Monday, February 1, 2016

Income Based Repayment

If you are wondering about how to apply for loan forgiveness, there are actually three federal loan repayment plans which offer forgiveness: Income Contingent Repayment, Income Based Repayment (IBR) and (for older loans) Income Sensitive Repayment.

If you are working for the government or for a non-profit organization, you will also want to review the Public Service Loan Forgiveness plan as part of a full and complete approach to managing your debt and obtaining loan forgiveness over a given set of time.

If you don't have a lot of time, just review the Income Based Repayment plan rules but keep in mind that you could be making a decision without all of the information.

Income Based Repayment started on July 1st 2009 (20 U.S.C. 1098e(d)(1)(E) & C.F.R. 685.221) (and for Federal Family Education Loans;  20 U.S.C. 1098e & C.F.R. Section 682.215).

Income Based Repayment provides loan forgiveness after 25 years unless you took out your federal loan on or after July 1st 2014 (Pub. L. No. 111-152. Section 2213, 124 Stat. 1029 (March 30th 2010)) in which case you could obtain loan forgiveness after 20 years.

Under 34 C.F.R. 685.221(f)(1), you will need to have repayment conditions consistent with at least one of the following:
  1. Payments of zero OR reduced monthly payments because you have been determined to have a partial financial hardship.
  2. When you stopped making payments under IBR and/or no longer had a partial financial hardship, made reduced monthly payments
  3. Made payments under a repayment plan that were not under the amount you would have been required to pay under the Standard Repayment Plan.
  4. Made payments based on the Standard Repayment Plan in effect at the time you first selected IBR based on the total loan balance
  5. Qualified and made Income Contingent Direct Loan payments
  6. Utilized an Economic Hardship Deferment (34 C.F.R. Section 682.15(f), Section 685.221(f) for up to three years)
To apply for IBR, you will need to provide a photocopy of your tax return(s) and/or permission for your loan servicer to get them from the IRS.  (34 C.F.R. Section 682.215(e)(1))

For FFEL borrowers, a special IBR form was provided as part of a Dear Colleague Letter: GEN-10-11 (June 17, 2010)

Be sure to stay on one of these six characterizations while making payments over the 20 year period in order to qualify for loan forgiveness. 34 C.F.R. Section 685.221(f)(2)(ii)

If you have a Parent Plus Loan and consolidate with the Federal Direct Loan Program, the consolidated loan will become ineligible for Income Based Repayment.  34 C.F.R. 685.221(a)(2)

A Parent PLUS borrower may decide to leave the Parent PLUS loans out of a consolidation with other loans in order to keep the consolidated loan potentially eligible for IBR.  34 C.F.R. 685.208(a)(4)(i)

If your student loan payment is greater than 15% of the difference between your Adjusted Gross Income (from your tax return) and 150% of the federal poverty level for your state then you can potentially be determined to have a partial financial hardship.  This includes your spouse's income.  34 C.F.R. 685.221(a)(4)

If you took your loan out on or after July 1st 2014, the calculation uses 10% of the difference.  Pub. L. No. 111-152, Section 2213, 124 Stat. 1029 (March 30th 2010)

If you have a joint consolidation loan with your spouse, you should be able to repay under IBR.

When calculating a partial financial hardship, you would use all loans potentially eligible for IBR.  34 C.F.R. 685.221 (a)(4)(i)

When calculating 150% of the federal poverty level for your state and family size, you would include children if you provide greater than half of their support.  It doesn't matter who has custody and/or who claims the child for income tax purposes.  34 C.F.R. 685.221(a)(3)

The ten year Standard Repayment Plan is based on the greater of the amount due when yo entered repayment or when you selected IBR.  34 C.F.R. 685.221(a)(4)(i)

Adjusted Gross Income (AGI) is a tax concept.  If you  have AGI reduced by IRA contributions, then obviously your AGI would be lower and help you potentially qualify for income based repayment.

Both you and your spouse's income will be used (from Adjusted Gross Income) if you filed jointly, as of July 1st 2010.  34 C.F.R. 685.221(a)(4)(ii)

The total of both of your loans (or all of your loans) will also be used in the calculation if you file jointly with your spouse.

If you filed under the status married filed separately, then your income alone would be used in the determination.  34 C.F.R. 685.221(a)(4)(i)

Monday, November 2, 2015

Federal Student Loan Repayment Plans

FFEL stands for the Federal Family Education Loan program which has ended.  The Direct Loan program basically started in 1993 and as of July 1st 2010 is the only U.S. federal student loan program with new loans being made.  However, loans under FFEL are still owed.

If you are not in default, you can choose your repayment plan for your federal student loans.

Standard Repayment Plan

The Standard Repayment Plan gives you a fixed monthly payment over five to ten years. 34 C.F.R. Section 685.208(b)(1) for Direct Loans and 34 C.F.R. Section 682.209(a)(7)(i) for FFEL Loans.  The only time your monthly payment could be variable under this plan is when there's a variable rate of interest.

You can request to pay the loan back in under five years if you make the request (within six months) prior to the loan going into repayment. 20 U.S.C. Section 1078(b)(9)(A)

You're going to be placed into a Standard Repayment Plan if you do not choose a repayment plan within the 45 days of having been notified to do so. 34 C.F.R. Section 682.209(a)(6)(v)

Graduated Repayment Plan

If you think your income is going to make a quick jump in the next few years then the Graduated Repayment Plan is for you because payments are low at first but then increase.  However, if you select this plan, you're going to be required to repay the loan over 10 years. 34 C.F.R. Section 685.208(f)

If you entered repayment prior to July 1st 2006, then you will not be required to repay the loan over 10 years under a Graduated Repayment Plan. 34 C.F.R. Section 685.208(f)

Extended Repayment Plan

You have to have a loan balance (with principal and interest combined) of more than $30,000 in order to select the Extended Repayment Plan.

The combined loan balance rule applies to either FFEL loans or Direct Loan balances and not both. So you would have to have either $30,000 in FFEL loans or Direct Loans for this purpose.

If you borrowed before July 1st 2006, you can get up to 30 years to repay your loans under the Extended Repayment Plan based on the amount of the loan. 34 C.F.R. 685.208(d) and (i)

Otherwise, the repayment period for Extended Repayment will not be more than 25 years.
34 C.F.R. 682.209(a)(6)(ix) and 20 U.S.C. 1078(b)(9)(A)(iv)

You can't select the Extended Repayment Plan if you had an FFEL loan balance as of October 7th 1998 or when you took out an FFEL loan after that date.  20 U.S.C. 1078(b)(9)(A)(iv) and 34 C.F.R. Sections 682.209(a)(6)(ix)

The minimum amount you could pay under the Extended Repayment Plan for Direct Loans is $600 per year (barring some other type of agreement) unless the amount of interest accrued is higher than $600. 20 U.S.C. Section 1087(b)(1)(L)(i)

To be continued...