven interest on $25,500 assumed sub loan

14. Loan Forgiveness  Yes, after 25 years (300) eligible payments under IBR  If $0 calculated payment, payment counts  Currently considered a taxable event

15. Miscellany  May apply through each of your lenders Theory is weighted average payments  May choose to Federal Direct Consolidate  Prior year taxes or release (4506-T)

16. Questions – IBR?  Moving right along…

17. Loan Forgiveness for Public Service Employees

18. Federal Loan Forgiveness for Public Service  Greatest thing since sliced bread! Or maybe not!  Only Federal Direct Loans  If FFELP borrower – MUST CONSOLIDATE  Can use IBR payment plan or ICR or 10 year Or other equaling 10 year payment  120 payments while in eligible employment Need not be consecutive  If less than 120 months, revert to original monthly payment (10 year amortization)

19. 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.

20. Federal Loan Consolidation  Allows students to convert former (pre July 1, 2006) variable rate FEDERAL loans into fixed rate –No private loans  Allows students to lock in “in-school” versus “in repayment” rate  Weighted average interest rate  Forgiven for death/disability  Deferment/forbearance  Be careful of mixing

21. But, under IBR  Negative amortization  Maximum payment is original 10 year amortized monthly payment  Once no longer partially economically hardship may have to repay for 10 (or more!) additional years!

22. Look familiar?  AGI - (assumes family size of 1) $30,000$172 $40,000$297 $50,000$422 $60,000$547 $70,000$672 $80,000$797 $90,000$922 $100,000$1,005

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

24.  Stay Tuned!  More to Come.  Economy?  Get Excited!

25. To watch out in the future  HCERA -Health care and Education Reconciliation Act of 2010 - P.L. 111-152  New Borrowers after July 1, 2014  PFH if payments above 10% of income above 150% of poverty level  Forgiveness after 20 years, not 25

26. Resources  studentaid.ed.gov and fact sheets and q & a  IBRinfo.org  finaid.org  equaljusticeworks.org

27. Stephen G. Brown Fordham University School of Law 33 West 60 th Street New York, NY 10023 212 636-7178 sbrown@law.fordham.edu