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You Can’t Take It with You Financial Aid PLP Financial Aid Office.

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Presentation on theme: "You Can’t Take It with You Financial Aid PLP Financial Aid Office."— Presentation transcript:

1 You Can’t Take It with You Financial Aid PLP Financial Aid Office

2 Discharge of Loans for Death Discharge of Loans for Total and Permanent Disability Discharge of Loans in Bankruptcy Income-Based Repayment Federal Student Loan Forgiveness Public Loan Forgiveness Discharge of Federal Student Loans

3 ***Guaranteed with Federal Loans*** Types of Loans – Stafford Loans: if you die – Graduate Plus Loans: if you die – Perkins: if you die – Parent Plus Loans: if the parent or the student dies – Private loans based on terms and conditions of loan Application: certified copy of death certificate to school (Perkins) or loan servicer (DL loans) Death Discharge

4 Available for Federal Student Loans – Private loans: based on terms and conditions of loans – No formal process for private loans Required: borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that: – Can be expected to result in death – Has last for a continuous period of not less than 60 months – Can be expected to last for a continuous period of not less than 60 months – Has been determined by the VA to make up unemployable due to a service-connected disability * Substantial gainful activity means a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both. Total and Permanent Disability (TPD)

5 Complete the TPD Discharge application – Includes Physician Certification that documents medical diagnosis and limitations on daily living – Application goes to each loan servicer Post-Discharge Monitoring Period – If granted, you will be monitored for 3 years – You will be ineligible for new student loans – What is monitored: changes in income (increase above federal poverty line for borrower) changes in disability (no longer have qualifying disability) TPD Application

6 Before 3-year monitoring period – Discharge is reversed, old loans are back – Free to take new loans After the 3-year monitoring period – Statement from physician that you are able to engage in substantial gainful activity – Sign statement acknowledging new loans cannot be discharged for same disability or any other disability that exists when new loans are authorized Future Eligibility for Student Loans

7 Adversarial proceeding that requires student to prove that repaying their loans would cause an undue hardship on you and your dependents Problem: no legislative definition on what students had to prove that their financial hardship is undue Brunner test officially adopted in 9 circuits: 3-prong test: – Not able to maintain a minimal standard of living (current ability to pay) – Evidence of hardship continuing through repayment period (future ability) – Good-faith effort to repay loan before bankruptcy (i.e. repayment for at least 5 years) (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987) Discharge in Bankruptcy

8 One study showed success 40% of discharge requests – 3-prong test is burdensome and inconsistently applied – 99.9% of students in bankruptcy do not request a discharge Successful: – Lender did not dispute discharge until after case concluded – Chances for discharge are higher if: Student was not employed during bankruptcy and Student has a medical hardship and Student had a low annual income before the bankruptcy filing Unsuccessful: – Cases where the Court expect student to find higher-paying work – Student did not try IBR – Students unable to provide clear proof of continuing hardship Courts give students “windows of opportunity” to obtain “meaningful employment” – Window is generally 6 months to several years – Discharge is in limbo during that window Current Court Cases

9 Alternative to TPD or Bankruptcy Sometimes used as administrative relief negotiated in bankruptcy Available for Stafford, Graduate Plus loans, Perkins loans (if consolidated into DL loans) – Payments are capped Calculated annually Set at 15% of discretionary income (set by AGI & family) Payments made for 25 years Payment can be as low as $0 Borrower is responsible for ALL accrued interest if student is no longer eligible for IBR Discharge of any unpaid balance after 25 or 10 years Income-Based Repayment (IBR)

10 IBR or Income-Contingent Repayment Program – Any balance of capitalized interest and principle after 25 years Discharge amount will be taxable (current law) – Any balance of capitalized interest and principle after 10 years if working in public service Discharge amount will not be taxable (current law) Federal Student Loan Forgiveness

11 What: Discharge of Direct Loans – DL Loans including Grad Plus loans – Perkins loans, must be consolidated with DL – Rehabilitated defaulted loans – No FFEL loans: consolidate FFEL loans with DL When: After 120 qualifying monthly payments – Qualifying payments need not be consecutive Qualifying payments: made while employed FT by a public service organization – Qualifying employment need not be consecutive – Excluded: time spent in deferment or forbearance – Included: when calculated payment is zero Pair with: IBR; ICR; Standard Repayment Plan; any other Direct Loan repayment plan Public Service Loan Forgiveness

12 Required: FT public service job with PSLF eligible employer PSLF eligible employers: Public sector employers Federal, state, local, or tribal agency or entity Private non-profit employers that is 501(c)(3) Except: partisan political organizations, labor unions, Except: organizations engaged in religious activities If your job duties are related to religious instruction, worship services, or any form of proselytizing So: individuals working at religiously-affiliated non-profit organizations who perform at least 30 hours of non-religious activities are eligible for PSLF Private employer: if it is non-profit, is not an excluded group, and provides one or more public services Examples: military, law enforcement, public interest, early childhood, public health, education Public Service Loan Forgiveness

13 Our office is available, even after graduation! Questions? Help from Financial Aid Office

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