Direct Loan Income-Driven Repayment Plans

Report
Direct Loan Income-Driven
Repayment Plans
Rose Mary Stelma
College Foundation, Inc.
April 2013
Before We Talk About IncomeDriven Repayment Plans . . . . . .
Do you know what types of repayment
plans are available for Direct Loans –
NOT just the income-driven plans?
Repayment Plans For Direct Loans




Standard
Graduated
Extended
Alternative



Income-Based
Repayment
(IBR)
IncomeContingent
Repayment
(ICR)
Pay As You Earn
Repayment Plans


Not all loans qualify for all repayment
plans
All loans must be repaid under the
same plan unless the loan type
doesn’t qualify for the plan
Income-Driven Plans



Income-Contingent Repayment (ICR)
Income-Based Repayment (IBR)
Pay As You Earn
Income-Driven Plans – Quick
Overview

Income-Contingent (ICR) – 1994
 Direct Loan Program only

Income-Based Repayment (IBR) –
2009
 Direct Loan and FFEL

Pay As You Earn – 2012
 Direct Loan Program only
 New borrowers on/after 10/1/2007 who
receive a disbursement on/after 10/1/2011
Income-Contingent Repayment


Direct Loan borrowers with eligible
loans
FFEL borrowers do not qualify for ICR
 FFEL has Income Sensitive Repayment
Plan
ICR - Direct Loans That Qualify

All Direct Loans are eligible except
 Parent PLUS Loans
 Pre-7/1/2006 Direct PLUS Consolidation
Loans

Direct Consolidation Loans made on
or after 7/1/2006 that repaid parent
PLUS loans are eligible
ICR -Payment

Under ICR, borrowers pay the lesser
of:
 12-year standard repayment schedule
multiplied by income percentage factor
(payment based on loan debt and
income) or
 20% of discretionary income (payment
based only on income)
ICR – Discretionary Income


Borrower’s AGI minus 100% of the
poverty guideline for the borrower’s
state and family size
Example
Borrower’s AGI
100% of poverty
guideline
Discretionary Income
$25,000
$10,000
$15,000
ICR - Forgiveness


Remaining balance forgiven after 25
years of qualifying repayment
According to the IRS, the forgiven
amount is considered taxable income
ICR - Qualifying Payments

Qualifying Payments include:
 Payments made under an income-driven
plan
 Payments under the 10-year standard
repayment plan (or any other repayment
plan with a payment amount at least equal
to the 10-year standard plan amount) or
 Economic hardship deferment
Income-Based Repayment


Direct Loan and FFEL Program
borrowers with eligible loans and
Their payments would be lower on
IBR relative to what would have been
paid under the 10-year standard
repayment plan (called “partial
financial hardship”)
IBR – Loans That Qualify

All Direct and FFEL Program loans
except
 Parent PLUS loans
 Consolidation Loans that repaid parent
PLUS loans
IBR - Payment

Under IBR, borrowers pay the lesser
of
 15% of discretionary income (incomebased payments) or
 What they would have paid under the 10year standard repayment plan (nonincome-based payments)
IBR – Discretionary Income


Borrower’s AGI minus 150% of the
poverty guideline for the borrower’s
state and family size
Example
Borrower’s AGI
150% of poverty
guideline
Discretionary Income
$20,000
$15,000
$ 5,000
IBR - Forgiveness


Remaining balance forgiven after 25
years of qualifying repayment
According to the IRS, the forgiven
amount is considered taxable income
IBR – Qualifying Payments

Qualifying Payments include:
 Payments made under an income-driven
plan
 Payments under the 10-year standard
repayment plan (or any other repayment
plan with a payment amount at least equal
to the 10-year standard plan amount) or
 Economic hardship deferment
Pay As You Earn



Direct Loan borrowers with eligible
loans
Must be a new borrower on/after
10/1/2007 who received new loan
on/after 10/1/2011 and
Payments would be lower on Pay As
You Earn relative to what would have
been paid under the 10-year standard
repayment plan (called “partial financial
hardship”)
Pay As You Earn – Direct Loans
That Qualify

All Direct Loans are eligible except
 Parent PLUS loans
 Consolidation Loans that repaid parent
PLUS loans
Pay As You Earn - Payment

Pay the lesser of
 10% of discretionary income (incomebased payments) or
 What they would have paid under the 10year standard repayment plan (nonincome-based payments)
Pay As You Earn – Discretionary
Income


Borrower’s AGI minus 150% of the
poverty guideline for the borrower’s
state and family size
Example
Borrower’s AGI
150% of poverty
guideline
Discretionary Income
$25,000
$15,000
$10,000
Pay As You Earn – Forgiveness


Remaining balance is forgiven after 20
years of qualifying repayment.
According to the IRS, the forgiven
amount is considered taxable income
Pay As You Earn – Qualifying
Payments

Qualifying Payments include:
 Payments made under an income-driven
plan
 Payments under the 10-year standard
repayment plan (or any other repayment
plan with a payment amount at least equal
to the 10-year standard plan amount) or
 Economic hardship deferment
Recap of ICR Payment Amount

ICR - borrowers pay the lesser of:
 12-year standard repayment schedule
multiplied by income percentage factor
(payment based on loan debt and
income) or
 20% of discretionary income (payment
based only on income)

For more on income percentage factors in ICR, see 77 FR
30266, available at: https://federalregister.gov/a/2012-12420
Recap of IBR Payment Amount

Under IBR, borrowers pay the lesser
of:
 15% of discretionary income (incomebased payments) or
 What they would have paid under the 10year standard repayment plan (nonincome-based payments)
Recap of Pay As You Earn Payment
Amount

Under Pay As You Earn, borrowers
pay the lesser of:
 10% of discretionary income (incomebased payments) or
 What they would have paid under the 10year standard repayment plan (nonincome-based payments)
IBR/Pay As You Earn/ICR Plan
Request Form – Electronic and
Paper

Borrower Demographics
 Name
 Address
 SSN
 Telephone Numbers
 Email Address
IBR/Pay As You Earn/ICR Plan
Request Form

Borrower can select plans for DL and
FFEL
 IBR
 Pay As You Earn
 ICR
 I request that my loan holder determine
which of the above plans I am eligible for,
and place me on the plan with the lowest
monthly payment amount.
Borrower Income


Servicer uses borrower’s Adjusted
Gross Income (AGI) when calculating
discretionary income
Copy of most recently filed federal
income tax return or IRS tax return
transcript – last two most recently
completed years
Income Documentation


Uses same IRS data retrieval tool as
FAFSA
Married borrowers requesting joint ICR
who file separately must both provide
a tax return
Alternative Documentation of
Income



If borrower did not file a federal
income tax return OR
If AGI does not reasonably reflect
borrower’s current income OR
If servicer asked borrower to provide
alternative documentation of income
IBR/Pay As You Earn/ICR Plan
Request Form


No taxable income – sign the form and
submit
Alternative documentation of income
 One piece for each source of income
(borrower and spouse if applicable)
 Pay stub, letter from employer listing
income, interest or bank statements,
dividend statements, signed explanation
listing income sources and name and
address of the source
IBR/Pay As You Earn/ICR Plan
Request Form

Provide spouse information if
 Filed a joint tax return and your spouse
has eligible loans
 Joint Direct or FFEL Consolidation Loan
obtained with spouse.
 Borrower and spouse have Direct Loans
and both want to repay under the joint
ICR option.
Family Size


Borrowers must also annually certify
their family size
If the family size question is blank, the
loan servicer assumes a family size of
one
Recertification


Under all three plans, borrowers are
required to submit updated income
documentation annually
Failure to submit documentation timely
will lead to:
 A monthly payment amount that is what it
would have been on the 10-year standard
repayment plan (non-income-based
payment) and
 Interest capitalization
Recertification


Loan Servicer provides a notice of
deadline for submission of income
documentation and consequences of
failure to provide
If borrower submits documentation
within 10 days of deadline, servicer
will maintain current payment amount
until documentation is processed
Applying for Income-Driven
Repayment Plans


Borrower can also submit
documentation early, if their
circumstances have changed, to receive
a lower payment amount.
This changes the borrower’s
anniversary date
Regulatory References



Final regulations published:
November 1, 2012
Effective date: July 1, 2013
These provisions were implemented
early.
39
StudentLoans.gov
Enhanced loan counseling information
 Repayment estimator resources
 Excellent tool for borrowers


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