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Income-Driven Repayment Plans & Public Service Loan Forgiveness

Income-Driven Repayment Plans & Public Service Loan Forgiveness. U.S. Department of Education. Income-Driven Plans - Overview. Three main plans Income-Contingent Repayment Plan (ICR) – 1994 Direct Loan Program only More information available at StudentAid.gov/ICR

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Income-Driven Repayment Plans & Public Service Loan Forgiveness

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  1. Income-Driven Repayment Plans & Public Service Loan Forgiveness U.S. Department of Education

  2. Income-Driven Plans - Overview • Three main plans • Income-Contingent Repayment Plan (ICR) – 1994 • Direct Loan Program only • More information available at StudentAid.gov/ICR • Income-Based Repayment Plan (IBR) – 2009 • Available in both the Direct Loan and FFEL Program • More information available at StudentAid.gov/IBR • Pay As You Earn Plan – 2012 • Direct Loan Program only • For new borrowers in FY 2008 who receive new loans in FY 2012 • Modeled on IBR, incorporating statutory IBR changes scheduled to take effect for new borrowers in 2014 • More information available at StudentAid.gov/PayAsYouEarn

  3. Income-Driven Plans – Eligible Borrowers • ICR: • Direct Loan borrowers with eligible loans • IBR: • 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”) • 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 • Their 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”)

  4. Income-Driven Plans – Eligible Loans • ICR: • All Direct Loans are eligible except parent PLUS Loans and pre-7/1/2006 Direct PLUS Consolidation Loans • Direct Consolidation Loans made on/after 7/1/2006 that repaid parent PLUS loans are eligible • IBR: • All Direct and FFEL Program loans except parent PLUS loans and Consolidation Loans that repaid parent PLUS loans • Pay As You Earn: • All Direct Loans are eligible except parent PLUS loans and Consolidation Loans that repaid parent PLUS loans

  5. Income-Driven Plans – Payment Amounts • 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) • Under IBR, borrowers pay the lesser of: • 15% of discretionary income (income-based payments) or • What they would have paid under the 10-year standard repayment plan (non-income-based payments) • Under Pay As You Earn, borrowers pay the lesser of: • 10% of discretionary income (income-based payments) or • What they would have paid under the 10-year standard repayment plan (non-income-based payments) For more on income percentage factors in ICR, see 77 FR 30266, available at: https://federalregister.gov/a/2012-12420

  6. Income-Driven Plans – Loan Forgiveness • All three plans provide for forgiveness • For ICR and IBR, remaining balance forgiven after 25 years of qualifying repayment • For Pay As You Earn, remaining balance forgiven after 20 years of qualifying repayment • For all three plans, qualifying repayment includes: • Payments 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 • According to the IRS, the forgiven amount is considered taxable income

  7. Applying: Income Documentation • Borrower must submit income documentation when applying • Eligibility (IBR & Pay As You Earn) and payment amount (all three plans) usually based on a borrower’s AGI • Borrower may document AGI through: • The electronic application (uses same method as IRS data retrieval tool for the FAFSA to document AGI) • A paper copy of a 1040, 1040A, or 1040EZ (signed or unsigned) • An IRS Tax Return Transcript

  8. Applying: Income Documentation • If AGI is not available or does not reasonably reflect current income, borrower can submit alternative documentation of income (ADOI) • Borrowers must provide documentation of all taxable income, e.g., pay stubs, unemployment benefits, etc. • Loan holder estimates annual taxable income based on this documentation • Borrowers do not provide documentation of untaxed income, such as Supplemental Security Income or welfare

  9. Recertifying: Income and Family Size • 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 • Borrowers must also annually certify their family size or a family size of one will be used • The reevaluation date is based on when the borrower initially entered the plan (anniversary date) • Borrower can also submit documentation early, if their circumstances have changed, to receive a lower payment amount. This changes their anniversary date • Borrowers can use the electronic application to recertify their income and family size

  10. Public Service Loan Forgiveness • Public Service Loan Forgiveness (PSLF) provides for forgiveness of a Direct Loan borrower’s remaining loan balance if the borrower: • Makes 120 full, on-time payments after October 1, 2007 • Makes each payment under a qualifying repayment plan • Makes each payment while employed full-time by a qualifying organization • Borrower must also be employed by a qualifying organization at the time that the borrower applies for and receives PSLF • According to the IRS, the forgiven amount is not treated as taxable income

  11. PSLF – Qualifying Payments • Borrower must make 120 separate monthly payments. They: • Do not need to be consecutive • Must be for the full scheduled payment under the repayment plan • Must be made within 15 days of the due date • Multiple, partial payments during the borrower’s monthly billing cycle will qualify if they add up to equal the borrower’s monthly payment amount • A borrower will not receive credit for more than one payment toward PSLF if the borrower makes a lump sum payment (e.g., makes a single payment equal to two or more full monthly payments) • Exception for AmeriCorps and Peace Corps borrowers who make lump sum payments using education award or transition payment

  12. PSLF– Qualifying Repayment Plan • Each of the 120 payments must be made under a qualifying repayment plan • Qualifying repayment plans: • 10-year Standard Repayment Plan • IBR, ICR, Pay As You Earn plans and • Any other payment plan where the payment amount at least equals the 10-year Standard Repayment Plan amount • Non-qualifying repayment plans include: • Extended (Fixed or Graduated) • Graduated and • Consolidation Standard with term greater than 10-years • Income-driven plans are most likely to leave a remaining balance for forgiveness after 120 qualifying payments

  13. PSLF – Eligible Loans • PSLF is only for Direct Loans • All Direct Loans qualify • Parent Direct PLUS Loans are eligible for PSLF, but cannot be repaid under income-driven plans • Borrowers may consolidate parent PLUS Loans and repay under ICR • FFEL Program and Perkins Loans do not qualify, but can be consolidated into a Direct Consolidation Loan • Borrower consolidating Perkins Loans will lose Perkins-only cancellation benefits they may have otherwise been able to receive • Payments made on loans that are later consolidated do not count toward 120 payments for PSLF. Borrower must make 120 qualifying payments on the Direct Consolidation Loan

  14. PSLF – Qualifying Employment • Each of the 120 payments must have been made during a period of qualifying employment • Qualifying employment includes any job at: • A government organization • A not-for-profit, 501(c)(3) organization or • Any other not-for-profit organization that is not a labor union or partisan political organization and that provides public services in the following categories: • Emergency management, military service, public safety, law enforcement, public interest legal services, early childhood education, public service for individuals with disabilities, public health, public education, public library services, school library services, or other school-based services • Borrower can work at multiple organizations while making the required120 payments

  15. PSLF – Qualifying Employment • Must be a full-time employee or work multiple part-time jobs that equal full time • Full-time is whatever the employer considers full-time, but must be at least an annual average of 30 hours per week • For borrowers with multiple employers, full time is an annual average of at least 30 hours per week • Exception for employees under contract for at least eight months per year (e.g., teachers), full time is an average of at least 30 hours per week • For borrowers working for a not-for-profit organization (501(c)(3) or otherwise) with job duties that include religious instruction, worship services, or proselytizing, the hours spent on those activities cannot be factored into meeting the full-time employee requirement

  16. PSLF – Employment Certification • On January 31, 2012, the Department released a voluntary Employment Certification Form that borrowers can submit to the Department for a determination of whether their employment and payments qualify for PSLF • Borrower has employer complete employment verification section • Borrower submits form to FedLoan Servicing (regardless of who current servicer is) • FedLoan Servicing determines whether employment qualifies • If employment qualifies, borrower’s loans are transferred to FedLoan Servicing, for a determination of how many qualifying payments were made during the period of employment • Borrowers loans remain at FedLoan servicing permanently • Borrower can submit the form as often as annually For more, including Q&As, see StudentAid.gov/PublicService

  17. PSLF – Employment Certification • Employment Certification Form is not an application for forgiveness • Borrower must make 120 qualifying payments after October 1, 2007, so no borrowers can qualify until 2017 at the earliest • PSLF Forgiveness Application will be developed and released prior to earliest date of eligibility for PSLF

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