Federal student loans First, take inventory Private Check to see - PDF document

2/18/2016 Public Service Loan Forgiveness and the new Revised Pay As You Earn (REPAYE) Today’s Plan • Which loans are which and why it matters • Put private student loans in their place • Evaluating federal student loan repayment Which loans are which plans • Federal loan forgiveness and why it matters • Income-driven repayment • Proposals for change • Ask Heather Federal student loans First, take inventory Private Check to see if you have federal or private loans or both student loans 1

2/18/2016 Private student loans Private student loans Often variable Terms based interest rates on credit with no cap Lack Lack flexible borrower repayment protections terms annualcreditreport.com Perkins Federal Subsidized Consolidation Stafford Federal Student Loans Parent Unsubsidized PLUS Stafford Grad PLUS Before July 2010, federal www.nslds.ed.gov loans came from two FFEL different sources Federal Student Loans Federal Direct 2

2/18/2016 FFEL Stafford FFEL FFEL Direct Direct Stafford Direct Consolidation Loan To err is human; to forgive, divine. There are two kinds of federal loan forgiveness Public Service Loan Forgiveness is earned by making payments If you still has a balance after making income-driven payments 120 for 20 or 25 years The balance is forgiven “qualifying” but the forgiven amount is taxed as income payments 3

2/18/2016 Five Steps to Felisha Martinez borrows $65,000 at 6.8% interest Public Service Loan Forgiveness Repayment Plan Monthly Years in Total Total Payment Repayment Payments Forgiven Standard $797 10 $95,612 N/A 10-year term 30-year term $481 25 $144,163 N/A Income-Based $277 10 $40,068 $76,523 Repayment Pay As You Earn $185 10 $28,284 $90,727 AGI $40,000; 3% annual increases; family size = 2 in year 1, plus 1 in year 3, plus 1 in year 5 1. Make the right kind of payments, Count payments . Payments based on income (ICR, IBR, PAYE, REPAYE) 2. on the right kind of loans, Federal Direct Loans ONLY 3. while working in the right kind of job. …99, Full-time and paid government or nonprofit work 100, 4. Repeat 120 times. Any fewer gets you nothing 101, 5. Prove it. 102… Adjusted Gross Income Payments are 10 or 15 percent of “discretionary income” Income driven repayment Long-term forgiveness takes either 20 or 25 years Public Service Loan Forgiveness takes 120 “qualifying” payments 4

2/18/2016 Qualifying repayment plans for PSLF: ICR Old IBR New IBR PAYE REPAYE Standard 10-year term Monthly Payments Married student loan borrowers must choose: single married with 2 kids • File taxes jointly and AGI 15% 10% 15% 10% have monthly $30,000 $154 $103 0 0 payment based on joint AGI and $40,000 $279 $186 0 0 combined student $50,000 $404 $270 0 0 debt, or • File taxes separately $60,000 $529 $353 $45 $30 and have monthly $70,000 $654 $436 $170 $114 payment based on individual AGI and $80,000 $779 $520 $295 $197 individual student $90,000 $904 $603 $420 $280 debt $100,000 $1,029 $686 $545 $364 Old IBR PAYE REPAYE Partial Financial No Partial Hardship Partial Financial Hardship Partial Financial Financial required Hardship Hardship required required No balance on a Required debt to income ratio federal loan on Oct, 1, 2007 in order to qualify for most Doesn’t matter Doesn’t matter income-driven repayment plans when you when you Federal loan borrowed borrowed disbursed on or after Oct 1, 2011 5

2/18/2016 Old IBR PAYE REPAYE Old IBR PAYE REPAYE Qualifies for PSLF Qualifies for Qualifies for 10% of PSLF PSLF income 20 year forgiveness for borrowers with 15% of joint 10% of joint only undergrad or separate or separate loans income income Always 25 year based on 25 year 20 year forgiveness for BOTH borrowers with forgiveness forgiveness any graduate or spouses’ professional income loans Mary and Joe Old IBR PAYE REPAYE • Mary earns $45,000 as an office administrator. • Her husband Joe earns $60,000 as an account executive. Just 50 • Mary and Joe have no children. percent of No special Capitalization interest • Joe owes $25,000 on his eligible federal limitation to limited to 10 accrues student loans interest percent of during capitalization principal • Mary owes $75,000 on her loans (She owes periods of or accrual balance 75 percent of the total marital student loan negative amortization debt). Comparing Taxation Comparing student loan payments Comparing how much tax they’ll pay Tax Filing Monthly IBR Combined Combined Annual Tax Filing Adjusted Gross Annual Tax Due Combined Annual Status Payment Monthly IBR IBR Payment Status Income Tax Due Payment Jointly Hers: His: $248 $991 $11,892 Jointly $102,500 $14,439 $14,439 $743 (25% of (75% of total) total) Separately Hers: His: Hers: His: $15,061 Separately Hers: His: $272 $731 $8,772 $60,000 $45,000 $9,401 $5,660 $459 Difference Filing jointly saves Difference Filing jointly Filing jointly $622 on this year’s requires $260 requires $3,120 tax payment. more monthly in more annually in student loan student loan payments payments 6

2/18/2016 The paperwork matters verify income & family size annually certify employment annually Must be in qualifying employment when each of 120 payments are made, AND when applying for forgiveness, AND when forgiveness is granted apply for forgiveness Avoid these common mistakes • Forgetting to consolidate older federal loans (FFEL) • Choosing an ineligible repayment plan (long-term) • Filing a joint tax return without first evaluating the consequences • Forgetting to recertify income on time • Forgetting to file Employment Certification Forms annually • Making lump-sum payments 7