monthly payment calculation formula by sburnet2

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									Interested in pursuing a career in
public service after law school?

Worried that your salary won’t
allow you to pay your monthly
loans and afford food, rent, and gas?
                             Help Is Here!
In September 2007, President Bush signed the College Cost 
Reduction and Access Act of 2007 (“CCRAA”) into law.
The basics of the CCRAA:
  May allow you to pay your monthly loans at a greatly reduced 
  rate *

  May completely forgive your federal loans after 25 years of 
  reduced payments**

  May completely forgive your federal loans after 10 years of 
  reduced payments and “public service” **

*   Qualifying for a reduced rate depends upon an equation covered below
** Only applicable federal law school and undergraduate loans qualify
Why the CCRAA is so Important
                    The Numbers:
                80% ‐ Percentage of students 
                that borrow to pay for law 

                $78,763 ‐ Average amount 
                borrowed at private law 

                $51,056 – Average amount 
                borrowed at public schools

                65% ‐ Percentage of students 
                that bring undergraduate debt 
                into law school ($45,000 
 The Life of a New Public Service Lawyer 
           (before the CCRAA)
                      Public School    Private School
                      Graduate         Graduate

Average Starting
Salary                     + $38,000        + $38,000

Estimated Monthly
Take Home Pay               + $2,100          + $2,100

Estimated Monthly
Loan Payment                  - $630          - $1,013

Monthly Available
Income for Food,            + $1,481         + $1,098
Housing and Savings
 “How Do I Qualify For Reduced Payments?”
The CCRAA uses a program called Income‐Based Repayment 
The Idea – To help high‐debt/low‐income borrowers afford 
their monthly (or yearly) loan payments
The Equation: Repayment based on 15% of borrower’s 
discretionary income
    15% x (yearly adjusted gross income – 150% of poverty level)/ 12 
    months = your reduced monthly payment under IBR
    Poverty Level: depends upon family size and city you live in.  See

    Continued on next slide
 Continued: “How Do I Qualify . . .”
Qualifying – After doing the equation, if your monthly 
payment is lower than it would be under a ten‐year repayment 
plan, then you qualify for reduced payments under IBR

Note: Reduced payments under IBR will not be available until    
July 1, 2009
Note:  Interest continues to accrue while you use IBR to make 
lower monthly payments, but the interest is not added to the 
principal unless and until you are no longer eligible for IBR
Note: Borrowers do not need to work as lawyers to qualify for 
IBR’s reduced payments
                   Forgiveness Under IBR

      If you make reduced payments through IBR for 
      25 years, the federal government will forgive 
      your remaining federal loans* after the 25th year

           See slide 9 for more details

* Qualifying Loans: Stafford and GRAD PLUS, but not Parent PLUS. Perkins 
   loans may also apply
Note: Borrowers do not need to work as lawyers to qualify for forgiveness under 
                             Here’s an Example

                                  Joe’s Debt: $100,000
                                 Joe’s Income: $40,000
                            Poverty Level in Joe’s Area: $10,210 
                        Joe Owes (10‐year plan): $1,155 per month
Joe is a recent Law
School Grad who
has $100,000 worth            Under IBR, Joe Now Owes:
of Law School debt
                      15% x ($40,000 ‐ 15,315)/12 months = $309 p/month
                         Joe Gets a 3% raise in his second year = $318 
                                 After 10 Years: $403 p/month
                                    25 Years: $627 p/month
                      Graph of IBR Forgiveness
      (Borrower enrolled in IBR for 25 years, but did not work in public service 
                                    for 10 years)

Starting  Annual        Monthly    Monthly  Monthly              Total     Amount 
Income      Salary        IBR        IBR         IBR            paid as    Forgiven 
 (AGI)    Increases    Payments,  Payments,  Payment            of Year      after 
                         Year  1   Year  10  s, Year  25           25       Year 25

$35,000   3%           $246          $321         $500         $107,655    $162,345
$40,000   3%           $309          $403         $627         $135,000    $134,858
$50,000   3%           $434          $566         $881         $189,688    $68,012
$55,000   4%           $496          $729         $1151        $213,228    $1,777

   Note: Numbers based on a single borrower with $100,000 in debt at 6.8%
 (standard repayment would require monthly payments of $1151 for 10 years,
                            totaling $138,097)
“When Am I No Longer Eligible for
 Reduced Payments Under IBR?”
When the amount due (each month) exceeds 
the standard plan, you no longer qualify for 
reduced payments  
  Then, you simply pay under a standard 
  payment plan, based on the original amount 
  owing, not the higher new balance
 “If I Do Not Use IBR or If I Start and
 Stop Using IBR, Do I Still Qualify for
          Debt Forgiveness?”
Yes, payments made in a standard plan count 
towards the 10‐year public service requirement for 
debt forgiveness*
But, at the end of the 10 years, you only get 
forgiveness of the portion that you did not pay for, 
in the years that you were making reduced 
  * “Public Service”/ICR debt forgiveness covered 
  further below
“How Do I Qualify For Debt Forgiveness
           After 10 Years?”
You must make 120 payments after October 1, 2007, while 
employed full‐time in a “public service” job
   120 monthly payments = 10 years

These payments can be the low payment required by IBR, the 
somewhat higher payments under a different plan called “income‐
contingent” repayment (ICR), or a standard 10‐year repayment 
   But, to the extend that you use a standard 10‐year repayment program, 
   there will be no balance for the government to forgive after 10 years
       Note: Borrowers need not work as lawyers to qualify for forgiveness
       Note: ICR is a faster‐pay formula than IBR, so there will be less 
       interest accrued in the long run.  ICR is also available immediately.

     Continued on next slide
  Cont’d: “How Do I Qualify For Debt
    Forgiveness After 10 Years?”
“Public service”: The term includes all full‐time 
employment by government agencies (including emergency 
management and law enforcement) and tax exempt 
organizations, i.e. 501(c)(3)’s
  Note: Over the next year, the Dept. of Education will issue regulations 
  that determine how broadly (or narrowly) this term will be interpreted

Loan category: To use ICR, borrowers must have Federal 
Direct Loans or Federal Direct Consolidation Loans
  Federal Direct Loan recipients do not need to consolidate.  
  Federal Family Education Loan (FFEL) recipients must consolidate
  into a Federal Direct Consolidation Loan for their subsequent 
  payments to qualify towards the 10 years for public service forgiveness. 
 “What Loans Can Be Forgiven under
           the CCRAA?”
Eligible Government Loans:
  Stafford Loans
  Grad PLUS (for cost of attendance 
  minus other estimated financial 
  Perkins loans may also qualify

Ineligible Government Loans:
    Parent PLUS (parents borrow to 
      help pay for your education 
          Graph of ICR Forgiveness Borrowers
      (Borrower who performed 10 years of public service)

Starting    Annual      Monthly    Monthly    Total         Amount 
Income      Increases   Payments,  Payments,  paid          Forgiven 
(AGI)                   year  1    year  10   during 10     after  10 
                                              years         years

$35,000     3%          $246       $321         $33,850     $134,150
$40,000     3%          $309       $403         $42,448     $125,552
$50,000     3%          $434       $566         $59,644     $108,356
$55,000     4%          $496       $729         $72,715     $56,019

   Note: Numbers based on a single borrower with $100,000 in debt at 6.8%
 (standard repayment would require monthly payments of $1151 for 10 years,
                            totaling $138,097)
        Here’s a Public Service Example

                    Jane owes: $200,000*
                    Jane makes: $42,000 (3.5% annual 
                    Jane’s 1st year monthly payment: $334
Jane took out       Jane’s 10th year monthly payment: $466
loans for           Total 10 year repayment: $45,572 
undergrad and
graduate            Total Forgiven After Year 10: $288,428
studies, before
attending law
school.           * Prior educational debt must be consolidated into a “federal 
                    consolidation loan” before qualifying for ICR’s 10‐year 
              10‐Year Forgiveness Recap
After 120 qualifying monthly payments and full-time “public
service” work, your federal loans will be completely forgiven
10 years of “public service” do not have to be consecutive
You do not have to receive reduced payments for all ten years
to qualify for 10-year forgiveness of the remaining balance
The term “public service” has not been fleshed out in
regulations yet, but by statute includes full-time employment for
government agencies and tax-exempt 501(c)(3) organizations
Since IBR is not fully available until July 1, 2009, borrowers may
make reduced payments at a higher level under ICR, and the amount
not paid because of ICR can be forgiven after ten years of service.
Speak with a financial aid professional for further information.
           IBR Reduced Payment Recap
IBR was created to help borrowers working in low‐income jobs to 
afford their monthly loan payments
Monthly IBR repayments based upon 15% of the borrower’s 
discretionary income: 
   .15 times (yearly salary minus 150% of the poverty level) / 12 months
   = monthly payment

If the IBR payment is lower than payment under a traditional plan, 
you qualify for IBR 
Interest accrues on the principal debt while enrolled in IBR but is 
not capitalized until the borrower leaves ICR, which limits 
The federal government will forgive qualifying remaining qualifying 
debt after the 25th year, even without public service
            What Can I Do To Help?
Toolkit: Visit soon to find the 
Law Student Division’s toolkit on IBR/ICR
  The toolkit will help you to inform students at your school 
  about how IBR and ICR can work for them

ABA Day: Join the Law Student Division April 16‐17 for the 
ABA’s lobbying day on Capitol Hill in Washington, D.C. 
     Email our Division Delegates (contact information below)

Personal Story: Visit to tell 
your personal story on important issues facing law 
Hopefully this slideshow gives you a basic understanding of the 
College Cost Reduction and Access Act of 2007

Consult with your school’s Financial Aid Department before 
deciding to repay through IBR or ICR because each borrower 
has a different financial situation and to find out about 
Congressional updates to these programs

For a more in depth look at these programs, please read 
Georgetown Law Professor Philip Schrag’s Hofstra Law Review 

For more information, please visit
                      Thank You’s

The Law Student Division (ABA‐LSD) thanks the following 
persons for collaborating to create this presentation and 
for helping to coordinate our loan repayment lobbying 
  Ken Goldsmith, ABA Legislative Counsel
  Philip Schrag, Professor of Law at Georgetown University and Vice 
  Chair of the Committee on Government Relations and Student 
  Financial Aid of the ABA’s Section of Legal Education
  ABA‐LSD Delegates and Chairs over the past seven years
  Patty Brennan, ABA Law Student Division Director
  Carol Simmons, ABA Marketing and Technology Manager
Marc Baranov, Southwestern Law School :
Ashley Ligas, Florida State University:
Chris Sprowls, Stetson University:

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