Student Loan
Repayment Strategies
William Kahler
Director of Financial Aid
California Western School of Law
Know Your Loans
• Loan types, lenders, loan servicers
• Loans can be sold to a different lender
• Loans can also be “put”: sold to the
Department of Education
• Information on your loans can be obtained
from the National Student Loan Data System:
www.nslds.ed.gov
Tactics
• Postponement options
– Deferment
– Forbearance
– Alignment Forbearance
• Repayment options
– Standard
– Extended, Graduated
– Income-Based Repayment
• Public Service Loan Forgiveness
Tactics
• Other tactics
– Consolidation
• Necessary for PSLF
• Move from multiple lenders to a single lender
– Prepayment
• Any student loan (federal or private) may be prepaid
without penalty
Postponement
• Grace period
– Perkins loans: 9 months
– Stafford loans: 6 months
– PLUS loans: NONE, but can be aligned with
Stafford loan repayment start date (ask lender for
alignment)
– If grace period is ever fully used, it goes away
• Summer breaks okay, but more than six months of nonenrollment or less-than-half-time enrollment removes
grace period
Postponement
• Deferment
– In-school (half-time or more)
– Unemployment, up to 3 years
– Economic Hardship
• Recently changed; harder to qualify for
• Receiving public assistance, serving as Peace Corps volunteer, or
earning less than 150% of poverty line or less than monthly
minimum wage (whichever is greater)
• Use IBR for high debt and low wages
–
–
–
–
Active duty military
Interest does not accrue on Perkins or Subsidized Stafford
Interest accrues on Unsubsidized Stafford or PLUS
Usually must apply with each lender
Postponement
• Forbearance
– A temporary postponement or reduction of
payments because you are experiencing financial
difficulty
– Up to 1 year at a time for up to 3 years
– Interest always accrues
– Usually must apply with each lender
Federal Consolidation Loan
• Helps simplify things by combining federal
loans under one lender
• Allows FFEL and Perkins loans to qualify for
Public Service Loan Forgiveness by taking out
a Direct Consolidation Loan
• Not generally useful as a refinancing tool
– Exception: can reduce PLUS from 8.5% to 8.25% if
no other loans included
Stafford, PLUS, and Consolidation Loan
Repayment Options
• Standard (10 years)
• Extended (12-30 years)
– Warning! No PSLF
• Graduated (12-30 years with lower payments at
first)
– Warning! No PSLF
• Income Based Repayment
– 15% over 150% poverty, or 10-year
– 25-year forgiveness
Stafford, PLUS, and Consolidation Loan
Repayment Non-Options
• Income-Contingent Repayment 
– Old Direct Loan-only version of IBR; no reason to use,
unless you don’t qualify for IBR at start of repayment
(rare)
– 20% over poverty, or 12-year flat payment (higher
payments than IBR)
– 25-year forgiveness
• Income-Sensitive Repayment 
– Old FFEL-only version of IBR; no reason to use.
– Warning! Not eligible for PSLF *and* must cover
interest
Income-Based Repayment
• Caps repayment at 15% of discretionary income
– Or the Standard 10-year payment on the initial
balance when repayment began, whichever is lower
• Must have “Partial Financial Hardship” to qualify
– PFH means: Initial IBR payment is less than Standard
10-year payment
• Remaining balance forgiven after 25 years.
– IBR forgiveness is a taxable event under current law
– HR 2492 seeks to change this; in committee, but…
Income-Based Repayment
• Covers Federal Stafford, Federal Graduate PLUS,
and Federal Consolidation loans (both Direct and
FFEL).
• Does not cover Federal Perkins loans.
– However, Perkins can be consolidated into Federal
Consolidation loans, which are covered.
– There are also Perkins-only forgiveness provisions for
certain jobs in teaching, family service agencies, law
enforcement, armed forces, or other jobs.
• Does not cover private, state, or institutional
loans.
Income-Based Repayment
• Replaces Economic Hardship deferment as
method of avoiding payment during bar study
period.
– Economic Hardship definition no longer includes high
debt/low income (“20/220 rule”)
– Anyone who would have qualified under 20/220 will
qualify for IBR
– Under IBR, some payments may be necessary if
borrower earns enough income; this could reduce
interest subsidy slightly
Income-Based Repayment
Example
• From your AGI, subtract
150% of the poverty level
for your family size: 60000 –
16245 = 43755
• Take 15% of the remainder:
43755 x 0.15 = 6563. This
amount is your annual
maximum payment under
IBR.
• Divide by 12 for monthly
payment amount: 6563 / 12
= 547.
$60,000 AGI, Single,
Continental U.S. (2009)
150% of
Poverty
Level
60000
16245
40000
20000
0
85% of
remainder
37192
6563
15% of
remainder
(annual
payment)
Public Service Loan Forgiveness
To be eligible for PSLF you must:
– Make 120 of the right kind of payments
– With the right kind of loan
– While working in the right kind of job
Public Service Loan Forgiveness
• Make 120 of the right kind of payments
– Income-Based Repayment (IBR)
– Income-Contingent Repayment (ICR, IBR’s
generally inferior older cousin)
– Standard 10-year
– The wrong kind of payment: extended, graduated,
or income-SENSITIVE payments
Public Service Loan Forgiveness
• With the right kind of loan
– Direct Loans Only (Stafford, Grad PLUS,
Consolidation under William D. Ford Direct Loan
Program)
– FFEL loans (like those borrowed at CWSL) not
eligible; neither are Perkins loans
– However, FFEL loans (including FFEL Stafford, FFEL
PLUS, and FFEL Consolidation loans) and Perkins
Loans can be consolidated into Direct
Consolidation Loans.
Public Service Loan Forgiveness
• While working in the right kind of job
– Full-time employee of a 501(c)(3)
– Or a full-time federal, state, local, or tribal employee
• Includes AG, DA, PD, JAG, FBI, etc.
– Or a full-time AmeriCorps or Peace Corps position
– Or the job satisfies both parts of the following test:
• The employer is not "a business organized for profit, a labor union, a partisan
political organization, or an organization engaged in religious activities, unless
the qualifying activities are unrelated to religious instruction, worship services,
or any form of proselytizing"
• AND the employer provides any of the following public services: emergency
management; military service; public safety; law enforcement; public interest
law services; early childhood education; public service for individuals with
disabilities and the elderly; public health; public education; public library
services; and school library or other school-based services.
Public Service Loan Forgiveness
• Forgiven amounts not taxable under PSLF!
Different situations,
Different strategies
•
Aggressive: Pay down loans early (Standard repayment – or faster!)
– Requires high income
– Minimizes interest cost (no penalty for prepayment)
– Not an option for some high balances
•
Extended: stretch out flat payments over many years (Extended, Graduated)
– Highest interest
– Probably not the best option for federal loans
•
IBR: Income Based Repayment
–
–
–
–
•
PSLF: Public Service Loan Forgiveness
–
–
–
–
•
Caps payments based on your income
If balance remains after 25 years, forgiveness
Federal loans only; must consolidate Perkins
Can be more costly if income spikes
Under IBR, caps payments based on your income
Requires 10 years of full-time public service employment
If balance remains after 120 qualifying payments, forgiveness
Federal loans only; must consolidate FFEL loans and Perkins to Direct
If circumstances change, consider changing strategies
Federal Loans only
$180,000 debt
Repayment option
Starting Monthly Payment (rounded)
Standard 10-year
$2180
Extended 25-year
$1380
Income Based Repayment ($100,000 AGI)
$1050
Income Based Repayment ($60,000 AGI)
$550
Income Based Repayment ($40,000 AGI)
$300
Repayment graph
Assumes 3% inflation, and 4% annual AGI increase
$180K debt, $60K starting salary
3000
2000
1000
0
21
16
STD10
EXT25
IBR25
PSLF10
11
6
Year
1
STD10
EXT25
IBR25
PSLF10
Monthly
Payment
Total Payments
$180,000 debt, 3% inflation, 4% annual AGI increase
Repayment Option
Total Payments
Total Forgiven
Standard 10-year
$261,145
None
Extended 25-year
$413,896
None
IBR, $60K starting salary
$285,971
$248,127
PSLF, $60K starting salary
$80,120
$242,425
Repayment graph
Assumes 3% inflation, and 4% annual AGI increase
$180K debt, $60K starting AGI,
jumps to $120K AGI after 5 years
2500
2000
1500
Monthly
1000Payment
500
0
21
16
STD10
EXT25
IBR25
PSLF10
11
Year
6
1
STD10
EXT25
IBR25
PSLF10
Total Payments
$180,000 debt, 3% inflation, 4% annual AGI increase
Repayment Option
Total Payments
Total Forgiven
Standard 10-year
$261,145
None
Extended 25-year
$413,896
None
IBR, $60K starting, jumps
to $120K in year 5
$422,443 (23 years)
None
PSLF, $60K starting, jumps
to $120K in year 5
$118,306
$116,117
Federal Loans only
$60,000 debt
Repayment option
Starting Monthly Payment (rounded)
Standard 10-year
$690
Extended 25-year
$420
Income Based Repayment ($100,000 AGI)
$1050 [No Partial Financial Hardship!]
Income Based Repayment ($60,000 AGI)
$550
Income Based Repayment ($40,000 AGI)
$300
Repayment graph
Assumes 3% inflation, and 4% annual salary increase
$60K debt, $60K starting salary
700
600
500
400
300
200
100
0
21
16
STD10
EXT25
IBR25
PSLF10
11
6
Year
1
STD10
EXT25
IBR25
PSLF10
Monthly
Payment
Total Payments
$60,000 debt, 3% inflation, 4% annual AGI increase
Repayment Option
Total Payments
Total Forgiven
Standard 10-year
$82,858
None
Extended 25-year
$124,935
None
IBR, $60K starting AGI
$87,459 (11.3 years)
None
PSLF, $60K starting AGI
$77,078
$9,924
Private Loans
Terms vary by loan. Generally:
• No deferments, but a “grace period” and
forbearances are available
• An extended repayment plan may be available
• No federal consolidation. “Private
Consolidation” expensive and usually
unhelpful.
Private Loans
• Private loans can’t be included in IBR, so total
monthly payment = IBR payment + private
loan payment
• Since private loans generally have variable
rates, it is a good idea to prepay private loans
as quickly as possible, while interest rates are
low
For More Information
• IBRinfo.org
• EqualJusticeWorks.org
• Department of Education
– Google: ed.gov IBR (for IBR information)
– Google: ed.gov PSLF (for Public Service Loan
Forgiveness information)
• Finaid.org (for calculators and in-depth
analysis)