Managing Debt: Repayment Options and Loan Forgiveness Programs

1. Managing Debt:Repayment Options and Loan Forgiveness Programs

2. Objectives Review the options student loan borrowers have in repaying their federal loans Explore common loan forgiveness programs Meet a few student loan borrowers Review steps you can take to help with successful repayment

3. The State of Student Loan Debt • Institute of Higher Education Policy (IHEP) study revealed that borrowers: • Were rarely familiar with all of the repayment options available to them before they become delinquent or defaulted • Did not fully understand loan terms, interest accrual, and the significance of selecting a repayment plan

4. The State of Student Loan Debt • Americans now owe more on student loans than on credit cards • The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future – NPR, February 2012

5. The State of Student Loan Debt • Two out of five student loan borrowers – or 41% – are delinquent at some point in the first five years after entering repayment(IHEP) • Borrowers cite unaffordable payments as the top reason for falling behind on loan payments (Great Lakes)

6. The State of Student Loan Debt • Students can manage their debt by: • Borrowing less • Developing a repayment strategy • Selecting the BEST repayment option that will enable them to successfully repay their loans

7. Review of Repayment Options

8. Standard Repayment Direct and FFELP loan borrowers Equal monthly payments of at least $50 for up to 10 years Borrowers will automatically be enrolled in the standard repayment plan unless they choose a different one Option for borrowers who want to repay loans in the shortest time with the lowest amount of interest accrued

9. Standard Repayment Total Paid1 (Loan + Interest) Monthly Payment Total Interest Paid Loan Amount $11,4281 $41,4281 $30,000 $345 1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.

10. Graduated Repayment Direct and FFELP loan borrowers Monthly payments start lower and gradually increase over time for up to 10 years The monthly payment will never be less than the amount of interest that accrues between payments Option for borrowers who have cash flow problems early on, but expect that their income will increase steadily over time

11. Graduated Repayment Total Paid1 (Loan + Interest) Total Interest Paid Repayment Plan Loan Amount Monthly Payment 1–2: $234 3–4: $288 $43,6661 $13,6661 $30,000 5–6: $350 7–8: $425 9–10: $517 $30,000 1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.

12. Extended Repayment Direct and FFELP loan borrowers Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 in Direct or FFELP loans More interest is paid over the life of the loan Option for borrowers who have larger loan debt and need a lower monthly payment but don’t qualify for IBR or Pay As You Earn

13. Extended Repayment Repayment Plan Loan Amount Monthly Payment Total Interest Paid Total Paid1 (Loan + Interest) $30,000 $208 $32,4661 $62,4661 1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

14. Direct and FFELP loan borrowers Perkins loan eligible, if included in a FFELP or Direct Consolidation loan Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan Available for borrowers on or after July 1, 2009 Income-Based Repayment Option for someone who is looking for the lowest possible monthly payment based on their income

15. Income-Based Repayment Borrowers must demonstrate a partial financial hardship (PFH) PFH exists when the annual amount on the borrower’s eligible loans exceed 15% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size

16. Income-Based Repayment Factors Adjusted Gross Income (AGI) Poverty guidelines Family size Standard loan payment

17. Income-Based Repayment • Borrowers must reapply each year • At the end of 25 years of repayment any remaining balance may be forgiven • Any loan amount forgiven may be taxable • Payments count towards Public Service Loan Forgiveness

18. If monthly payment amount is not enough to pay accrued interest Income-Based Repayment

19. Yes How IBR Works Family size = 1 $3,000 Monthly AGI – $1,437 150% of poverty line $1,563 15% of $1,563 = $234 Standard payment = $345 Qualify =

20. Income-Based Repayment Total Paid1 (Loan + Interest) Repayment Plan Loan Amount Total Interest Paid Monthly Payment $47,8431 $17,8431 $30,000 1Example assumes a gross monthly income of $3,000. 1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

21. Pay As You Earn Direct borrowers Perkins loan eligible, if included in a Direct Consolidation loan Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan Available for borrowers as of December 21, 2012 Option for someone who is looking for the lowest possible monthly payment based on their income

22. Pay As You Earn Must meet the definition of a new borrower: No outstanding DL or FFELP balance as of 10/1/07, or no outstanding balance on the date a borrower receives a new loan after 10/1/07; and Receives a disbursement of a DL on/after 10/1/11 Must receive a Direct Consolidation loan based on application received on/after 10/1/11, unless it repays a DL or FFELP loan that was outstanding as of 10/1/07

23. Pay As You Earn Borrowers must demonstrate a partial financial hardship (PFH) PFH exists when the annual amount on the borrower’s eligible loans exceed 10% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size

24. Pay As You Earn Factors Adjusted Gross Income (AGI) Poverty guidelines Family size Standard loan payment

25. Pay As You Earn • Borrowers must reapply each year • At the end of 20 years of repayment any remaining balance may be forgiven • Any loan amount forgiven may be taxable • Payments count towards Public Service Loan Forgiveness

26. Yes How Pay As You Earn Works Family size = 1 $3,000 Monthly AGI – $1,437 150% of poverty line $1,563 10% of $1,563 = $156 Standard payment = $345 Qualify =

27. Pay As You Earn Repayment Plan Loan Amount Total Interest Paid Total Paid1 (Loan + Interest) Monthly Payment $24,1451 $30,000 $54,1451 1Example assumes a gross monthly income of $3,000. 1An unsubsidized Stafford loan at 6.8% interest, with a 20-year amortized repayment plan.

28. Income-Contingent Repayment Direct borrowers Perkins loan eligible, if included in a Direct Consolidation loan Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan (except a Direct Consolidation Loan that repaid a Parent PLUS loan after 7/1/06) Option for borrowers who need a reduced payment but may not be eligible for IBR or Pay As You Earn

29. Income-Contingent Repayment • Payments are based on income and family size • Borrowers must reapply each year • At the end of 25 years of repayment any remaining balance may be forgiven • Any loan amount forgiven may be taxable • Payments count towards Public Service Loan Forgiveness

30. Income-Contingent Repayment Repayment Plan 1Example assumes a gross monthly income of $3,000. 1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

31. Income-Sensitive Repayment • FFELP loan borrowers • Monthly payments are based on income and total loan amount • Repayment term is 10 years • Borrowers must reapply each year Option for borrowers who need their monthly payments to fluctuate with their income

32. Income-Sensitive Repayment Repayment Plan 1Example assumes a gross monthly income of $3,000. 1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.

33. Alternative Repayment Direct loan borrowers Must demonstrate exceptional circumstances Minimum monthly payment of $5 Maximum 30-year repayment term Option for direct loan borrowers who can not meet payment obligations with any of the other plans due to their exceptional circumstances

34. Consolidation Loans Direct and FFELP borrowers, including Parent PLUS and Perkins loans New interest rate, repayment schedule, and terms Interest rate is weighted average of underlying loans rounded up to the next 1/8th percent Borrowers must be in grace period or repayment Option for borrowers with multiple servicers who prefer to make one payment each month

35. Consolidation Loans Benefits of consolidation Will give borrower a single payment Could have a lower payment Subsidized loans retain their interest subsidy May qualify for renewed deferment benefits Defaulted loans can be consolidated to regain Title IV eligibility Must establish satisfactory repayment arrangements

36. Consolidation Loans Borrowers should consider the trade-offs Could have slightly higher interest rate Could pay more interest over life of loan Will lose remainder of grace period if consolidate during grace Repayment begins within 60 days after the consolidation loan is made FFEL loans will lose borrower benefits

37. Loan Forgiveness Programs

38. Public Service Loan Forgiveness • Borrowers who work for a public service employer may be eligible to have a portion of their Direct Loan debt forgiven after 120 qualifying monthly payments on or after October 1, 2007

39. Public Service Jobs Public service organization • A federal, state, local, or tribal government organization, agency, or entity • A public child or family service agency • A nonprofit organization under section 501(c)(3) taxation under section 501(a) of the IRC • A tribal college or university • Peace Corps and AmeriCorps

40. Public Service Jobs Public service organization • A private organization that provides public services • Emergency management, military service, public safety • Law enforcement, public interest law services, public child care • Public service for individuals with disabilities and the elderly

41. Public Service Jobs Public service organization • A private organization that provides public services • Public health, public education, public library services • School library or other school-based services • Businesses organized for profit, labor unions, partisan political organizations, or religious organizations are not eligible

42. Qualifications • Cannot be in default • Must be employed full time • 30 hours per week or the equivalent • During the time theborrower makes the qualifying payments • At the time loan forgiveness is requested and granted

43. PSLF Qualifying Payments • Required 120 payments do not have to be consecutive, but must be: • Reduced or $0 monthly payments under Pay As You Earn, IBR, or ICR qualify Separate On time Full monthly payments

44. Stafford Loan Forgiveness Program for Teachers • Borrowers who teach in an elementary or secondary school that is designated as low income may be eligible to have a portion of their Stafford loan debt forgiven

45. General Qualifications • Must be a new borrower with no outstanding balance as of October 1, 1998 • Must teach full time for at least five consecutive, complete academic years in a school designated as low income by the U.S. Department of Education • At least one of those five years must be after the 1997–1998 school year • Cannot be in default on the loan for which forgiveness is being requested

46. Qualifying Schools • ED has created a directory of qualifying schools with a high concentration of students from low-income families • https://www.tcli.ed.gov/CBSWebApp/tcli/TCLIPubSchoolSearch.jsp

47. Federal Employee StudentLoan Program • Permits federal agencies to repay federal student loans as a recruitment or retention incentive for candidates or current employees of the federal agency Visit opm.gov/oca/pay/StudentLoan for more information

48. Loan Forgiveness Programs

49. Meet a Few Student Borrowers

50. Meet Kyle • Employment status – full-time employee at a quick print store • Annual income – $18,000 • Federal loan debt – $22,000 • Family size – 1 • Received his first loan – July 1, 2006 Which repayment option should Kyle consider?