Income Based Repayment

1
Income Based Repayment

• Presented by
• Wanda Hall, Edfinancial Services
• 2009 OGSLP Annual Conference

2
Team FFELP IBR Workgroup

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

3
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

4
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

5
Course Outline

• Interest and Special Allowance
• Tracking
• Claims
• Forgiveness

• What is IBR?
• Eligible Loans
• Key Terms
• Disclosures
• Repayment

6
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

7
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

8
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
• Defaulted loans

9
KEY TERMS
10
Partial financial hardship (PFH)

• Based on income and family size borrower must
  provide permission for IRS to disclose AGI "and
  other tax return information" as well as family
  size certification
• 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

11
Adjusted Gross Income (AGI)

• Borrower who files married/joint both spouse's
  AGI are considered in determining payment amount
• Borrower who files married/separate only the
  borrower's AGI and debt are considered in
  determining payment amount
• Changes to occur 7/1/10 due to Negotiated
  Rulemaking

12
Family Size

• Must be certified annually
• Includes borrower, spouse, children, unborn
  children if receiving gt50 support, and others
  who live with the borrower and receive gt50
  support during that year
• Support includes money, gifts, loans, housing,
  food, clothes, car medical and dental care and
  payment of college costs
• Family size defaults to one (1) if borrower does
  not provide required information

13
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

14
Standard-Standard

• This amount is used to determine eligibility of
  any payments made outside of the IBR repayment
  plan to count towards the 25 years (300 payments)
  for IBR loan forgiveness
• Subject to minimum 50 monthly payment

15
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

16
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)

17
Expedited-Standard

• Unlike a deferment or forbearance, the months
  spent in IBR are not excluded when recalculating
  terms upon leaving IBR completely
• ED has clarified that a borrower MUST enter an
  expedited-standard repayment plan when
  terminating repayment under IBR, however, a
  borrower is not required to stay in the
  expedited-standard repayment plan

18
DISCLOSURES
19
Disclosures

• Lender must provide borrower with notice that
  informs of the availability of IBR
• At time of offering a borrower a loan
• At time of offering a borrower repayment options
• Information may be provided in a separate notice
  or as part of the other disclosures

20
Disclosures

• Notice must inform the borrower of
• Eligibility for ISR and may be eligible for IBR,
  including through loan consolidation
• Procedures by which the borrower can elect ISR or
  IBR and
• Where and how the borrower may obtain more
  information concerning ISR and IBR

21
REPAYMENT
22
How Borrowers Can Request IBR

• The Workgroup has developed a Common Application
  for borrowers to complete. The application will
  collect a borrowers
• Self-certify of family size
• Consent to receive AGI from the IRS
• FFELP and DL loan information with other
  lender/servicers
• Interim application form NOW available

23
How Borrowers Can Request IBR

• Borrower will also need to complete and return
  IRS form 4506-T authorizing the lender to request
  the borrowers AGI from the IRS. The consent
  form is valid for 60 days.
• ED has provided guidance that in lieu of 4506-T
  lender may accept first two pages of tax form
• If the AGI is not available from the IRS or does
  not reflect the borrowers current income then
  the Alternative Documentation form may be
  submitted
• Updates to this interim form still in progress

24
Determining PFH

• Eligibility verification occurs initially and
  each subsequent year
• Eligibility and minimum monthly payment is
  re-evaluated annually
• If borrower selects IBR but fails to submit
  documentation, holder required to place in
  standard repayment
• Borrower can elect to remain in IBR even if/when
  no longer meets hardship requirement

25
Repayment Terms

• Can extend beyond 10 years regardless of the
  amount of the eligible debt
• Will need to track minimum and maximum payment
  amounts over life of loan
• Payment application order different than other
  repayment plans
• Must apply IBR payments first to interestgt then
  to collection costs gt late charges gt principal
• Other plans late charge gtcollection
  costsgtinterestgt principal

26
Payment Amount Calculation

• 15 AGI (150 Poverty guideline applicable to
  family size) divided by 12
• Calculated payment amount less than 5 0
  payment amount due
• Calculated payment amount equal to or greater
  than 5 and less than or equal to 10 10
  payment amount due

27
Payment Calculations Multiple Loans/Holders

• The borrower must contact each loan holder
  separately to request IBR
• The loan holder must include all eligible loans
  held by them in the IBR plan, unless the borrower
  requests otherwise
• Each loan holder must include the loan amounts of
  all eligible loans held by other lenders in the
  payment calculations, then prorate based on the
  principal amount held by that loan holder

28
Payment Calculations Multiple Loans/Holders

• After prorating, the loan holder would apply, if
  needed, the 5 and 10 payment rules to the loans
  held by that loan holder
• ED approved the use of NSLDS to determine the
  amount owed on eligible loans held by other loan
  holders

29
Recalculation of Payment Amount

• When a borrower chooses to leave IBR completely
• Their repayment period will be limited
• The number of months in repayment used under IBR
  count against the remaining months available
• Their payment amount may be higher than it was
  before entering IBR

30
Recalculation of Payment Amount

• Repayment period may still exceed 10 years when
  they no longer qualify for PFH or do not renew
  their eligibility (permanent-standard)
• Repayment period is limited if borrower chooses
  to leave IBR completely (expedited-standard)

31
Zero Payments Credit Reporting

• Consumer reporting agency reporting Cannot
  become delinquent for a 0 installment amount,
  therefore would not report as delinquent
• Months in which the payment is 0 may be reported
  to the consumer credit reporting agencies as
  deferred or current
• If you report current ensure that you also
  report a scheduled monthly payment of 0

32
Paying Ahead

• Borrower permitted to pay ahead but forgiveness
  may not occur until reach 25th year
• Establish a repayment schedule with 12 months at
  PFH IBR payment amount and the remaining months
  at the permanent-standard amount
• A 0 installment amount cannot be paid ahead

33
INTEREST CAPITALIZATION FORBEARANCE
34
New Forbearance Guidelines

• Administrative Forbearance is authorized
• To resolve any delinquency prior to the granting
  of a new repayment plan (cap permitted)
• For up to 60 days while the lender confirms
  eligibility for forgiveness and
• For the guarantors forgiveness review period, in
  the event of a denied claim

35
Interest Capitalization

• Interest must be capitalized
• When borrower is no longer eligible for PFA and
  converts to Permanent- Standard
• When borrower voluntarily leaves IBR and converts
  to Expedited-Standard

36
Interest Capitalization

• Interest may be capitalized
• When administrative forbearance granted for
  delinquency at repayment plan change
• When guarantor denies forgiveness (lender has the
  option to capitalize in this case if claim not
  denied due to lender error)

37
INTEREST ACCRUAL
38
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?

39
Interest Accrual

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

40
Interest Accrual

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

41
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

42
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

43
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

44
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

45
3-year Interest Subsidy

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

46
3-year Interest Subsidy

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

47
3-year Interest Subsidy

• Possible Tracking Mechanisms
• The LaRS Subcommittee has developed some possible
  tracking methods for this interest subsidy
• Awaiting responses from ED on the outstanding
  issues associated with this interest subsidy

48
3-year Interest Subsidy

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

49
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 on those loans

50
3-year Interest Subsidy

• Possible LaRS Changes
• So that ED can track the cost associated with
  IBR, the industry has recommended some new
  billing codes on IBR
• These are currently under review by ED

51
SPECIAL ALLOWANCE
52
Special Allowance

• During periods of PFH, lenders/servicers can bill
  ED for Special Allowance not only on the average
  daily principal balance, but on the accrued
  interest as well
• Lender may not bill for Special Allowance on the
  unpaid accrued interest during periods of
  Permanent-Standard payment

53
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 interest for each day of
  the quarter on which the borrower was in a PFH
  and divide this total by the number of days in
  the quarter

54
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

55
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
• Lender/servicers may want to track the IBR
  interest separately

56
Special Allowance

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

57
Special Allowance

• WELL, MAYBE YOU CAN
• During the three-year interest subsidy period
  while the borrower in 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 ED

58
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

59
Special Allowance

• Average Daily Accrued Interest, like the Average
  Daily Balance, is subject to retroactive account
  adjustments
• For example, if you apply a payment retroactive
  to a date in the previous quarter, you would need
  to adjust the average daily accrued interest for
  that quarter accordingly and report a billing
  decrease on the next LaRS report

60
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

61
TRACKING
62
Payment Tracking

• Need to bank each month in which the borrower,
  on or after July 1, 2009
• Makes a payment under a PFH plan, including a
  payment amount of 0
• Makes a payment under IBR, but outside of PFH,
  totaling at least the Permanent-Standard payment
  amount

63
Payment Tracking

• Need to bank each month in which the borrower,
  on or after July 1, 2009
• Makes payments outside of IBR totaling at least
  the Standard-Standard payment amount or
• Uses Economic Hardship Deferment

64
Payment Tracking

• ISSUES
• Months must be tracked beginning in July 2009 in
  all cases
• Months of payments under IBR Either the PFH
  payment amount or the permanent-standard payment
  amount must be tracked

65
Payment Tracking

• OTHER ISSUES (continued)
• After banking a total of 300 qualifying months,
  if 25 years have passed and the borrowers
  account is not yet paid in full, lender/servicer
  must file a claim for forgiveness

66
Payment Tracking

• EXCEPTIONS
• If borrower chooses to leave IBR altogether and
  use the expedited-standard payment amount, any
  payment they make under that plan must be at
  least the standard-standard payment amount

67
Payment Tracking

• OTHER ISSUES (continued)
• If taking on a Rehab Loan, must obtain from the
  guarantor any qualifying months already achieved
  and continue tracking from there
• Payments collected by the original
  lender/servicer from July 2009, through the date
  of default may count toward the 25 years

68
Payment Tracking

• OTHER ISSUES (continued)
• If borrower chooses to consolidate a loan on
  which the 25-year clock had already started,
  the clock will re-start on the Consolidation loan

69
Payment Tracking

• OTHER ISSUES (continued)
• Borrower cannot achieve early forgiveness by, for
  example, doubling up on payments. 25 years must
  elapse, and the borrower must satisfy 300
  qualifying payments.
• No forgiveness will be granted prior to July 1,
  2034

70
Payment Tracking

• OTHER ISSUES (continued)
• Pre-payments made prior to July 1, 2009, even if
  they satisfy installments due after that date
  (i.e., prepayments), do not count toward the
  25-year requirement

71
CLAIM FILING
72
Claim Filing

• Defaulted loans ineligible for IBR
• IBR eligibility reinstated upon resolution of
  default (e.g. rehabilitation)
• Counters (25 years/300 payments) do not reset
  upon rehabilitation must be maintained

73
Claim Filing

• New data elements required for claims submitted
  on or after July 1, 2009
• Claim Form Section X
• CAM Record type 54

74
Claim Filing

• Standard-Standard payment amount
• Permanent-Standard payment amount
• 25-Year forgiveness begin date
• Number of qualifying forgiveness months
• IBR start date
• Number of days HRD deferment

75
Forgiveness
76
Conditions for Forgiveness

• Borrower must have received a partial financial
  hardship IBR repayment plan at least once
• Borrower must have satisfied 300 eligible
  payments, including Economic Hardship Deferment
  months
• 25 years must have elapsed
• Any loan amount forgiven may be taxable

77
What counts as an eligible payment?

• All payments made on or after July 1, 2009, could
  potentially be eligible if they fall into one of
  the eligible categories
• Partial financial hardship payments made under
  IBR, including 0 payment amounts
• Payments made at the permanent-standard amount

78
What counts as an eligible payment?

• All payments made on or after July 1, 2009, could
  potentially be eligible if they fall into one of
  the eligible categories
• Any payment made that was not less than the
  standard-standard payment amount
• Each month the borrower is granted an Economic
  Hardship Deferment on or after July 1, 2009

79
What does NOT count as an eligible payment?

• Payments made while in default
• Payments made during rehabilitation
• Payments made outside of IBR in an amount less
  than the standard-standard
• Payments made under the IBR umbrella (but outside
  of PFH) in an amount less than permanent-standard.
  
• Payments made prior to July 1, 2009

80
Counting 25 years

• Begins no earlier than July 1, 2009
• Begins the date the borrower made an eligible
  payment or received economic hardship deferment
  before qualifying for IBR
• For a borrower who did not make a payment or
  receive economic hardship deferment before
  receiving IBR, the 25 years begins on the date
  the borrower made a payment under IBR

81
Counting 25 years

• If a borrower consolidates, the 25 years starts
  over and does not count any payments or deferment
  period received on underlying loans prior to
  consolidation

82
Processing and Payment

• Loan holder must request payment from guarantor
  no later than 60 days from date holder determines
  eligibility
• If not filed by day 60, any ongoing billing of
  interest to the government (deferment interest
  and special allowance) must stop
• Within 45 days, the guarantor must determine
  eligibility and either pay the loan holder or
  return the request to the loan holder

83
Processing and Payment

• Loan holder must notify borrower of guarantors
  determination within 30 days
• Loan holder must also provide the borrower with
  general information on what it believes is the
  current tax treatment of such forgiveness amounts
  and is encouraged to refer borrowers to the IRS
  for further information

84
Processing and Payment

• ED will pay outstanding principal and accrued
  interest for eligible borrowers
• If the guarantor pays more than the outstanding
  balance on the eligible loans, the loan holder
  must return any excess amounts to the guarantor

85
Processing and Payment

• Once forgiven, the loan holder must promptly
  return any payment received to the sender

86
If Forgiveness Claim Denied

• If request is denied, lender may grant
  forbearance from the date the borrowers
  repayment obligation was suspended until a new
  payment due date is established

87
Questions?