IBR: A TOOL TO HELP STUDENTS
MANAGE REPAYMENT
Webinar Wednesday | September 28, 2011
IBR: A TOOL TO HELP
STUDENTS MANAGE
REPAYMENT
A Servicer Perspective
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IBR
I.
IBR: Ins and Outs
II. Applying for IBR
III. IBR vs. the Alternatives
IV. Educating Borrowers
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IBR: INS & OUTS
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WHAT IS IBR?
• Income-Based Repayment Plan was created by Congress under
The College Cost Reduction and Access Act of 2007 (with an
implementation date of July 1, 2009)
• Ideal for individuals entering careers with relatively high loan
debt compared to starting salaries, such as:
– Medicine
– Law
– Elementary/secondary education
– Social work
• Potential tool for individuals whose loans are in a delinquent
status
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WHAT IS IBR?
• Payments significantly lower under IBR, but would also take
longer than standard 10 years to repay, resulting in paying more
over the life of the loan
• Must have a “partial financial hardship” (PFH) to qualify for IBR
• Provides interest subsidy on subsidized loans for up to 3 years if
IBR payment is less than accrued interest on those loans*
• Provides forgiveness of remaining balance after 25 years (300
eligible payments)
* IBR Subsidy is for the amount of interest that the scheduled payment amount does not cover. This differs from
interest subsidy for deferments and other periods where all in the interest is covered. All interest would be
covered if payment amount is $0.
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LOANS ELIGIBLE FOR IBR
Eligible:
Non-eligible:
• FFELP / Direct Stafford
• Parent PLUS
• FFELP / Direct Grad PLUS
• Consolidations w/ Parent
PLUS
• Supplemental Loans (SLS)
• FISL
• FFELP / Direct Consolidation
• Non-FFELP or Non-RDL
• State loans
• Perkins Loans
• Private loans
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PARTIAL FINANCIAL HARDSHIP (PFH)
Borrower’s annual
loan payment using
the Standard 10year Repayment
Plan
>
15% of (borrower’s
adjusted gross
income – 150% of
poverty line amount)
Based on income and family size
Final rules effective 07/01/2010 allow for the PFH to be determined based
on the greater of either: the amount due at the time the loans entered
repayment or at the time the borrower or spouse requests the IBR plan.
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SCENARIOS
Examples
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Single borrower
with no dependents
Married borrower
with two children
(and no spousal
income or spousal
student loan debt)
Married borrower
with no other
dependents (spousal
income and loan
debt)
Eligible student loan debt
$40,000
$80,000
$40,000
Interest rate
6.8%
6.8%
6.8%
Adjusted Gross Income
$30,000
$60,000
$25,000
10-year Standard plan
monthly payment
$460
$920
$460
Estimated monthly PFH
payment under IBR plan
$170
$340
$40
Reduction in monthly
payment amount
$290
$580
$420
SCENARIOS
Examples
Single borrower
with no dependents
Married borrower
with two children
(and no spousal
income or spousal
student loan debt)
Married borrower
with no other
dependents (spousal
income and loan debt)
Eligible student loan debt
$40,000
$80,000
$40,000
Interest rate
6.8%
6.8%
6.8%
Adjusted Gross Income
$15,000
$33,400
$22,500
10-year Standard plan
monthly payment
$460
$920
$460
Estimated monthly PFH
payment under IBR plan
$0
$0
(PFH result was $4)
$10
(PFH result was $8)
Reduction in monthly
payment amount
$460
$920
$450
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IBR AND MARRIED BORROWERS (FILING A
JOINT TAX RETURN)
• Adjusted Gross Income (AGI) is used to determine qualification
• Prior to 7/1/10, for married borrowers filing a joint tax return, we
considered both spouses AGI, but only the borrower’s debt in
determining Partial Financial Hardship (PFH).
• Under the rules effected on 7/1/10, we use the AGI on the joint tax
return and are able to use both of the borrower’s eligible loan
balances to determine PFH.
• NOTE: This change is allowed even if only one spouse applies for
IBR.
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CHANGES UNDER THE STUDENT AID AND
FISCAL RESPONSIBILITY ACT (SAFRA)
• New borrower’s payment will not exceed 10% of the discretionary
income (currently 15%)
• Outstanding balance will be discharged after 20 years (currently
at 25 years)
• These changes were only applicable to NEW borrowers that
receive their loan on or after 7/1/2014. However, on 10/25/11,
The White House and Department of Education accelerated this
change to 2012. This plan does not override the current IBR
plan, but has the programs running concurrently, with the more
generous terms only available to borrowers who received a
federal loan since 2008 and also receive a federal loan in 2012.
The Student Aid and Fiscal Responsibility Act (SAFRA) is included in the Health Care and
Education Reconciliation Act (HCERA).
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IBR: LOAN FORGIVENESS
•
The earliest a borrower may qualify for loan forgiveness under IBR
is 2034 (July, 1, 2009 + 25 years)
•
Servicer Perspective: Specific claim filing instructions have not yet
been determined, but it is assumed the servicer files a discharge
request with the guarantor and payment for remaining balance of
principal & interest is paid. There will be no claim filing process for
ED servicers.
•
School Perspective: Research & modeling show that the likelihood
that borrowers will have a balance after making payments for 25
years is low
•
Portion left over after the forgiveness years is taxable income
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IBR: LOAN CAPITALIZATION
•
Interest accrues while a borrower is in a period of Partial
Financial Hardship (PFH). Capitalization occurs if/when PFH
status ends.
•
Capitalization occurs:
o
if they no longer qualify for PFH
o
if they go back to a regular repayment schedule
(Permanent Standard)
o
at end of deferment or forbearance
o
if they were to go to another repayment plan
• Since interest does not capitalize until you end a PFH status,
there is a benefit to staying in a PFH payment as long as
possible.
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APPLYING FOR IBR
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IBR FORMS (IBR REQUESTS)
•
IBR FFELP or Direct Loan Application form, which is a standard
form from DOE (The servicers stopped using our own repayment
option forms).
•
Borrower may request IBR off system letters, e-mail, online (via
Manage My Account)
•
Borrower can also call into our customer service line and verbally
request IBR with an associate over the phone.
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IBR FORMS (IBR REQUESTS)
•
Borrower will have to prove their income by submitting their
tax information (1040) from the previous year of consent to the
IRS releasing their tax information.
•
If a borrower did not file taxes for the previous year or the AGI
does not reasonably reflect the borrower’s current income,
then they must also use the alternate documentation of
income form
•
Though ED servicers notify borrowers to renew their
paperwork every year to maintain a PFH payment, it is
important that the borrower submits the appropriate
information annually.
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IBR PLAN REQUEST (FFELP)
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IBR PLAN—ALTERNATIVE DOCUMENTATION
OF INCOME (FFELP)
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REPAYMENT PLAN SELECTION (FDLP)
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ICR AND IBR PLAN—ALTERNATIVE
DOCUMENTATION OF INCOME (FDLP)
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ALTERNATIVE DOCUMENTATION OF
INCOME
• Utilized when the borrower’s current income does not reflect what
was reported as AGI on their most recently filed income tax return
(i.e., lost their job, cut in pay, etc.) or borrower did not file taxes or
current income.
• Used to determine eligibility for IBR and PFH payment amount.
• Disadvantage: Proof of income required via the Alternative
Documentation of Income form does not typically provide tax
deductions
• Using this documentation may be the only way to get a borrower
into IBR or reduce their PFH payment to a manageable level.
• CIC representatives are trained on when it would be appropriate
for a borrower to complete alternative documentation of income.
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TIMING OF PROCESSING IBR
•
As soon as all documentation is received, the IBR can be
processed immediately.
•
IBR will not take effect until, at least, 30 days after process date due
to setup tied to disclosure process.
•
The IBR start date is their next payment due date so no past due
payments are required by the borrower for their initial IBR request.
Note: There is no admin forbearance if the borrower is in IBR and
requesting a recalculation or renewal of their PFH. Borrower can
make payments or apply for a forbearance/deferment to cover any
past due payments.
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IBR: SPLIT & MULTIPLE LOANS
•
The borrower must request IBR with each holder of their loans
•
The servicer must apply IBR to all the loans they hold, unless
the borrower specifically requests to leave a loan or loans out of
IBR
•
FSA has advised all DL loans be in the same repayment plan, if
eligible
•
Although rare, borrowers do have the option to have different
repayment plans for their loans to clarify between DL and
FFELP
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IBR VS. ALTERNATIVES
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IBR VS. ALTERNATIVES
•
There are no standard answers when counseling borrowers
•
Decision depends on the situation of the individual borrower and
assumes they qualify for PFH/IBR
•
Consideration:
•
3-year subsidy clock with IBR
•
If request forbearance while in IBR, the 3-year subsidy clock
keeps ticking and months in forbearance are not counted
towards forgiveness
•
Unemployed deferment has 3-year deferment clock
•
IBR can result in payments well beyond 10 years resulting in
paying more over life of loan
•
Any forgiven amount is taxable income
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IBR VS. ALTERNATIVES
Scenarios for a borrower if they:
qualify for a reduced or minimal payment and STILL can't make a monthly
payment
qualify for PFH/IBR and are in a long-term hardship
are in a temporary hardship
Possible Option
Forbearance
IBR
Def/Forbearance
anticipate they are in a field where they can find a job within 3 years
assume a high loan debt to income ratio for a lengthy time up to 25 yrs
UD
IBR
are interested in the possibility to meet forgiveness
IBR
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IBR vs. ISR
•
Income-Sensitive Repayment (ISR) is a plan for FFELP loans only
•
ISR has two restrictions (that often limit the servicer’s ability to
offer lower payments:
1. Payments cannot be less than the amount of interest that accrues
every month
2. Payment cannot be 3x more than any other payment
•
ISR is based on the borrower’s income and varies in how the
payment is determined. IBR is determined based on calculations
set by regulations that all lenders/servicers must follow.
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IBR vs. ICR
•
Income-Contingent Repayment (ICR) is a plan for FDLP only. IBR is
available under both FFELP and FDLP.
•
To initially qualify for IBR, you must have a PFH. There is not comparable
requirement for ICR. Any Direct Loan borrower (other than a PLUS
borrower) may choose ICR.
•
The amount of loan debt is not considered in determining IBR payment
amount during any period you have a PFH. IBR payment is determined
based on income and family size. In contrast, payment under ICR
considers total Direct Loan debt in addition to income and family size (so,
payment is generally higher than in IBR).
•
Under ICR, you are responsible for paying all of the interest that accrues on
your loans. With ICR unpaid negative amortized interest up to the 10% limit
is capitalized. Under IBR, the government pays the remaining unpaid
interest on sub loans for up to 3 consecutive years from the date you begin
repayment.
•
Under ICR, unpaid interest is capitalized annually. IBR, unpaid interest is
capitalized only if you are determined to no longer have a PFH.
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USING FORBEARANCE TO BRING LOAN
ELIGIBLE FOR IBR
•
While it is up to each servicer, Nelnet will allow forbearances to
bring the account current and out of default.
•
A separate written forbearance agreement and an agreement to
repay the debt must be obtained before the claim is paid.
•
If claim was paid, the lender may recall the claim, process the
forbearance, and grant the borrower IBR (provided the borrower
qualifies).
•
However, servicers are not required to use this discretionary
forbearance. This process is approved by the guarantor, as it is
not our practice to process a forbearance if the claim has been
paid.
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REHABILITATION TO RESOLVE DEFAULTS
FOR IBR
•
The borrower would become eligible for IBR after the loan is
purchased by the rehabilitation lender.
•
Borrower will need to apply for IBR with their new lender.
•
Any monthly payments eligible for forgiveness made or covered
by an Economic Hardship Deferment (EHD) prior to the
borrower defaulting will be passed to the rehabilitation lender
and count.
•
9 payments on the defaulted loans during rehabilitation would
not count as eligible payments for IBR forgiveness
•
3-year IBR interest subsidy period does not start over at the
time of rehabilitation.
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EDUCATING BORROWERS
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IBR: HOW NELNET EDUCATES BORROWERS
• Correspondence regarding all repayment plans via mail/e-mail
• During counseling calls with borrowers, IBR is discussed if it seems
appropriate to the borrower’s situation
• Via Manage My Account (www.nelnet.com or the mobile website)
• Self-service borrower tools: iPhone/Droid repayment calculator
apps
• Financial literacy materials & literature, funneled through schools
• Student webinars (Money Mondays)
• Our Nelnet Partner Solutions webinars and on-site counseling
sessions where possible
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OUR “ROADMAP” FOR SCHOOLS ON
COUNSELING IBR
• First, familiarize your students with NSLDS and encourage them
to review their portfolio. How much many loans? Amounts?
Number of ED Servicers? Errors?
• They have to have solid communication with their servicer
• Help them understand ALL options, as IBR may not always fit
• Borrowers must request IBR and provide their 1040 Tax form or alt
doc income form – complete, accurate, and signed
• In regards to IBR, remind borrowers to continually apply or renew
their plan on a yearly basis; and that while a partial financial
hardship (PFH) payment is low, there could be a higher payment
applied in the future, should they no longer qualify for PFH.
• Schools can promote internal/external IBR resources & tools
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IBR RESOURCES
• §682.215 and §685.221 — Income-Based Repayment
Plan
• ED: Repayment plan information
www.studentloans.gov
• Nelnet: Repayment and debt management
www.nelnet.com
• TG: IBR webpage
www.tgslc.org
• Project on Student Debt: IBR information
www.ibrinfo.org
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Questions?
Thank you!
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