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Loan Repayment Options - Slide 1

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									Loan Repayment Options –
Featuring Income-Based
Repayment
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 this presentation should
  not be considered a substitute for actual 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.

ASA Confidential and Proprietary Information
Objective

• Review of loan repayment options

• Focus on Income Based Repayment (IBR)

      – Understanding IBR

      – Identifying and defining key terms

      – Discussing how IBR works

ASA Confidential and Proprietary Information
                         Standard Repayment
• Minimum monthly payment is $50.


• Monthly payment will likely be more than $50 to ensure loan is
  repaid within 10 years


• Keeps finance charges to minimum


• Most cost effective repayment option – borrower pays the lowest
  amount of interest


• Default repayment plan if borrower doesn’t choose another

ASA Confidential and Proprietary Information
                           Graduated Repayment

• Payments start smaller, $30 is the minimum monthly payment, and
  gradually increase throughout repayment


• Good alternative if the borrower’s income is likely to increase in the
  future


• Maximum repayment term is 10 years; however, the lender/holder
  may extend the term up to 4 additional years in certain cases




ASA Confidential and Proprietary Information
                             Extended Repayment

• For borrowers with more than $30,000 in loan debt

• Payment amounts can either be fixed or graduated

• Maximum repayment term is 25 years

• Minimum monthly payment is $50

• More expensive because extending repayment term increases the
  interest paid




ASA Confidential and Proprietary Information
IBR Background
• IBR = Income Based Repayment

• New repayment plan introduced by the College Cost
  Reduction and Access Act (CCRAA)

• Available to FFELP and DL borrowers July 1, 2009
  who have a partial financial hardship
   – Replacing options 5 & 6 on the Economic Hardship
     form which will no longer be available to borrowers




ASA Confidential and Proprietary Information
General

• IBR is available to those borrowers who have a
  partial financial hardship (PFH)

• Monthly payments are capped at 15% of a borrowers
  discretionary income

• IBR offers borrowers forgiveness of debt after 25 years
  (300 eligible payments)




ASA Confidential and Proprietary Information
Loan Eligibility
                   Eligible Loans                      Ineligible Loans
•Stafford                                      •Parent PLUS loans
    –Subsidized and                            •Federal Consolidation loans that
    Unsubsidized                               include a Parent PLUS loan
•Grad PLUS                                     •Perkins, HPSL, and HEAL loans
•Federal Consolidation loans                   unless included in a Consolidation
    –May include Perkins, HPSL                 loan
    and HEAL loans                             •Private, state, and other loans not
    –May not include Parent                    guaranteed by the Federal
    PLUS                                       government
•SLS
•ALAS


ASA Confidential and Proprietary Information
Partial Financial Hardship (PFH) Determination

• When a borrower’s amount due on all eligible loans (based on
  the standard-standard) exceeds 15% of their discretionary
  income

• Verified every year

• Borrower must provide permission for IRS to disclose AGI
  information “and other tax return information” as well as family
  size certification
      – IRS Tax Form 4506-T

• Can remain in IBR even if no longer determined to have PFH



ASA Confidential and Proprietary Information
Discretionary Income
• 15% of the difference between the borrower’s adjusted gross income
  (AGI) and 150% of the federal poverty level (FPL).
   – 15% [Monthly AGI – (150% FPL for family size)]
   – Monthly payments will be capped at this amount when a borrower
     is experiencing a PFH

Example:
  Monthly AGI = $3,600
  Family Size = 3

    150% FPL for Family of 3 = $2,288.75

Monthly Discretionary Income = 0.15 x (3,600 - 2,288.75)
                              = 0.15 x 1,311.25
                              = $196.69
ASA Confidential and Proprietary Information
2009 Federal Annual Poverty Limits (FPL)

        Number in Family /                         Poverty Guideline   150% of poverty guideline
           Household
                       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

                       7                               $33,270                 $49,905

                       8                               $37,010                 $55,515


Alaska and Hawaii have higher poverty guidelines

ASA Confidential and Proprietary Information
Income Information
• Borrower’s will need to submit a Tax Form 4506-T
  that will verify the borrower’s Adjusted Gross Income (AGI)

• Married borrowers:
      – Borrower who files married/joint tax return  Both spouses’ AGI
        are considered in determining payment amount
               • NOTE: Student loan debt is not combined

      – Borrower who files married/separate tax returns  Only
        borrower’s AGI and debt are considered in determining payment
        amount

• Will be evaluated annually


ASA Confidential and Proprietary Information
Family Size Information
Includes:
      –     Borrower
      –     Spouse
      –     Children
      –     Unborn children if born during the certification year, and
      –     Others who live with the borrower and receive more than 50%
            support during that year
               • Support includes money, gifts, loans, housing, food, clothes, car
                 medical and dental care, and payment of college costs

• If family size is not provided, it will be set to the default of 1
    – Will be evaluated annually


ASA Confidential and Proprietary Information
IBR Key Terms
Key Term – Standard-Standard
 • 10 year Standard payment amount calculation

 • 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




 ASA Confidential and Proprietary Information
Key Term – Permanent-Standard
 • Calculates a new 10-year term on the borrower’s
   outstanding principal balance at the time they enter IBR
       – Lenders must calculate this for borrowers immediately preceding
         entering IBR

 • This is the maximum payment amount the borrower will ever
   have to make in IBR

 • Minimum monthly $50 payment




 ASA Confidential and Proprietary Information
Key Term – Expedited-Standard
• Calculates the remaining term based on a standard
  repayment plan, based on the loan type
      – Stafford and Grad PLUS = 10 years
      – Consolidation = up to 30 years based on original loan balance

• Calculated as soon as the borrower voluntarily elects to leave
  IBR plan

• 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


ASA Confidential and Proprietary Information
Expedited-Standard – Example 1
           **PLEASE NOTE INTEREST RATE IS NOT INCLUDED BELOW**

Loan type: Stafford
Total Eligible Loan Amount: $30,000
Entered Repayment: July 1, 2008                Amount Paid: $3,000
Standard Plan Monthly Payment: $250            Outstanding: $27,000
Borrower entered IBR: July 1, 2009             Amount Paid: $7,200
Borrower IBR payment: $100                     Outstanding: $19,800
Borrower elects to leave IBR: July 1, 2015

Expedited-Standard
Time Spent in Repayment: 7 years
Time Remaining in Standard Repayment Plan: 3 years (36 months)
Monthly Payment: Outstanding Balance ÷ Time Remaining
                = $19,800/36 = $550

ASA Confidential and Proprietary Information
Expedited-Standard – Example 2
           **PLEASE NOTE INTEREST RATE IS NOT INCLUDED BELOW**

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

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

Borrower entered IBR: July 1, 2009             Amount Paid: $10,800
Borrower IBR payment: $100                     Outstanding: $16,200
Borrower elects to leave IBR: July 1, 2018

Expedited-Standard
Time Spent in Repayment: 10 years
Time Remaining in Standard Repayment Plan: 0 years
No time left: $16,200 – Due immediately


ASA Confidential and Proprietary Information
How IBR works…
Borrower Application

• Must complete a Common Application

• 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




 ASA Confidential and Proprietary Information
Repayment Terms in IBR

• Can extend beyond 10 years

• Lenders will need to track minimum and maximum payment
  amount over life of loan

• Payment application order is different than other plans
   – Interest  Collection Costs  Late Charges  Principal




ASA Confidential and Proprietary Information
PFH Eligibility and Verification

• Eligibility and minimum monthly payments are re-evaluated
  annually

• If a borrower fails to submit documentation they will be
  automatically placed on a standard repayment plan

• Even if a borrower no longer has a PFH, they may elect to
  remain in IBR
      – Borrower will be placed in a Permanent-Standard repayment plan




ASA Confidential and Proprietary Information
Recalculation of Payment Amount
• Occurs when:
      – Borrower no longer has a PFH
      – Changes to a borrower’s financial situation
      – No longer wants IBR

Borrower elects to remain in IBR:
• Maximum monthly payment may not exceed Permanent-Standard
  Amount
• Repayment period may exceed 10 years

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

ASA Confidential and Proprietary Information
Payment Amount Calculation

Same as discretionary income:
• 15% [Monthly AGI – (150% FPL for family size)]

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



 ASA Confidential and Proprietary Information
    General IBR Payment Calculations

                                               Remember:
                                               Apply $0 or $10 rule
                                               as applicable




 From www.studentaid.ed.gov

ASA Confidential and Proprietary Information
$0 Payments

• Considered a payment – Borrower will be considered to be in
  good standing

• Cannot become delinquent

• Months with a $0 payment will be reported to consumer
  reporting agencies as “deferred” or “repayment”

• A borrower can not prepay a $0 monthly payment amount




ASA Confidential and Proprietary Information
Multiple Loans/Holders


• Borrower must contact each loan holder separately

• Loan holders may use NSLDS to determine amount owed on
  all eligible loans held by that borrower

• Loan holder will determine the IBR payment amount and
  prorate based on the principal amount held by that holder
      – Loan holder will apply to all eligible loans held, unless specified by
        borrower



ASA Confidential and Proprietary Information
IBR Interest
Interest Accrual

• Accrues as normal

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




ASA Confidential and Proprietary Information
Interest Subsidy
• 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

• Eligible loans:
      – Subsidized Stafford loans
      – Portion of Consolidation loan that is subsidized

• Subsidy will only occur when a borrower is on IBR

• Is applied at the loan level
      – Loans entering at different times will each get a full 3 years

• Subsidy will continue even if the borrower exits PFH, consolidates
  their loan, or misses a payment
      – Only exception: Period of Economic Hardship Deferment


ASA Confidential and Proprietary Information
Interest Subsidy - Example

Borrower has all Subsidized Stafford Loans

Borrower payment under IBR = $40

Monthly accrued interest = $75

ED will pay: $35

         Payee                           July 1      August 1        September 1

      Borrower                      None               $40                 $0
                              (borrower missed)                 Borrower enters Economic
                                                                   Hardship Deferment
            ED                                 $35     $35                $0


ASA Confidential and Proprietary Information
Interest Capitalization

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


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




ASA Confidential and Proprietary Information
IBR Information to Borrowers
New Disclosure Requirements

• Lender must provide a notice that informs borrowers of
  IBR at time of:
      – Offering the borrower a loan
      – Offering a borrower repayment options

• Notice must include:
      – Borrower eligibility of Income-sensitive repayment (ISR) and that the
        borrower may be eligible for IBR, including through loan consolidation
      – 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



ASA Confidential and Proprietary Information
New Exit Counseling Requirements


• Must include information about repayment plans available

• Information specific to IBR, including:
      – Description and features
      – Sample information including average anticipated monthly
        payments, and
      – Difference in interest paid and total payments




ASA Confidential and Proprietary Information
IBR Forgiveness
Eligibility for Forgiveness
• 25 years must have elapsed
      – Borrower may prepay, but must wait 25 years
      – 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
  once
      – Borrower does not need to be in a PFH in order for to receive forgiveness

• Currently, any loan portion forgiven will be taxable




ASA Confidential and Proprietary Information
Eligible Payments
• 300 payments may include all payments made on or after July 1, 2009
  that:
   – PFH payment made under IBR including $0 payment amounts
   – Payments made at the permanent-standard amount (while in IBR)
   – Any payment made that is at least at the standard-standard
      amount (outside of IBR umbrella)
   – Each month in which borrower was on an Economic Hardship
      Deferment

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

• Payments do not have to be consecutive


ASA Confidential and Proprietary Information
Non-eligible Payments
• Payments made while in default

• Payments made during rehabilitation

• Payments made out of IBR less than the standard-standard
  amount

• Payments made under IBR umbrella (but outside of PFH) in an
  amount less than permanent-standard

• Payments made before July 1, 2009

ASA Confidential and Proprietary Information
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

• 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
  consolidation
      – Underlying loan payments (even if they are eligible payments) are not
        counted




ASA Confidential and Proprietary Information
Resources
• NCHELP Website – IBR Initiatives
   http://www.nchelp.org/pages/page.cfm?id=143

• IBR Implementation Guide

• 34 CFR §682.215

• HEA §493C

• www.ibrinfo.org


ASA Confidential and Proprietary Information
Questions?




 Thank you
American Student Assistance®       800.999.9080         www.amsa.com
100 Cambridge Street, Suite 1600   617.728.4265 F A X
Boston, MA 02114                   800.999.0923 T D D

								
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