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					      Federal Loan
      Forgiveness
      - the New Reality
Law School Admissions Council

May 29, 2009
Stephen G. Brown
Fordham Law School
Federal Financial Aid
 Morrill Acts
 Serviceman’s Readjustment Act of 1944
 Sputnik and National Defense Student Loans
 Great Society – Need Based Financial Aid
 21st Century – what is need?
 Who benefits?
 Loan Forgiveness
Federal Loan Forgiveness
Yes it is true!
             2 Flavors

College Cost Reduction and Access Act
of 2007 PL 110-84

College Opportunity and Affordability Act
of 2008 PL 110-315
               2007 CCRAA
College Cost Reduction and Access Act
  PL 110-84 (September 27, 2007)
  Many Provisions
     Change in Need Analysis
     Increase in Pell Grant for undergrads
     Stafford interest rate reduction for undergrads
     Changes to undergrad PLUS lenders – auctions
     Lender revenue reductions
         Higher fees to lender, lower special allowance, lower
         default reimbursement, Economic Hardship Deferment
     Public Service
     Federal Loan Forgiveness
     And more…
College Cost Reduction and Access Act
  New Federal Loan Repayment Programs

P. L. 110-84 provides:
  New Income Based Repayment (IBR)
  program for FFELP and Direct Loan
  borrowers as of July 1, 2009
  New loan forgiveness program for those
  who are employed full-time in qualifying
  public service jobs AND making qualifying
  loan payments on Federal Direct Loans
Definitions
 Federal Loan
    Stafford, Perkins, Grad PLUS, others
    FFELP or Direct
 Please Note: BAR Loans and Other Private Education
 Loans can not be included in IBR
 Income
    AGI
       If married filing jointly – joint income
       If married filing separately – only borrower income
 Effective July 1, 2009
 25 Year forgiveness versus 10 year Public Service Forgiveness

 Taxation of Forgiveness – Rep Sander Levin Letter
    and HR 7098
FFELP
  Perkins, Stafford, Unsub Stafford, GradPLUS
  Federal Consolidation Loan
  Not parent undergrad PLUS
FDSLP
  Ford Federal Direct, Unsub, Direct GradPLUS
  Federal Direct Consolidation Loan
     ONLY FEDERAL DIRECT ELIGIBLE FOR
     PUBLIC INTEREST FORGIVENESS !!
Note: no private or bar loans !
Economic Hardship
 Borrower in repayment is experiencing partial
 economic hardship when…
          Loan payments exceed
 15% of income above 150% of poverty level

 Borrower experiencing partial economic
  hardship may elect to pay under Income
  Based Repayment (IBR)
Poverty Levels 2009


    Family Size      Amount        150%

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!
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
  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 List job language
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…
 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
 Tax issues
 Guaranteed forgiveness?
 Record keeping

 What if life happens?
College Opportunity and Affordability Act

  PL 110-315 (August 14, 2008)
  Loan Forgiveness
    3 New Programs
    Section 430 - Loan Forgiveness for Service
    in Areas of National Need Program
    Section 431 -Loan Repayment for Civil
    Legal Assistance Attorneys Program.
    The COAA also amended the Omnibus Crime
    Control and Safe Streets Act of 1968 to
    provide Loan Repayment Assistance for
    Prosecutors and Public Defenders
Section 430
Loan Forgiveness for Service in Areas of National Need
  Maximum $2,000 annually
  Maximum total -$10,000 and 5 years
  Public Sector Employees
  Public interest legal services
      prosecution
      public defense
      legal advocacy in low-income communities at a nonprofit
      organization
      For other areas of National Need, see 20 USC 1078-11.
  Borrowers will not qualify for other federal loan forgiveness for
  the same service
Section 431
Loan Repayment for
Civil Legal Assistance Attorneys
  -Licensed to practice law
  employed full-time
  Maximum $6,000 in a calendar year
  aggregate total of $40,000 per borrower.
  Must sign a written agreement with the Secretary of Education stating
  that you will remain employed for not less than three years. This
  Agreement may be extended beyond the required period by entering a
  new written agreement.
  Awards will be made on a first come, first served basis and subject to
  availability of funding.
  Parent PLUS Loans are excluded, as well as Consolidation Loans
  which paid off a Parent PLUS Loan
Safe Streets
Loan Repayment Assistance for Prosecutors and
  Public Defenders
  Licensed to practice law
  Employed full-time as state or local criminal prosecutors or state, local
  or federal public defenders in criminal cases
  Maximum $10,000 Annual Federal Loan Repayment assistance
  Maximum aggregate total of $60,000 per borrower.
  Must sign a written agreement specifying that you will remain employed
  as a prosecutor or public defender for a required period of service of
  not less than three years unless involuntarily separated.
  An additional agreement may be entered into for a successive period of
  service which may require you to remain employed as a prosecutor or
  public defender in order for you to obtain additional benefits. However,
  the successive period may be for less than three years.
  Priority will be given to those who have the least ability to repay their
  loans, and awards are subject to availability of funding.
Regulations?
 All new provisions sound great!
 “Devil is in the details”
 Waiting for Regulations
 Waiting for start date
 Implementation issues?
Stay Tuned!
More to Come.
Economy?
Get Excited!
Stephen G. Brown
Fordham University
School of Law
140 West 62nd Street
New York, NY 10023
212 636-7178
sbrown@law.fordham.edu

				
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