1. Income-Driven Repayment Plans/Pay As You Earn (PAYE)
Session 33
Income-Driven Repayment Plans/Pay As You Earn (PAYE)
Ian Foss and Brian Smith | Dec U.S. Department of Education 2015 FSA Training Conference for Financial Aid Professionals

2. Details of Income-Driven Repayment Plans

3. Overview Income-Contingent Repayment Plan (ICR) – 1994
Income-Based Repayment Plan (IBR) – 2009
Pay As You Earn Plan (PAYE) – 2012

4. Overview 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)

5. Eligible Borrowers
Eligible loan
ICR
Show need
Eligible loan
IBR

6. Eligible Borrowers Eligible loan REPAYE Recent borrower Show need

7. Eligible Loan Programs
ICR
IBR
PAYE
REPAYE
Direct Loans X
FFELP
Perkins Loans

8. Eligible Loan Type Loan Type ICR IBR PAYE REPAYE
Loan received as student X
Loan received as parent
Consolidation (no underlying parent loans)
Consolidation (underlying parent loans)

9. 4/26/2017
Payment Amounts
Most IDR plans have two formulas--for those that do, borrowers always pay the lesser of the two.
Repayment Plan
Payment based only on income
Payment based on loan debt
ICR
20% of discretionary income
12-year standard payment adjusted based on income
IBR
15% of discretionary income
10-year standard amount
PAYE / “new” IBR
10% of discretionary income
REPAYE
None

10. Interest Subsidy Benefits
4/26/2017
Interest Subsidy Benefits
ICR
No subsidy
IBR
Sub. Loans only
Only during negative amortization
Only for first 3 years under plan
100% of negative amortization
PAYE
REPAYE
For sub. loans
For first 3 years under plan
After 3 years, 50% of negative amortization
For unsub. loans
No time limit
50% of negative amortization

11. Interest Capitalization
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
Capitalization caused by conversion is limited to 10% of balance
PAYE
Normal rules apply (upon expiration of deferment or forbearance)
REPAYE

12. Loan Forgiveness IRS: “it’s taxable”
4/26/2017
Loan Forgiveness
20 years is for undergraduate borrowers and 25 years is for graduate borrowers
IRS: “it’s taxable”
IBR: 25 years
REPAYE: 20 or 25 years
ICR: 25 years
PAYE / “new” IBR: 20 years
Generally, payments on an IDR plan, 10-year standard plan, or periods of economic hardship deferment count toward forgiveness

13. Billy Borrower Billy Borrower:
4/26/2017
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
Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6% interest rate
Borrowed for graduate school

14. Billy - ICR 4/26/2017 Year Interest Payment 1 $250 $387 2 $242 $405 3
$231
$410 4
$220
$415 5
$208
$419 6
$195
$424 7
$181
$429 8
$166
$434 9
$150
$440 10
$132
$445 11
$112
$451 12
$91
$457 13
$69
$463 14
$45
$469 15
$18
$475

15. Billy – “old” IBR 4/26/2017 Year Interest Payment Subsidy 1 $250 $217
$15 2
$236 $6 3
$254 $0 4
$273 5
$293 6
$248
$314 7
$244
$336 8
$239
$359 9
$231
$384 10
$222
$410 11
$210
$438 12
$196
$467 13
$180
$497 14
$160
$530 15
$137
$555 16
$112 17
$84 18
$55 19
$24

16. Billy – PAYE/“new” IBR 4/26/2017 Year Interest Payment Subsidy 1 $250
$145
$49 2
$158
$43 3
$170
$37 4
$182 5
$195 6
$209 7
$224 8
$240 9
$256 10
$273 11
$292 12
$311 13
$331 14
$353 15
$376 16
$400 17
$243
$425 18
$231
$452 19
$218
$480 20
$202
$510

17. Billy - REPAYE 4/26/2017 Year Interest Payment Subsidy 1 $250 $145 $77
$158
$68 3
$170
$59 4
$182
$34 5
$195
$27 6
$209
$20 7
$224
$13 8
$240 $5 9
$256 $0 10
$273 11
$292 12
$311 13
$249
$331 14
$247
$353 15
$241
$376 16
$233
$400 17
$222
$425 18
$210
$452 19
$480 20
$177
$510 21
$157
$541 22
$133
$574 23
$106
$609 24
$75
$646 25
$40
$685
Billy - REPAYE

18. Billy – All IDR Plans Year IBR ICR PAYE REPAYE 1 $217 $387 $145 2 $236
$405
$158 3
$254
$410
$170 4
$273
$415
$182 5
$293
$419
$195 6
$314
$424
$209 7
$336
$429
$224 8
$359
$434
$240 9
$384
$440
$256 10
$445 11
$438
$451
$292 12
$467
$457
$311 13
$497
$463
$331 14
$530
$469
$353 15
$555
$475
$376 16 $0
$400 17
$425 18
$452 19
$480 20
$510 21 -
$541 22
$574 23
$609 24
$646 25
$685

19. StudentAid.gov/Repayment-Estimator19

20. Income-Driven Repayment Plans
Application Process

21. Income-Driven Repayment Plans Applying: Electronic or Paper
4/26/2017
Income-Driven Repayment Plans
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.

22. Application Process: Spouses
Almost all married borrowers provide spouse’s income documentation
Only used by servicer when relevant
Exception for those who are separated or cannot access spouse’s income

23. Application Process: Spouses
4/26/2017
Application Process: Spouses
Repayment Plan
Married borrower filing jointly
Married borrower filing separately
ICR
Use joint AGI
Use borrower’s AGI
IBR
PAYE
REPAYE
Combine AGI of borrower and borrower’s spouse

24. Billy gets Married in Year 5
Spouse has $20,000 in income, and $40,000 in Direct Loans, all of which are unsubsidized, and which has an interest rate of 6%
Billy and his spouse decide to file separately

25. Effect of Billy’s Marriage
Payment decreases from $ to $ for year 6
Spouse’s income and loan debt is not included
Billy’s family size increased from 1 to 2
PAYE
Payment decreases $ to $176.91
Spouse’s income is included in the calculation of Billy’s payment
Spouse’s loan debt means that Billy’s payment is prorated by 55.56% to account for the spouse’s debt
REPAYE

26. In Year 6, Spouse Pays Off Loans
Payment is not affected because spouse’s income and loan debt is not included
Payment for year 7 is $165.08
Billy’s family size is still 2
PAYE
Payment increases from $ in year 6 to $ in year 7.
Payment increased 92%, income increased by 5%.
It seems unfair when only considering Billy, but the spouse’s debt obligation is now satisfied, and that freed up household income that can be devoted to Billy’s loans.
Because spouse no longer has loan debt, Billy’s payment is no longer prorated.
Billy’s family size is still 2.
REPAYE

27. 1 2 Application Process: Spouses Separated from his or her spouse; or
4/26/2017
Application Process: Spouses
A married borrower is not required to provide spouse’s AGI if the borrower is: 1
Separated from his or her spouse; or 2
Unable to reasonably access income information from spouse

28. Application Process: Spouses (REPAYE)
REPAYE—If a borrower is separated or unable to reasonably access spouse’s income information:
The borrower’s spouse is not counted in family size
If the spouse has eligible loans, the spouse’s loans are not considered in the monthly payment amount adjustment

29. AGI Filed taxes No significant change Alternative File taxes
Application Process: Income Documentation
AGI
Filed taxes
No significant change
Alternative
File taxes
Significant change
Didn’t file taxes

30. AGI Alternative Application Process: Income Documentation
Electronic Application
Tax Return
Tax Return Transcript
AGI
Pay stubs, unemployment benefits, etc.
Self-certification of zero income
Provide electronically only if zero income
Alternative

31. Application Process: Annual Life Cycle
Month 0
Borrower applies: 2/14/2015
Month 1
Borrower enters plan: 3/1/2015
Month 2
Payment disclosure and notice: 3/2/2015
Month 9
Reminder notice: 11/26/2015
Month 10
Soft deadline: 1/25/2015
Month 11
Hard deadline: 2/4/2015
Month 12
Anniversary date: 3/1/2015

32. Consequences of failing to recertify
IBR
Interest capitalization
Stay in plan
Payment no longer income-based; 10-year standard amount
ICR
PAYE
REPAYE
Kicked out of plan
Loan re-amortized over lesser of 10 years or time to forgiveness

33. Billy Doesn’t Recertify – Year 4 End
IBR
$217 in interest capitalizes
Stay in plan
Payment is $ instead of $293.15
ICR
Payment is $ instead of $419.45
PAYE
$4, in interest capitalizes
Payment is $ instead of $195.44
REPAYE
$1, in interest capitalizes
Kicked out of plan
Payment is $ instead of $195.44

34. QUESTIONS? Ian Foss – Ian.Foss@ed.gov – 202-377-3681
Brian Smith – –