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Demystifying the Rules ofPublic Service Loan Forgiveness
Jodi Kaus, JD, CTFA -DirectorPowercat Financial
June 2018 Federal Student Aid Reporton PSLF Program
28,000 borrowers submitted
almost 33,000 PSLF
applications with 29,000 processed
More than 70% were denied due to –
• Ineligible loans• Non-qualifying
employment• Non-qualifying
payments• Missing
information
300 approved applications resulted in
$5.52 million discharges for 96 borrowers
THUS 99% of loan
forgiveness applications were denied
https://ifap.ed.gov/eannouncements/091918FSAPostsNewReportstoFSADataCenter.html
Keep in Mind . . .• PSLF only applies to Federal Direct loans not
all student loan types• Many of the noncompliance issues can be
corrected• Most of the issues were regarding non-
qualifying payments or non-qualifying employment– Use Employment Certification form!– Verify 120 payments have been made!
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Student Loan Types
Federal
• Apply with the annual FAFSA
• Direct federal loans v. FFEL federal loans
• Perkins, unsubsidized, subsidized, PLUS loans
Private
• Credit-based student loans
• Go to annualcreditreport.comif unsure of lender
Go to www.studentaid.ed.gov for all information regarding
federal student loans
ØKNOW WHO YOUR LOAN SERVICERS ARE!!!
Note: Parent Plus loans areunder parent’s SSN & FSA ID
Federal Student Loan Servicers
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Public Service Loan ForgivenessThe Public Service Loan Forgiveness (PSLF)
Program forgives the remaining balance on your Direct Loans after you have made 120 qualifyingmonthly payments under a qualifying repayment
plan while working full-time for a qualifyingemployer.
studentaid.ed.gov/publicservice
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Public Service Loan Forgiveness§ Right Loans – Right Job – Right Payments
§ Direct Loans Only§ may need to consolidate FFEL type loans
§ Effective 10/1/07§ Public Service – full-time employment§ 120 qualifying payments (ICR, IBR, PAYE, or
Standard Repayment plans only) made within 15 days of the due date – only payments made after 10/1/2007 count
§ Balance of loans forgiven – not taxable (currently)
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Loans Eligible for PSLF
Federal Direct Subsidized
Stafford Loans
Federal Direct Unsubsidized Stafford Loans
Federal Direct PLUS Loans
Federal Direct Consolidation
Loans
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Parent PLUS Loans are Eligible for PSLF too!
§ BUT it is based on parent’s employment,
payments, etc.
§ May also need to consolidate into a Direct
Consolidation Loan to get access to repay
under income-contingent repayment plan
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FFEL Subsidized/Unsub
Stafford Loans
FFEL PLUS Loans for
grad/professional students
FFEL Consolidation
Loans (excluding joint spousal consolidation
loans)
Federal Perkins Loans (pros/cons
though!)Certain Health
Professions and Nursing
Loans
Other federal loans may qualify for PSLF if consolidated into a direct consolidation loan
BUT start over counting towards 120 qualified payments once consolidate
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Summary§ DIRECT LOANS ONLY
§ FFEL Loans must be consolidated into a Direct Loan
§ Perkins Loans are only eligible if part of a Direct Consolidation Loan (pros/cons)
§ Alternative/Commercial Loans are NOT eligible loans for PSLF – BEWARE IF REFINANCE VIA PRIVATE PROVIDER AS YOU’LL LOSE ALL FEDERAL SAFETY NETS
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PSLF – Qualifying Employment
Full-time
Paid Work
Non-Profit Organizations§ Universities§ Hospitals§ Government – local, state or federal§ Foundations§ 501(c)(3) Charitable Organizations§ Qualified Public Service Organizations
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Qualified Public Service Organizations Whose Primary Purpose Is:
• Emergency management• Military service• Public safety• Law enforcement• Public interest law services• Early childhood education• Public service for individuals with disabilities• Public service for the elderly• Public health• Public education• Public library services• Other school-based services
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Definition of “Full-time”for Qualifying Employment
§ Full-time means working in qualifying employment in one or more jobs for the greater of:§ An annual average of at least 30 hours weekly or§ For a contractual or employment period of at least 8
months, an average of 30 hours per week; or§ Unless the qualifying employment is with two or more
employers, the number of hours the employer considers full-time
PSLF – Employment Certification
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§ FedLoan Servicing
§ Track Employment
§ Must be in qualified employment at time of forgiveness
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Qualifying Repayment Plans for PSLF
Revised Pay As You Earn Repayment
Plan (REPAYE
Plan)
Pay As You Earn
Repayment Plan (PAYE
Plan)
Income-Based
Repayment Plan (IBR
Plan)
Income-Contingent Repayment
Plan (ICR Plan)
Standard 10-year
Repayment Plan
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Income-Contingent Repayment (ICR)§ Direct Loans ONLY - Consider Loan Consolidation§ Monthly payment is based on:
§ Annual income (plus spouse if married)§ Family size§ Total loan amount
§ Lesser of 12-year standard plan amount X income % factor or 20% discretionary income.
§ As your income changes, so do the payments.§ After 25 years, any remaining balance on the loan will be
forgiven, but you may have to pay taxes on the amount discharged.
§ StudentAid.ed.gov/ICR
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Income-Based Repayment (IBR)§ Direct Loans and FFEL Loans§ Monthly payment based on your income during any
period of partial financial hardship (PFH) – may be $0 per month
§ Maximum payments are 10% or 15% of discretionary income depending on when first loans received
§ Monthly payment may be adjusted annually§ Maximum repayment period up to 25 years§ Will qualify for cancellation of any outstanding loan
balance after 20 or 25 years but may be taxable§ StudentAid.ed.gov/IBR
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Pay As You Earn Repayment (PAYE)§ Direct Loans ONLY – Consider Loan Consolidation§ New borrower as of 10/1/2007 AND received a new loan
on/after 10/1/2011§ Monthly payment based on income during any period of
partial financial hardship – may be $0 per month§ Maximum payments are 10% of income§ Monthly payment may be adjusted annually§ Maximum repayment period is up to 20 years§ Will qualify for cancellation of any outstanding loan
balance after 20 years but may be taxable§ StudentAid.ed.gov/PAYE
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Revised Pay As You Earn Repayment (REPAYE)
§ Direct Loans ONLY – Consider Loan Consolidation§ Maximum payments are 10% of discretionary income§ Monthly payment may be adjusted annually§ Maximum repayment period is up to 20 years § Will qualify for cancellation of any outstanding loan
balance after 20 years or 25 years if loans were for grad/prof study but may be taxable
§ StudentAid.ed.gov/REPAYE
What are some differences between ICR, IBR, and PAYE?
§ IBR- available for FFEL and Direct Loans. ICR/PAYE- Direct Loans Only
§ To qualify for IBR/PAYE, you must have a “partial financial hardship”. There is no comparable requirement for ICR.
§ The amount of loan debt is not considered in determining the IBR/PAYE payment amount –(only family size and income).
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What are some differences between ICR, IBR, and PAYE?
§ The required monthly payment under ICR is generally higher than under IBR/PAYE, and in some cases may be higher than the monthly payment under 10-year standard repayment plan.
§ IBR/PAYE – if the calculated monthly payment does not cover the full amount of interest that accrues on the loans government pays remaining unpaid accrued interest on subsidized loans for up to 3 consecutive years. This benefit is not available under ICR.
§ Under IBR/PAYE unpaid interest is capitalized only if you are determined to no longer have a “partial financial hardship”, or if you choose to leave the IBR/PAYE Plan. Under ICR, unpaid interest is capitalized annually (10% cap).
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How do I apply for ICR/IBR/PAYE/REPAYE?
§ Apply to your loan servicer(s)§ If there are multiple loan servicers, the
borrower must apply to each loan holder to qualify on all loans or consolidate loans
§ StudentLoans.gov
IBR/REPAYE/PAYE/ICRRepayment Plan Request Form
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How to Apply§ StudentLoans.gov
§ Online process
§ Check with Servicer
§ Check Box on Plan Request Form
Servicer will determine plan eligibility & can indicate lowest monthly payment
Use the Studentloans.govRepayment Estimator
to compare all repayment plans
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What is loan consolidation?§ Multiple federal loans are combined into one new
Direct Consolidation Loan§ A simple way to manage debt - One servicer - One payment§ Changes interest rate from variable (DL/FFEL prior to 06-
07) to a fixed rate – calculates a weighted average § Must be in grace period, repayment, or deferment (not
in-school deferment status) to consolidate§ Married borrowers CANNOT consolidate loans
together§ Select 1 of 4 federal loan servicers (FedLoan Servicing -
PSLF) studentaid.ed.gov/sa/repay-loans/consolidation#how-apply
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Perkins Loans & Consolidation§ Perkins has a fixed interest rate of 5% which is
weighted into the new interest rate
§ May lose deferment subsidies if consolidate (9 month grace period) – may request processing delay
§ Loan becomes unsubsidized when consolidated
§ Lose valuable loan cancellation options. Your school’s cashier’s office provides cancellation options that you should review before consolidation.
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Proposals for Changes to PSLF§ Limiting PSLF and then borrower pays for
additional years for forgiveness of the remainder of the debt
§ Making the forgiven amount taxable§ Grandfathering perhaps§ Contact your Congressional Representatives§ Stay informed!
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New PSLF Help Tool• Help understand more about the PSLF Program
and what you need to do to participate/qualify;• Help to assess whether your employer qualifies
for PSLF;• Help to assess whether your loans qualify for
PSLF;• Help you decide which PSLF form to submit; • Uses the information about your federal student
loans to explain other actions you should or must take if you want to receive PSLF
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Temporary Expanded Public ServiceLoan Forgiveness (TEPSLF) Opportunity• If your PSLF application was denied because
some or all of your payments were not made on a qualifying repayment plan for PSLF, you may be able to receive loan forgiveness under a temporary opportunity.
• First come, first serve• Limited funding ($350 million originally)• Email [email protected]
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Other Loan Forgiveness Options§ Teacher Student Loan Forgiveness§ Perkins Loan Cancellation§ Volunteer Work
§Americorps§Peace Corps§VISTA
§ Military Service§ State Programs
[email protected](785)532-2889
302 K-State Student Union, Third Floorwww.k-state.edu/powercatfinancial
Powercat FinancialPeer-to-Peer Financial Education