IncomeBased Repayment

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Income-Based Repayment

• Interest, Special Allowance and LaRS

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• Presenters
• Robert (Bob) Sandlin
• NTHEA/HESC
• Ed Brandt
• ACS, Inc.
• Amanda Roberts
• Western States Learning Corporation

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Team FFELP IBR Workgroup

• Consist of over 40 NCHELP and SLSA members
• Representatives from 24 member organizations
• Two calls weekly
• Subcommittee calls in between weekly
• Worked with the Common Manual Policy Committee on
  reviewing draft policies

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Team FFELP IBR Workgroup

• Eight (8) Subcommittees
• LaRS
• Disclosures
• Partial Financial Hardship documentation
• Deferment/Forbearance/Capitalization
• Forms
• IRS Reporting
• Default Claim Filing and Rehabilitation
• Training

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Team FFELP IBR Workgroup

• Workgroup Co-Chairs
• Wanda Hall, Edfinancial Services
• whall_at_edfinancial.com
• Bob Sandlin, NTHEA HESC
• rsandlin_at_nthea.com
• Rob Sommer, Sallie Mae
• robert.a.sommer_at_salliemae.com

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Course Outline

• What is IBR?
• Eligible Loans
• Key Terms
• Interest Accrual
• Special Allowance

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What is IBR?

• IBR is a new repayment plan introduced by the
  College Cost Reduction and Access Act (CCRAA)
• New repayment plan for borrowers designed to help
  borrowers experiencing a partial financial
  hardship
• Available to FFELP and DL borrowers beginning
  July 1, 2009

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Eligible loan types

• Available for
• Stafford, FISL, SLS, Grad PLUS, ALAS, and federal
  Consolidation loans that do not include Parent
  PLUS loans.
• Perkins, HPSL, and HEAL, loans are eligible if
  included in a FFELP or DL Consolidation loan

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Eligible loan types

• Not available for
• Parent PLUS loans or Consolidation loans that
  include Parent PLUS loans
• Private (or "alternative") student loans, state
  loans, and other loans not guaranteed by the
  federal government
• Loans in default

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Key Terms
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What is partial financial hardship (PFH)?

• Based on income and family size
• Occurs when the annual amount due on all of the
  borrower's eligible loans (as calculated under a
  standard 10-year repayment plan) exceeds 15 of
  the difference between the borrower's adjusted
  gross income (AGI) and 150 of the poverty
  guideline for the borrower's family size and
  state of residence

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Standard-Standard

• Payment amount calculated when the borrower
  initially enters repayment based on a 10-year
  term, regardless of loan type
• Will need to calculate this amount regardless of
  whether or not the borrower chooses the standard
  repayment plan when initially entering repayment
• Subject to minimum 50 monthly payment.

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Permanent-Standard

• Payment amount calculated immediately preceding
  entering IBR on loan balance outstanding
• Based on a new 10-year term
• This is the maximum payment amount the borrower
  will ever be required to make, unless the
  borrower requests to leave the IBR plan
• Subject to 50 minimum monthly payment.

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Expedited-Standard

• Payment amount calculated once a borrower
  voluntarily elects to leave the IBR plan
• Amount is calculated using the remaining term
  based on a standard repayment plan, based on loan
  type (maximum of 10 years for Stafford and
  GradPLUS, maximum of up to 30 years for
  Consolidation loans, based on original loan
  balance)
• Unlike a deferment or forbearance, the months
  spent in IBR are not excluded when recalculating
  terms upon leaving IBR completely

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Interest Accrual
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Interest Accrual

• Interest accrues as normal
• Subject to negative amortization - borrowers
  payment amount under a Partial Financial Hardship
  (PFH) may be less than the accrued interest
• What to do with the difference?

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Interest Accrual

• On the unsubsidized loans, the unpaid interest
  will simply accrue and, in certain circumstances,
  capitalize.
• HOWEVER

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Interest Accrual

• On the subsidized loans, if the portion of the
  scheduled monthly PFH payment amount attributable
  to those loans is less than the monthly accrued
  interest on those loans, the Department will pay
  the difference, for up to three years

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Interest Accrual

• After three years, the unpaid accrued interest on
  the subsidized loans, like the interest on the
  unsubsidized loans, will accrue and, at the
  appropriate times, capitalize.

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Interest Capitalization

• Interest must be capitalized
• When borrower leaves PFH voluntarily or no longer
  has a PFH
• When borrower leaves IBR to go to
  Expedited-Standard

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3-year Interest Subsidy

• Interest subsidy applies
• Only while the borrower is on IBR.
• To both subsidized Stafford loans and the
  subsidized portion of Consolidation loans

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3-year Interest Subsidy

• Three-year period begins when the borrower is
  first placed on the IBR plan
• Applies at the loan level, so loans that enter
  IBR at different times will each get the full
  three years.

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3-year Interest Subsidy

• Consolidation Loan Rule
• If borrower consolidates after having already
  entered IBR, each underlying loan will retain the
  number of subsidy months already used. The
  Consolidation loan will not get a fresh three
  years.
• Will need to track the interest subsidy at the
  underlying loan level.

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3-year Interest Subsidy

• 3-year period continues unabated, even if the
  borrower exits PFH or, as previously stated,
  consolidates their loan after having already
  entered PFH
• Only one exception Periods of Economic Hardship
  Deferment

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3-year Interest Subsidy

• EXAMPLE
• Borrower enters IBR on 1/1/10 (Stafford loan).
• Leaves PFH on 12/31/10.
• Consolidates on 1/1/11.
• Hardship Deferment from 1/1/12 - 12/31/12.
• Student Deferment from 1/1/13 5/31/16.
• When does the 3-year clock stop?

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3-year Interest Subsidy

• EXAMPLE (continued)
• Three-year subsidy period would expire on
  12/31/13.
• Would go from 1/1/10 12/31/11, and from 1/1/13
  12/31/13.
• One-year Hardship Deferment from 1/1/12
  12/31/12 is only interruption.

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3-year Interest Subsidy

• The interest subsidy is not contingent upon the
  borrower actually making any particular payment,
  even if the scheduled monthly payment amount
  under PFH is greater than 0.00.
• Possible exception the borrower makes excess
  payments.

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3-year Interest Subsidy

• POSSIBLE TRACKING MECHANISMS
• The LaRS Subcommittee has developed some possible
  tracking methods for this interest subsidy.
• Awaiting responses from the Department on the
  outstanding issues associated with this interest
  subsidy.

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3-year Interest Subsidy

• BILLING MECHANISM
• Quarterly, as part of the LaRS process
• What is the trigger?

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IBR 3-year Interest Subsidy

• Billing occurs if, at the end of the quarter, the
  borrower
• Had been in IBR for at least one month of the
  quarter
• Was still within the 3-year window for some or
  all of the quarter and
• Had a monthly interest accrual on their
  subsidized loans which exceeded the monthly
  payment amount on those loans.

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Possible LaRS Changes

• So that the Department can track the costs
  associated with IBR, the industry has recommended
  some new billing codes for loans on IBR.
• These are currently under review by the
  Department.

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Special Allowance
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Special Allowance

• During periods of PFH, lenders can bill the
  Department for Special Allowance not only on the
  average daily principal balance, but on the
  average daily balance of unpaid accrued interest
  as well.

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Special Allowance

• Lenders may not bill for Special Allowance on the
  unpaid accrued interest during periods of
  Permanent-Standard payment.

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Special Allowance

• Special Allowance is billed based on the average
  daily accrued interest amount.
• Average daily accrued interest is computed by
  totaling up the unpaid accrued interest for each
  day of the quarter on which the borrower was in a
  PFH and dividing this total by the number of days
  in the quarter.

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IBR Special Allowance

• EXAMPLE 1st Quarter 2010
• Borrower on PFH from 1/1/10 through 1/6/10
• Interest accrued at 5.00/day
• PFH payment of 10 posted on 1/4/10 (applies to
  interest accrued through 1/3)
• What is the Average Daily Accrued Interest for
  this quarter?

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IBR Special Allowance

• EXAMPLE (continued)
• 1/1/10 5.00
• 1/2/10 10.00
• 1/3/10 5.00 (15.00 - 10.00 int payment)
• 1/4/10 10.00
• 1/5/10 15.00
• 1/6/10 20.00
• 5 10 5 10 15 20 65.00

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IBR Special Allowance

• EXAMPLE (continued)
• Divide 65 by the number of days (90) in the
  quarter
• 65 ? 90 0.72

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Special Allowance

• YES, YOU CAN!
• For as long as the borrower remains on PFH, you
  can carry over the outstanding accrued interest
  to the next quarter and factor it into that
  quarters Average Daily Accrued Interest.

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Special Allowance

• NO, YOU CANT!
• In cases where the borrower entered PFH with
  interest outstanding (and not capitalized), you
  cannot include that outstanding interest in the
  Average Daily Accrued Interest calculation.
• Agencies may want to track the IBR interest
  separately.

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Special Allowance

• NO,YOU CANT (Part II)
• If any portion of an IBR-eligible Consolidation
  loan paid off a Health Education Assistance Loan
  (HEAL), you may not include the interest accrued
  on that portion in the average daily calculation
  either.

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Special Allowance

• WELL, MAYBE YOU CAN
• During the three-year interest subsidy period,
  while the borrower is on PFH, you may be able to
  include the interest allocated to the government
  bucket in the Average Daily Accrued Interest
  calculation?
• This is still being worked out with the
  Department.

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Special Allowance

• When paying Special Allowance on the average
  daily accrued interest, the Department will use
  the same formula applicable to the loan itself,
  but with an interest rate of 0

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IBR Special Allowance

• EXAMPLE
• Stafford loan, first disbursed on 9/1/05,
  purchased with taxable funds. Well assume a SAP
  code of CB.
• Average 3-month Commercial Paper (CP) rate 3.5
• What would the SAP rate be?

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IBR Special Allowance

• EXAMPLE (continued)
• Formula would be Average 3-month CP rate 2.34
  - interest rate, divided by 4
• 3.5 2.34 - 0.00 ? 4 1.46

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IBR Special Allowance

• EXAMPLE (continued)
• Finally, multiply Average Daily Accrued Interest
  by the Special Allowance rate
• 0.72 x 1.46 0.0105

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Special Allowance

• Average Daily Accrued Interest, like the Average
  Daily Balance, is subject to retroactive account
  adjustments.

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IBR Special Allowance

• EXAMPLE
• Using our earlier example, lets say a payment of
  10 was applied retroactive to 1/5/10, covering
  interest accrued through 1/4/10.
• This would reduce the outstanding accrued
  interest for 1/4/10, 1/5/10, and 1/6/10 by 10
  each day.
• What is the Average Daily Accrued Interest
  adjustment for the 3/31/10 quarter?

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IBR Special Allowance

• SOLUTION (short method)
• Multiply daily adjustment (-10) by number of
  days affected (3) and divide by number of days in
  the quarter
• (-10) x 3 ? 90 (-0.33)

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IBR Special Allowance

• SOLUTION (long method)
• Re-do entire sequence and compare results
• 1/1/10 5.00
• 1/2/10 10.00
• 1/3/10 5.00 (15.00 - 10.00 int payment)
• 1/4/10 0.00 (10.00 - 10.00 retro pmt)
• 1/5/10 5.00
• 1/6/10 10.00
• 5 10 5 0 5 10 35.00

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IBR Special Allowance

• SOLUTION (long method)
• Divide 35 by the number of days (90) in the
  quarter
• 35 ? 90 0.39
• Subtract old result (0.72) from new result
• 0.39 - 0.72 -0.33

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Special Allowance

• LaRS REPORTING MECHANISM
• New SAP Codes?
• OR
• Same SAP code as the Average Daily Balance, but
  with an interest rate of .00?
• Dear Partner Letter anticipated

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Forgiveness Claims LaRS

• If forgiveness claim is not filed by day 60, any
  ongoing billing to the government deferment
  interest subsidy and special allowance (on both
  the principal and accrued interest) must stop.

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Questions?