Presentation on theme: "IBR – One Year Later and Public Service Loan Forgiveness EASFAA 2010 May 17, 2010 Stephen G Brown Fordham University School of Law."— Presentation transcript:
IBR – One Year Later and Public Service Loan Forgiveness EASFAA 2010 May 17, 2010 Stephen G Brown Fordham University School of Law
What is IBR? 2007 College Cost Reduction and Access Act PL Income Based Repayment option Effective July 1, 2009 Defines “Economic Hardship” Creates Public Service Loan Forgiveness Program Effective October 1, 2007
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”
Partial Economic Hardship Federal loan payments exceed 15% of AGI above 150% of poverty level for family size Huh?
Federal Loan Payments Monthly payments on Stafford, GradPLUS and/or Federal Consolidation Loans 10 year Standard amortization
Adjusted Gross Income Prior year Adjusted Gross Income 1040 – line A – line EZ Line 4 If married filing jointly, both incomes* If married, filing separately, only filer (PL ) Lender may accept alternative documentation Changes in income * After July 1, 2010, both education loan debts also count
Poverty Levels 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
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
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!
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
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 $ = $270/mo accruing interest not paid Capitalized when leave IBR or no PFH
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
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
Loan Forgiveness Yes, after 25 years (300) eligible payments under IBR If $0 calculated payment, payment counts Currently considered a taxable event
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)
Questions – IBR? Moving right along…
Loan Forgiveness for Public Service Employees
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)
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.
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
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!
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
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?
Stay Tuned! More to Come. Economy? Get Excited!
To watch out in the future HCERA -Health care and Education Reconciliation Act of P.L New Borrowers after July 1, 2014 PFH if payments above 10% of income above 150% of poverty level Forgiveness after 20 years, not 25
Resources studentaid.ed.gov and fact sheets and q & a IBRinfo.org finaid.org equaljusticeworks.org
Stephen G. Brown Fordham University School of Law 33 West 60 th Street New York, NY