1. Income Based Repayment and Public Service Forgiveness David Dahlen Director of Student Financial Aid/Registrar Mayo Clinic, College of Medicine dahlen.david@mayo.edu

2. Who is in the Audience? Experienced? – Know all there is about IDRs – Attending because there is nothing more interesting on the Agenda? New? – NEW to FA – Confused about IDRs? – Attending because there nothing more interesting on the Agenda? 2

3. Give Credit where Credit is Due Some, not all of these slides are from the IDR/PSLF session at the 2014 FSA Conference. Thank you to USDOE All of us are smarter than any of us. – Correct me! – Add to the conversation. 3

4. Agenda What is Income Driven Repayment – Key Terms – Example – Core Concept Public Service Loan Forgiveness – Key Terms – Examples – Core Concepts – Proposed Changes Questions

5. How is a “standard” payment calculated? Amount Borrowed Interest Rate Amortization Schedule – IDRs looks at none of these factors.

6. What is IDR? Income Driven Repayment are payment options for federal student loans that uses Income, Family Size and Location to determine payment. Past, Current and Future Borrowers Monthly payment is based on income and family size, not debt, term and interest rate. After 25 years; any remaining balance is forgiven Available for all borrowers (past, current future)

7. Three Main Plans Three main plans Income-Contingent Repayment Plan (ICR) – 1994 Direct Loan Program only 20% of Discretionary Income Income-Based Repayment Plan (IBR) – 2009 Available in both the Direct Loan and FFEL Program 15% of Discretionary Income Pay As You Earn Plan (PAYE) – 2012 Direct Loan Program only For new borrowers in FY 2008 who receive new loans in or after FY 2012 10% of Discretionary Income Negotiated rulemaking in 2015 7

8. Eligible Loans: Eligible – Stafford (DL and FFELP), SLS, Grad PLUS, Consolidation* – Perkins; if included in a Consolidation Loan Not Eligible – Parent PLUS – Consolidation Loan that contain Parent PLUS – Private/Alternative Loans ~ MN SELF

9. AGI Borrower who files married/joint: both spouse’s AGI are considered in determining payment Borrower who files married/separate: only the borrower’s AGI is considered in determining payment amount

10. Family Size Certified Annually Includes borrower, spouse, children and unborn children and others who live in the household: receiving >50% support. Family size defaults to one (1) if borrower does not provide required information.

11. Who Qualifies? Borrowers who have enough debt relative to income (AGI) to qualify for a reduced payment. This is called a Partial Financial Hardship (PFH) What does that mean?

12. Partial Financial Hardship (PFH) Occurs when the annual amount due on all of the borrower’s eligible loans (based on a 10 year payment plan) exceeds a 15% (in IBR) or 10% (in PAYE) of the difference between the borrowers adjusted gross income (AGI) and 150% of the poverty guideline for the borrower’s family size.

13. IBR Payment Details 15% option First: Determine Income Protection Based on the Poverty Level $11,770 X 1.5 = $17,655 Second: Calculate Disposable Income: Income – 150% of Poverty Level $51,404 - $17,655 = $33,749 Third: Calculate Annual Student Loan Payment Disposable income X 15% $33,749 X.15 = $5,062.35 (annual payment) Divide the annual payment by 12 to get the monthly payment: IBR Payment = $421.86

14. PAYE Payment Details 10% option First: Determine Income Protection Based on the Poverty Level $11,770 X 1.5 = $17,655 Second: Calculate Disposable Income: Income – 150% of Poverty Level $51,404 - $17,655= $33,749 Third: Calculate Annual Student Loan Payment Disposable income X 10% $33,749 X.10 = $3,374.90 (annual payment) Divide the annual payment by 12 to get the monthly payment: PAYE Payment = $281.24/month

15. Quick Rule If a borrower’s “student loan debt” is more than the annual income; you probably qualify for Income Driven Repayment Student Loan Debt includes PRIVATE LOANS!

16. Several IDR Options Income Contingent Income Based – Any FFELP or DL Borrower Pay As You Earn – You are a new borrower on or after October 1, 2007; and – You received a disbursement of a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a student Direct PLUS Loan as a graduate or professional degree student on or after October 1, 2011 16

17. Poverty Guidelines 2015 Federal Poverty Guidelines for 48 contiguous states and DC Slightly higher amounts for residents of Alaska or Hawaii Quick Fact: If income is below these levels x 150%, the monthly payment with IBR would automatically be “zero” – These months count toward the 25 year max for forgiveness Family SizePoverty Guideline 1$11,770 2$15,930 3$20,090 4$24,250 5$28,410 6$32,570 7$36,730 8$40,890

18. Time for an example: Paul is single and has $20,000 in Federal Subsidized Stafford Loans (all debt is at 6.8%) Paul earns $25,000 per year

19. Standard Repayment $20,000 @ 6.8% for 120 payments = $230 per month

20. Standard vs. IBR Standard 10 year pmt: $230 per month Borrower is covering all accrued interest. IBR Payment $109.41 per month Interest is $113 per month Feds pay the difference Principal is not reduced.

21. More on Paul Question: – What if Paul had eligible debt of $60,000? Answer: – His payment would still be $110 per month…. Remember income and family size determines the monthly payment.

22. Paul…continued As Paul’s salary goes up; so does his student loan payment. This will happen until the partial financial hardship is gone. Meaning; the IBR calculation yields a monthly payment of more than $230 per month (the original ten year payment).

23. Recalculation of Payment Payment Determination is reviewed annually If borrower no longer qualifies for PFH the maximum monthly payment must not exceed the monthly payment calculated under a 10 year repayment plan at the time the entered IRB.

24. How are payments applied? The payment is split proportionately between sub and unsub loans.

25. Interest Subsidy If the monthly payment under IBR does not cover the interest due the interest is paid on the borrower’s behalf by DOE. – SUBSIDIZED LOANS ONLY! 36 months maximum Unsubsidized loans always accrue interest.

26. Unpaid/Accruing Interest After 36 months, interest on the subsidized loan is no longer paid on the borrowers behalf. Interest will be capitalized Debt will grow IRB allows borrowers to manage payments and thereby avoid default

27. Forgiveness … Borrower must have had PFH in IBR at least once – Note…you don’t have to always be in PFH Borrower must have made 300 eligible payment over 25 years – Can not “pay ahead” – If you consolidate, the clock starts over – No forgiveness will be granted prior to July 1, 2034 Any loan amount forgiven is taxable under current regulation.

28. Questions on IDR …

29. Public Service Loan Forgiveness

30. PSLF Here’s a good way to think about PSLF: Right Loans +Right Payments (number & type) +Right Work =Public Service Loan Forgiveness

31. What is PSLF? College Cost Reduction and Access Act of 2007 created this program Direct Loan Program – ONLY Periods of Deferment and Forbearance do not count Discharges any remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 actual payments Payments are retroactive to October 1, 2007, if the payment was made on a Direct Loan.

32. What is Public Service Employment? Eligible Jobs Include: – Federal, State, Local, or Tribal Government military, public schools, police, fire fighters But not members of Congress … – Full-Time AmeriCorps or Peace Corps – Tax-Exempt 501(c)(3) organization

33. What Kind of Payments Count? Standard Repayment (10 year) Income-Driven Repayments – Income Contingent – Income Based – Pay As You Earn

34. PSLF Payments 34 Multiple partial payments Payments made when not required Lump sum payments Count as one payment All must be received within 15 days of due date Do not qualify Example: deferment, forbearance, paid ahead Count as one payment Exceptions for AmeriCorps and Peace Corps borrowers

35. Forgiveness Remember this is PSLF is only available in the Direct Loan program Under current rules; the amount forgiven is not a taxable event

36. Some Proposed Changes Capping Forgiveness at $57,500 – Cost a lot of money! Only Payment made while in a PFH will count toward PLSF – Target PSLF for those who “really need it” Negotiated Rule Making – Happening NOW – ONE Income Driven Repayment Plan REPAY ~ 4-29-2015 36

37. Questions? 37