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Repayment Options for staff WEBEX by jolinmilioncherie


									                                                                                        Please note that this Power Point presentation is an educational tool
                                                                                           that is speculative in nature. It is not intended to be an exhaustive
                                                                                          review of the Department of Education’s laws and regulations and it
                                                                                            not intended to provide legal advice. Materials presented in thi s
Loan Repayment Options – Featuring Income-Based                                               presentation should not be considered a substitute for actual
Repayment                                                                                 statutory or regulatory language. Always refer to the current edition
                                                                                             of a referenced statute, or regulation for precise language and
                                                                                                     consult with your own attorney for legal advice.

    Presented by: American Student Assistance


                                                                                Standard Repayment
                                                                                    •    Minimum monthly payment is $50.

    •     Review of loan repayment options
                                                                                    •    Monthly payment will likely be more than $50 to ensure loan is
                                                                                         repaid within 10 years
    •     Focus on Income Based Repayment (IBR)

            – Understanding IBR                                                     •    Keeps finance charges to minimum

            – Identifying and defining key terms                                    •    Most cost effective repayment option – borrower pays the lowest
                                                                                         amount of interest
            – Discussing how IBR works

                                                                                    •    Default repayment plan if borrower doesn’t choose another

    ASA Confidential and Proprietary Information
3                                                                               4

Graduated Repayment                                                             Extended Repayment

    •     Payments start smaller, $30 is the minimum monthly payment,               •    For borrowers with more than $30,000 in loan debt
          and gradually increase throughout repayment
                                                                                    •    Payment amounts can either be fixed or graduated

    •     Good alternative if the borrower ’s income is likely to increase in
                                                                                    •    Maximum repayment term is 25 years
          the future

                                                                                    •    Minimum monthly payment is $50
    •     Maximum repayment term is 10 years; however, the lender/holder
          may extend the term up to 4 additional years in certain cases             •    More expensive because extending repayment term increases the
                                                                                         interest paid

    ASA Confidential and Proprietary Information
5                                                                               6

     IBR Background                                                                   General

     •   IBR = Income Based Repayment
                                                                                      •     IBR is available to those borrowers who have a
     •   New repayment plan introduced by the College Cost                                  partial financial hardship (PFH)
         Reduction and Access Act (CCRAA)
                                                                                      •     Monthly payments are capped at 15% of a borrowers
     •   Available to FFELP and DL borrowers July 1, 2009 who                               discretionary income
         have a partial financial hardship
          – Replacing options 5 & 6 on the Economic Hardship                          •     IBR offers borrowers forgiveness of debt after 25 years (300
            form which will no longer be available to borrowers                             eligible payments)

                                                                                      ASA Confidential and Proprietary Information
7                                                                                8

     Loan Eligibility                                                                 Partial Financial Hardship (PFH) Determination

                Eligible Loans                      Ineligible Loans
                                                                                      •     When a borrower’s amount due on all eligible loans (based on the
     •Stafford                            •Parent PLUS loans                                standard-standard) exceeds 15% of their discretionary income
         –Subsidized and                  •Federal Consolidation loans that
         Unsubsidized                     include a Parent PLUS loan                  •     Verified every year
     •Grad PLUS                           •Perkins, HPSL, and HEAL loans
     •Federal Consolidation loans         unless included in a Consolidation          •     Borrower must provide permission for IRS to disclose AGI
         –May include Perkins, HPSL                                                         information “and other tax return information” as well as family size
         and HEAL loans                   •Private, state, and other loans not              certification
         –May not include Parent          guaranteed by the Federal                          – IRS Tax Form 4506-T
     •SLS                                                                             •     Can remain in IBR even if no longer determined to have PFH

9                                                                                10

     Discretionary Income                                                             2010 Federal Annual Poverty Limits (FPL)

     •   15% of the difference between the borrower ’s adjusted gross                     Number in Family /                         Poverty Guideline   150% of poverty
         income (AGI) and 150% of the federal poverty level (FPL).                           Household                                                      guideline
          – 15% [Monthly AGI – (150% FPL for family size)]                                       1                                       $10,830            $16,245
          – Monthly payments will be capped at this amount when a
                                                                                                            2                            $14,570            $21,855
            borrower is experiencing a PFH
                                                                                                            3                            $18,310            $27,465
     Example:                                                                                               4                            $22,050            $33,075
       Monthly AGI = $3,600
       Family Size = 3                                                                                      5                            $25,790            $38,685
                                                                                                            6                            $29,530            $44,295
         150% FPL for Family of 3 = $2,288.75
                                                                                                            7                            $33,270            $49,905

     Monthly Discretionary Income = 0.15 x (3,600 - 2,288.75)                                               8                            $37,010            $55,515
                                   = 0.15 x 1,311.25
                                                                                      Alaska and Hawaii have higher poverty guidelines
                                   = $196.69
11                                                                               12

     Income Information                                                             Family Size Information

     •    Borrower’s will need to submit a Tax Form 4506-T                          Includes:
          that will verify the borrower ’s Adjusted Gross Income (AGI)                   – Borrower
                                                                                         – Spouse
     •    Married borrowers:                                                             – Children
          – Borrower who files married/joint tax return à Both spouses’ AGI              – Unborn children if born during the certification year, and
            are considered in determining payment amount                                 – Others who live with the borrower and receive more than 50%
               • NOTE: Currently student loan debt is not combined, but this               support during that year
                 changes as of July 1, 2010                                                 • Support includes money, gifts, loans, housing, food, clothes,
                                                                                              car medical and dental care, and payment of college costs
          – Borrower who files married/separate tax returns à Only
            borrower’s AGI and debt are considered in determining payment           •   If family size is not provided, it will be set to the default of 1
            amount                                                                       – Will be evaluated annually

     •    Will be evaluated annually
13                                                                             14

                                                                               Key Term – Standard-Standard

                                                                                    •   10 year Standard payment amount calculation

         IBR Key Terms
                                                                                    •   Calculated for all borrowers when they enter repayment, regardless
                                                                                        of what repayment plan they choose

                                                                                    •   This amount is used to determine the eligibility of any payments
                                                                                        made outside of IBR repayment plan that may count towards the 25
                                                                                        year (300 payment) forgiveness


Key Term – Permanent -Standard                                                      Key Term – Expedited-Standard

     •    Calculates a new 10- year term on the borrower’s                          •   Calculates the remaining term based on a standard
          outstanding principal balance at the time they enter IBR                      repayment plan, based on the loan type
           – Lenders must calculate this for borrowers immediately                       – Stafford and Grad PLUS = 10 years
             preceding entering IBR                                                      – Consolidation = up to 30 years based on original loan balance

     •    This is the maximum payment amount the borrower will ever have to         •   Calculated as soon as the borrower voluntarily elects to leave IBR
          make in IBR                                                                   plan

     •    Minimum monthly $50 payment                                               •   Months spent in IBR are included in time spent in repayment
                                                                                        – ED has clarified that a borrower MUST enter an expedited-
                                                                                          standard plan once leaving IBR, but not required to stay in that
                                                                                          plan if there is time available in other plans

17                                                                             18

 Expedited-Standard – Example 1                                                 Expedited-Standard – Example 2

     Loan type: Stafford                                                            Loan type: Stafford
     Total Eligible Loan Amount: $30,000                                            Total Eligible Loan Amount: $30,000

     Entered Repayment: July 1, 2008                  Amount Paid: $3,000           Entered Repayment: July 1, 2008                     Amount Paid: $3,000
     Standard Plan Monthly Payment: $250              Outstanding: $27,000          Standard Plan Monthly Payment: $250                 Outstanding: $27,000

     Borrower entered IBR: July 1, 2009               Amount Paid: $7,200
                                                                                    Borrower entered IBR: July 1, 2009                  Amount Paid: $10,800
     Borrower IBR payment: $100                       Outstanding: $19,800
     Borrower elects to leave IBR: July 1, 2015                                     Borrower IBR payment: $100                          Outstanding: $16,200
                                                                                    Borrower elects to leave IBR: July 1, 2018
     Time Spent in Repayment: 7 years                                               Expedited-Standard
     Time Remaining in Standard Repayment Plan: 3 years (36 months)                 Time Spent in Repayment: 10 years
     Monthly Payment: Outstanding Balance ÷ Time Remaining                          Time Remaining in Standard Repayment Plan: 0 years
                      = $19,800/36 = $550                                           No time left: $16,200 – Due immediately
19                                                                             20

                                                                                    Borrower Application

                                                                                •       Must complete a Common Application
 How IBR works…
                                                                                •       Borrower will need to complete an IRS form 4506-T
                                                                                         – Authorizes lender to request borrower ’s AGI from the IRS

                                                                                •       Borrower will need to verify Family Size

                                                                                •       Borrower will need to annually certify PFH eligibility


                                                                                    Recalculation of Payment Amount
     PFH Eligibility and Verification
                                                                                    •   Occurs when:
                                                                                         – Borrower no longer has a PFH
     •   Eligibility and minimum monthly payments are re-evaluated annually              – Changes to a borrower’s financial situation
                                                                                         – No longer wants IBR
     •   Even if a borrower no longer has a PFH, they may elect to remain in
                                                                                    Borrower elects to remain in IBR:
          – Borrower will be placed in a Permanent-Standard repayment
            plan                                                                    • Maximum monthly payment may not exceed Permanent-Standard
                                                                                    • Repayment period may exceed 10 years

                                                                                    Borrower voluntarily elects to leave IBR:
                                                                                    • Repayment period is limited to the remaining time they have left in
                                                                                        – Expedited-Standard
23                                                                             24

     Payment Amount Calculation                                                  General IBR Payment Calculations

 Same as discretionary income:
 • 15% [Monthly AGI – (150% FPL for family size)]                                                                                         Apply $0 or $10
                                                                                                                                          rule as applicable

 Amount is less than $5
 • Payment = $0

 Amount is greater than or equal to $5 but less than or equal to $10
 • Payment = $10

 Adjusted annually based on family size and AGI


25                                                                          26

     $0 Payments                                                                 Multiple Loans/Holders

     •   Considered a payment – Borrower will be considered to be in good
         standing                                                                •   Borrower must contact each loan holder separately

     •   Cannot become delinquent                                                •   Loan holders may use NSLDS to determine amount owed on all
                                                                                     eligible loans held by that borrower
     •   Months with a $0 payment will be reported to consumer reporting
         agencies as “deferred” or “repayment”                                   •   Loan holder will determine the IBR payment amount and prorate
                                                                                     based on the principal amount held by that holder
     •   A borrower can not prepay a $0 monthly payment amount                        – Loan holder will apply to all eligible loans held, unless specified
                                                                                        by borrower

27                                                                          28

                                                                                 Interest Accrual

                                                                                 •   Accrues as normal
IBR Interest
                                                                                 •   Borrower’s payment under PFH may be less than interest
                                                                                     accrued – Negative amortization
                                                                                      – Subsidized loans are eligible for a subsidy for the first 3
                                                                                      – Unsubsidized loans will build up and may eventually


     Interest Subsidy                                                                Interest Subsidy - Example
     •   If a borrower’s PFH payment is less than the amount of monthly
         interest accrued, ED will pay the difference for up to 3 years              Borrower has all Subsidized Stafford Loans

     •   Eligible loans:                                                             Borrower payment under IBR = $40
          – Subsidized Stafford loans
          – Portion of Consolidation loan that is subsidized                         Monthly accrued interest = $75

     •   Subsidy will only occur when a borrower is on IBR                           ED will pay: $35

     •   Is applied at the loan level                                                     Payee          July 1         August 1        September 1
          – Loans entering at different times will each get a full 3 years               Borrower         None            $40                 $0
                                                                                                    (borrower missed)              Borrower enters Economic
                                                                                                                                      Hardship Deferment
     •   Subsidy will continue even if the borrower exits PFH, consolidat es
                                                                                           ED             $35             $35                 $0
         their loan, or misses a payment
          – Only exception: Period of Economic Hardship Deferment
31                                                                              32

     Interest Capitalization

     •   Unsubsidized loans, and subsidized loans after 3 year subsidy
          – Interest will accrue and “build up”, and in certain circumstances
            will capitalize                                                     IBR Information to Borrowers

     •   Capitalization will occur when:
          – A borrower no longer has PFH
          – When a borrower leaves IBR and enters an Expedited-Standard
            repayment plan


     New Disclosure Requirements                                                     New Exit Counseling Requirements

     •   Lender must provide a notice that informs borrowers of
         IBR at time of:
                                                                                     •   Must include information about repayment plans available
          – Offering the borrower a loan
          – Offering a borrower repayment options
                                                                                     •   Information specific to IBR, including:
                                                                                          – Description and features
     •   Notice must include:
                                                                                          – Sample information including average anticipated monthly
          – Borrower eligibility of Income-sensitive repayment (ISR) and that
                                                                                             payments, and
            the borrower may be eligible for IBR, including through loan
            consolidation                                                                 – Difference in interest paid and total payments
          – Procedures for borrower to elect ISR or IBR, and
          – Where and how to obtain more information about ISR or IBR

     •   May be provided as a separate notice or as part of other disclosures

35                                                                              36

                                                                                  Eligibility for Forgiveness

                                                                                  •   25 years must have elapsed
                                                                                       – Borrower may prepay, but must wait 25 years
     IBR Forgiveness
                                                                                       – No forgiveness until July 1, 2034

                                                                                  •   300 eligible payments must have been made on or after July 1, 2009
                                                                                       – May include Economic Hardship Months

                                                                                  •   Borrower must have received a PFH IBR repayment plan at least
                                                                                       – Borrower does not need to be in a PFH in order for to receive

                                                                                  •   Currently, any loan portion forgiven will be taxable

     Eligible Payments                                                            Non-eligible Payments

     •   300 payments may include all payments made on or after July 1,
         2009 that:                                                               •   Payments made while in default
          – PFH payment made under IBR including $0 payment amounts
          – Payments made at the permanent-standard amount (while in              •   Payments made during rehabilitation
          – Any payment made that is at least at the standard-standard            •   Payments made out of IBR less than the standard-standard amount
            amount (outside of IBR umbrella)
          – Each month in which borrower was on an Economic Hardship              •   Payments made under IBR umbrella (but outside of PFH) in an
            Deferment                                                                 amount less than permanent-standard

     •   As long as a payment is eligible it may be counted, even if made         •   Payments made before July 1, 2009
         before borrower is in IBR

     •   Payments do not have to be consecutive

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     Clocking 25 Years

     •   Begins no earlier than July 1, 2009

     •   Begins the date the borrower made an eligible payment or received
         an Economic Hardship Deferment                                           Resources

     •   Borrower who did not make payments or do not receive an
         Economic Hardship Deferment before receiving IBR, 25 years
         begins the date the borrower makes a payment under IBR

     •   If a borrower consolidates, 25 years restarts at the time of
          – Underlying loan payments (even if they are eligible payments)
             are not counted


     •   NCHELP Website – IBR Initiatives

     •   IBR Implementation Guide
     •   34 CFR §682.215

     •   HEA §493C




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