You Can’t Take It with You

1. You Can’t Take It with You Financial Aid PLP Financial Aid Office

2. Discharge of Federal Student Loans • Discharge of Loans for Death • Discharge of Loans for Total and Permanent Disability • Discharge of Loans in Bankruptcy • Income-Based Repayment • Federal Student Loan Forgiveness • Public Loan Forgiveness

3. Death Discharge ***Guaranteed with Federal Loans*** • Types of Loans • Stafford Loans: if you die • Graduate Plus Loans: if you die • Perkins: if you die • Parent Plus Loans: if the parent or the student dies • Private loans based on terms and conditions of loan • Application: certified copy of death certificate to school (Perkins) or loan servicer (DL loans)

4. Total and Permanent Disability (TPD) • Available for Federal Student Loans • Private loans: based on terms and conditions of loans • No formal process for private loans • Required: borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that: • Can be expected to result in death • Has last for a continuous period of not less than 60 months • Can be expected to last for a continuous period of not less than 60 months • Has been determined by the VA to make up unemployable due to a service-connected disability * Substantial gainful activity means a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both.

5. TPD Application • Complete the TPD Discharge application • Includes Physician Certification that documents medical diagnosis and limitations on daily living • Application goes to each loan servicer • Post-Discharge Monitoring Period • If granted, you will be monitored for 3 years • You will be ineligible for new student loans • What is monitored: • changes in income (increase above federal poverty line for borrower) • changes in disability (no longer have qualifying disability)

6. Future Eligibility for Student Loans • Before 3-year monitoring period • Discharge is reversed, old loans are back • Free to take new loans • After the 3-year monitoring period • Statement from physician that you are able to engage in substantial gainful activity • Sign statement acknowledging new loans cannot be discharged for same disability or any other disability that exists when new loans are authorized

7. Discharge in Bankruptcy • Adversarial proceeding that requires student to prove that repaying their loans would cause an undue hardship on you and your dependents Problem: no legislative definition on what students had to prove that their financial hardship is undue Brunner test officially adopted in 9 circuits: 3-prong test: • Not able to maintain a minimal standard of living (current ability to pay) • Evidence of hardship continuing through repayment period (future ability) • Good-faith effort to repay loan before bankruptcy (i.e. repayment for at least 5 years) (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

8. Current Court Cases • One study showed success 40% of discharge requests • 3-prong test is burdensome and inconsistently applied • 99.9% of students in bankruptcy do not request a discharge • Successful: • Lender did not dispute discharge until after case concluded • Chances for discharge are higher if: • Student was not employed during bankruptcy and • Student has a medical hardship and • Student had a low annual income before the bankruptcy filing • Unsuccessful: • Cases where the Court expect student to find higher-paying work • Student did not try IBR • Students unable to provide clear proof of continuing hardship • Courts give students “windows of opportunity” to obtain “meaningful employment” • Window is generally 6 months to several years • Discharge is in limbo during that window

9. Income-Based Repayment (IBR) • Alternative to TPD or Bankruptcy • Sometimes used as administrative relief negotiated in bankruptcy • Available for Stafford, Graduate Plus loans, Perkins loans (if consolidated into DL loans) • Payments are capped • Calculated annually • Set at 15% of discretionary income (set by AGI & family) • Payments made for 25 years • Payment can be as low as $0 • Borrower is responsible for ALL accrued interest if student is no longer eligible for IBR • Discharge of any unpaid balance after 25 or 10 years

10. Federal Student Loan Forgiveness IBR or Income-Contingent Repayment Program • Any balance of capitalized interest and principle after 25 years • Discharge amount will be taxable (current law) • Any balance of capitalized interest and principle after 10 years if working in public service • Discharge amount will not be taxable (current law)

11. Public Service Loan Forgiveness • What: Discharge of Direct Loans • DL Loans including Grad Plus loans • Perkins loans, must be consolidated with DL • Rehabilitated defaulted loans • No FFEL loans: consolidate FFEL loans with DL • When: After 120 qualifying monthly payments • Qualifying payments need not be consecutive • Qualifying payments: made while employed FT by a public service organization • Qualifying employment need not be consecutive • Excluded: time spent in deferment or forbearance • Included: when calculated payment is zero • Pair with: IBR; ICR; Standard Repayment Plan; any other Direct Loan repayment plan

12. Public Service Loan Forgiveness • Required: FT public service job with PSLF eligible employer • PSLF eligible employers: • Public sector employers • Federal, state, local, or tribal agency or entity • Private non-profit employers that is 501(c)(3) • Except: partisan political organizations, labor unions, • Except: organizations engaged in religious activities • If your job duties are related to religious instruction, worship services, or any form of proselytizing • So: individuals working at religiously-affiliated non-profit organizations who perform at least 30 hours of non-religious activities are eligible for PSLF • Private employer: if it is non-profit, is not an excluded group, and provides one or more public services • Examples: military, law enforcement, public interest, early childhood, public health, education

13. Help from Financial Aid Office Our office is available, even after graduation! Questions?