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Session #17

Session #17. Income-Driven Repayment (IDR) Plans. Ian Foss U.S. Department of Education 2018 FSA Training Conference for Financial Aid Professionals. November 2018. The Rise of IDR. The Plans. Revised Pay As You Earn (REPAYE). 2015. Pay As You Earn (PAYE). 2012. Income-Based

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Session #17

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  1. Session #17 Income-Driven Repayment (IDR) Plans Ian Foss U.S. Department of Education 2018 FSA Training Conference for Financial Aid Professionals November 2018

  2. The Rise of IDR

  3. The Plans Revised Pay As You Earn (REPAYE) 2015 Pay As You Earn (PAYE) 2012 Income-Based Repayment Plan (IBR) 2009 Income-Contingent Repayment Plan (ICR) 1994

  4. Eligible Borrowers IBR REPAYE PAYE ICR Eligible Loan Show Need Recent Borrower

  5. Eligible Loan Programs IBR REPAYE PAYE ICR Direct Loans FFELP Perkins

  6. Eligible Loan Type ICR IBR PAYE REPAYE Loan received as student Loan received as parent Consolidation (no parent loans) Consolidation (parent loans)

  7. Payment Amounts Most IDR plans have two formulas – for those that do, borrowers always pay the lesser of the two.

  8. Interest Subsidy Benefits 50% of negative amortization No time limit After 3 years, 50% of negative amortization 100% of negative amortization For first 3 years under plan Only during negative amortization Subsidized loans Only No subsidy REPAYE [U] REPAYE [S] ICR IBR PAYE 8

  9. Interest Capitalization Capitalization of unpaid interest while in plan is limited to 10% of balance Capitalization of unpaid interest due to negative amortization is limited to 10% of balance Interest accruing due to negative amortization is capitalized annually Normal rules apply (upon expiration of deferment/forbearance) Unpaid interest capitalizes when leaving the plan ICR IBR REPAYE PAYE While payment is income-based, normal rules are suspended While normal rules suspended, only trigger is conversion to standard plan amount 9

  10. Loan Forgiveness 25 years ICR IBR REPAYE: Any grad loans 20 years PAYE REPAYE: All undergrad loans Amount forgiven is income for tax purposes. 10

  11. Billy Borrower

  12. Billy Borrower Is single with no dependents and lives in DC Has $65,500 in Direct Loan debt ($23,000 of which is subsidized), which has a weighted average interest rate of 5.5% Borrowed for graduate school to get a Masters in Social Work Has an AGI of $40,000 that rises at 5% per year

  13. ICR

  14. IBR

  15. PAYE

  16. REPAYE

  17. Repayment Estimator 17

  18. IDR Application Process

  19. Process Overview Step Three Step Four Step Five Step One Step Two Step Six Submit AGI or ADOI Select reason for submitting form Select plan, if submitting form to initially apply Certify family size Provide information about spouse, if applicable Determine what kind of documentation to submit 04 05 06 01 02 03 19

  20. Spouses Almost all married borrowers provide spouse’s income documentation Only used by servicer when relevant Exception for those who are separated or cannot access spouse’s income

  21. Spouses

  22. Billy gets Married in Year 5 Spouse has $20,000 in income, and $40,000 in Direct Loans, all of which are unsubsidized, and which has an interest rate of 5.5% Billy and his spouse decide to file separately

  23. Effect of Billy’s Marriage

  24. In Year 6, Spouse Pays Off

  25. Spouses & REPAYE If a spouse’s income is excluded from calculation: • The borrower’s spouse is not counted in family size • If the spouse has eligible loans, the spouse’s loans are not considered in the monthly payment amount adjustment

  26. Income Documentation

  27. Income Documentation

  28. Failing to Recertify

  29. Billy Doesn’t Recertify for Year 4

  30. Data

  31. Borrowers Entering IDR from Non-IDR by Year, Plan

  32. Average Monthly Payment Decrease

  33. Average Debt of Borrowers

  34. When Borrowers Enter IDR After Repayment

  35. Tax Filing Status by IDR Plan

  36. Questions? Ian.Foss@ed.gov

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