Life After Law School: Loan Repayment and Forgiveness for Public - PowerPoint PPT Presentation

Life After Law School: Loan Repayment and Forgiveness for Public Interest Graduates Berkeley Law Financial Aid Office Amanda Prasuhn, Associate Director of LRAP March 4, 2020

Road Map I. Repayment Plans II. LRAP III. PSLF IV. Action Items V. Resources

Three Different Programs at Play Loan Repayment Income-Driven Public Service Loan Assistance Program Repayment (IDR) Forgiveness (PSLF) (LRAP) • Federal program • Berkeley Law • Federal program Determines your program Method for obtaining • • monthly payment Provides funding to loan forgiveness after • amount help make IDR 10 years of qualifying • Available to any payments payments borrower regardless • Eligibility depends on • Eligibility depends on of employment, income and employment plans to pursue PSLF, employment Available to any • or participation in Available whether borrower regardless • LRAP pursuing PSLF or not of income or participation in LRAP

1. Income Driven-Repayment

Federal Repayment Plans Standard 10-Year • Based on loan debt (“debt-driven”) • Monthly payments are in a fixed amount • After making payments for 10 years, loans will be paid in full Income-Driven • Based on income (“income-driven”) • Monthly payments vary year-to-year based on income • Whether these payments result in your loan balance increasing, decreasing, or staying the same depends on your loan debt and income

Repayment Strategies Standard 10-Year • Results in loans being paid off entirely • But , depending on your loan debt, your loan payments might be unaffordable , especially for those working in public service jobs. Income-Driven • Payments become affordable • But , oftentimes results in your loans growing in size. Therefore, this option is best for those with plans to pursue loan forgiveness through PSLF. • Those who want to pay off their loans likely need to pay more than the minimum amount due under an IDR plan.

Income-Driven Repayment: The Basics • Multiple IDR plans to choose from LRAP-eligible plans are Income-Based Repayment ( IBR ) and Pay o As You Earn ( PAYE ) Federal government uses your tax return to determine your income • May have a $0 monthly payment the first 1-2 years of o repayment Family size and tax filing status taken into account o • Most plans will never give you a payment higher than the Standard plan  more affordable ! • IDR plans last 12 months . Reapply each year with your updated income.

How much will you pay? Example monthly payment amounts, Standard v. PAYE: $100,000 loan debt, $60,000 income $100,000 loan debt, $80,000 income Standard 10-year plan: $1,000/month Standard plan: $1,000/month Income-driven plan: $300/month IDR plan: $500/month $200,000 loan debt, $60,000 income $200,000 loan debt, $80,000 income Standard plan: $2,000/month Standard plan: $2,000/month IDR plan: $300/month IDR plan: $500/month

1I. Loan Repayment Assistance Program

LRAP: The Basics • LRAP is a program designed to support Berkeley Law graduates working in the public interest. LRAP provides funding to help you pay your monthly IDR • payments . • Support comes in the form of a forgivable loan in a lump sum . • Open to all Berkeley Law J.D. graduates with eligible loans and employment. Must enter within 3.5 years of graduation • Once in the program, can utilize up to 120 months of LRAP • support (cumulatively)

LRAP: Eligible Loans • All federal direct student loans are eligible for LRAP support. This includes Graduate Plus loans, Stafford loans, and direct subsidized and unsubsidized loans. Private loans or other types of federal student loans are o not covered. • There is no maximum loan debt. • Federal direct loans from undergrad or other previous institutions are included. • Must be enrolled in an income-driven repayment plan

LRAP: Eligible Employment • You must work in a law-related position at a nonprofit or in government . Clerkships count! If you clerk for ≥ 2 years , there are no o post-clerkship job requirements. If you clerk for <2 years , you must immediately enter qualifying public interest employment after clerking to be eligible for LRAP . Some public interest law firms and international NGOs can • qualify–but do not qualify for PSLF! You must work greater-than-half time , but only full-time • employment qualifies for PSLF!

LRAP: Income • Those making $70,000 or less will receive 100% LRAP support. Those making greater than $70,000 will receive a prorated amount of support.  You’ll contribute 35% of your income over $70k to your loans out of pocket, with LRAP covering the rest of your IDR payment amount. • If you’re married, we’ll average your two incomes if your spouse earns more than you. • $100,000 income cap

How much LRAP support will I get? Some examples: $400 monthly payment, $60,000 income $400 monthly payment, $80,000 income Out-of-pocket contribution: $0/month Out-of-pocket contribution: $290/month LRAP support: $400/month LRAP support: $110/month $600 monthly payment, $60,000 income $600 monthly payment, $80,000 income Out-of-pocket contribution: $0/month Out-of-pocket contribution: $290/month LRAP support: $600/month LRAP support: $310/month

III. Public Service Loan Forgiveness

Federal Forgiveness Plans Public Service Loan Forgiveness • Requires 120 months of qualifying payments made while working in qualifying employment. • Not a taxable event . If you are approved for PSLF, your remaining loan balance (principal and interest) will be forgiven and is not considered taxable income. 20-25 Year Forgiveness • Built in to the IDR plans No employment requirements • • A taxable event . Any remaining loan balance that is forgiven is considered taxable income in that year. If you pay a low IDR amount for 20-25 years, your remaining loan balance (and therefore, your tax burden) may be sizable .

Public Service Loan Forgiveness • Created by Congress in 2007 to encourage borrowers to pursue public service careers. Only Congress has the authority to change PSLF. o • Must have 1) qualifying loans in a 2) qualifying payment plan , and 3) make 120 qualifying payments while in 4) qualifying employment . • Payments can be cumulative , not consecutive. • After 120 qualifying payments, you can apply for PSLF with the Department of Education.

Qualifying Loans • Direct Federal student loans are the only eligible loans. • Private student loans or refinanced loans are not eligible. • Perkins or FFEL loans are not eligible (but ask us how to convert them!).

Qualifying Payment Plans • All of the income-driven repayment plans qualify for PSLF. • The standard 10-year repayment plan qualifies o But you probably won’t have a remaining balance after 10 years. • Graduated, extended, or alternative plans do not qualify.

Qualifying Employment • 501(c)(3) nonprofit or government o Any level: federal, state, local, tribal, clerkships • Full-time • Your position or time spent on particular job duties do not matter–the only thing that matters is your employer. • No income cap or requirements for PSLF!

Qualifying Payments (The trickiest part!) You must have 120 separate monthly qualifying payments . • Lump sum payments don’t count o Paid ahead status doesn’t count o • Must be in the correct amount (what your IDR plan says to pay, or more!) • Must be on-time No late payments o • Payments must be made while enrolled in a qualifying plan . Payments must be made while employed full-time by a qualifying • employer. Must have a payment due • Payments made while in school or during a grace period, deferment, o or forbearance do not count.

Documenting Employment To indicate your interest in PSLF and • document your employment, you should submit a PSLF Employment Certification Form to the Department of Education. Submit one annually o Submit one each time you leave a o job (including an end date) • Will transfer you to FedLoan Servicing . FedLoan Servicing is the ONLY loan servicer administering PSLF!

Applying for PSLF • You will not actually apply for PSLF until you have 120 qualifying payments. • No partial forgiveness–you must work in qualifying employment for 10 years and make 120 qualifying payments. • Must continue working in qualifying employment until your application is approved.

Issues with PSLF • Mostly due to bad guidance in the early years of the program. Borrowers didn’t know what loans, repayment plans, or o employment qualified. The process was more complicated in 2007: the primary type of loans • offered were not Direct loans; electronic payments were less common; the Employer Certification Form wasn’t created until 2012; etc. Getting 120 qualifying payments simply takes time . 58% of denied PSLF • applicants didn’t have enough qualifying payments when they applied. • This has all resulted in very low success rates for those in applying for PSLF so far. The vast majority of applicants simply have not met the qualifications. • Expect higher success rates as the program continues!