On January 10th, Auburn’s Center for the Study of Theological Education hosted a webinar for financial aid officers, admissions staff and student personnel at theological schools on the latest government regulations for income-based repayment plans for federal educational loans. This information will assist financial aid officers and others who counsel students and recent graduates in repayment options as they move into ministry.

1. Welcome and
Introductions
Kim Maphis Early

2. Income-Based Repayment Plans for Theological School
Graduates
with Claire Law, Anthony Ruger and Sharon Miller

3. Overview
 The Problem: Student Debt
 Income Driven Repayment Plans
1. Income-Contingent Repayment
2. Income-Based Repayment
3. Pay As You Earn Repayment
 Example
 Initiatives and New Legislation
 Helpful Links
 Update on Auburn Study
Copyright Educational Avenues 2013 all rights reserved

4. 5.8 Million Students

6. In June 2011, student loan debt exceeded:

7. FY 2010 2-Year Official National Student Loan
Default Rates
Source: http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html

8. How Can We Help?
 Encourage financial planning before enrollment
 Conduct comprehensive exit interviews
 Enhance literacy about repayment options for future
 Help students and graduates avoid default

9. If student loan debt is high relative to income,
investigate options for reduced monthly payments!


10. What are the options? Income-Driven Plans
 Income Contingent Repayment Plan (ICR) 1994
 Direct Loans only
 http://studentaid.ed.gov/repay-
loans/understand/plans/income-contingent
 Income Based Repayment Plan (IBR) 2009
 Direct Loans and FFELP Loans
 http://studentaid.ed.gov/repay-
loans/understand/plans/income-based
 Pay As You Earn Plan (PAYE) 2012
 Direct Loans only for 2008-2012 cohort
 http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-
you-earn

11. Income-Driven Plans- Eligible Borrowers
 ICR:
 Direct Loan borrowers with eligible loans
 IBR:
 Direct Loan and FFEL Program borrowers with eligible loans
 Their payments would be lower on IBR relative to what would
have been paid under the 10-year standard repayment plan (called
“partial financial hardship”)
 PAY AS YOU EARN:
 Direct loan borrowers with eligible loans
 Must be new borrower on/after 10/1/2007 who received new loan
on/after 10/12011
 Their payments would be lower on Pay As You Earn relative to what
would have been under the 10-year standard repayment plan (called
“partial financial hardship”)

12. Exceptions to Eligibility
 PLUS loans for parents
 Consolidation loans that repaid PLUS loans for parents
 Loans in default
 Private, Alternative Education Loans

13. Income Contingent Repayment (ICR)
 Direct Loans only
 ICR plan bases repayment amount on 20% of
discretionary income*, family size, size of loan, the
interest rate applicable to each loan
 More information available at
https://federalregister.gov/a/2012-12420
*Discretionary Income = Adjusted Gross Income (AGI)
Minus Poverty Level Guideline Divided by 12

14. ICR Features
 25 year term after which balance is forgiven
 For those in low paying jobs
 Adjusted annually based on yearly reapplication
 10% cap on capitalization of interest
 May be used with Public Service Loan Forgiveness
Program (PSLF)

15. 10-Year Public Service Loan Forgiveness
 Any not-for-profit 501(c )(3) organization
 For organizations that are religious:
 Hours of work must be at least 30 per week
 Exclusions: religious instruction, worship services
 Must make on-time full payments, monthly under a federal
repayment plan
 www.studentaid.ed.gov/pubs

16. Eligible Federal Loans for IBR, Pay As You
Earn
 Undergraduate, graduate and professional federal loans
incurred before and during theological education
 Direct & FFEL Subsidized and Unsubsidized Stafford
 Direct & FFEL PLUS Loans made to graduate or
professional students
 Direct and FFEL Consolidation Loans without underlying
PLUS loans made to parents
 For ICR – direct loans only are eligible

17. Income Based Repayment (IBR)
 Borrower must have a partial financial hardship
 Based on annual income and family size
 Adjusted each year, based on changes to annual income
and family size
 Usually lower than under other plans
 Never more than the 10-year standard repayment
amount
 Made over a period of 25 years

18. IBR Features
 Allows borrowers to cap student loan payments at 15%
of current discretionary income
 Discretionary income = AGI minus 150% of Poverty
Guideline based on:
 Family Size
 State of Residence
 Starting in 2014 will cap borrower's monthly payments at
10% of discretionary income
 Loan servicer performs calculations
 http://studentaid.ed.gov/repay-
loans/understand/plans/income-based

19. IBR Advantages
 Pay based on what you earn
 Interest payment benefit
 Limitation on capitalization of interest
 25- year loan term - then forgiveness
 10- year Public Service Loan Forgiveness
 No cost to American taxpayers

20. IBR Disadvantages
 You may pay more interest
 You must submit annual documentation
 Pay tax on “forgiven” amount after 25 years.

21. New Pay As You Earn Program (PAYE)
 ICR regulations amended for December 2012
 Implementation for 2008AY - 2012AY cohort only
 For new borrowers
 Reduces maximum annual payment from 15% of
discretionary income to 10%
 Reduces forgiveness time from 25 years to 20 years
 Allows for consolidation with loans-in-good-standing
originated before 2008

22. Entering repayment: Interest starts
accruing during six-month grace period

23. Compare IBR and PAYE
IBR Pay As You Earn
 Loan debt must be high  Loan debt must be high
 Lower scheduled monthly  Lower scheduled monthly
payment payment
 Interest payment benefit  Interest payment benefit
 15% of discretionary  10% of discretionary
income income
 25 year cancellation  20 year cancellation
 10 year Public Service  10 year Public Service
Forgiveness Forgiveness
 Must be a new borrower

24. Compare IBR and PAYE (cont.)
IBR Pay-As-You-Earn
 You may pay more  You may pay more
interest interest
 You must submit annual  You must submit annual
documentation documentation
 No interest grace period  No interest grace period
 Payments can be as low as  Payments can be as low as
zero zero

25. No Interest Subsidy During Grace Period

26. Comparison of Monthly Payments
Income Based Repayment Pay As You Earn
Family Family Family Family Family
Income Fam Size 1 Fam Size 2 Fam Size 3 Fam Size 4 Income Size Size Size Size Size
$10,000 2 3 4 5 6
$15,000 0 0 0 0
$10,000 $0 $0 $0 $0 $0 $0
$15,000 $0 $0 $0 $0 $0 $0
$ 20000 $41 0 0 0 $20,000 $27 $0 $0 $0 $0 $0
$25,000 $69 $19 $0 $0 $0 $0
$30000 $166 $91 $17 0 $30,000 $110 $61 $11 $0 $0 $0
$35,000 $152 $103 $53 $0 $0 $0
$40,000 $291 $216 $142 $68 $40,000 $194 $144 $95 $45 $0 $0
$50,000 $416 $341 $267 $193 $45,000 $235 $186 $136 $87 $37 $0
$50,00 $277 $228 $178 $129 $79 $30
0
$55,000 $319 $269 $220 $170 $121 $71
$60,000 $360 $311 $261 $212 $162 $113
$65,000 $402 $353 $303 $254 $204 $155

27. Example of Monthly Payments on Stafford Loan Debt of $50,000
Standard Repayment (10 years @ 6.8%) vs. Income Based Repayment (IBR) and Pay As
You Earn (PAYE)
$700
$600 $576 $576
$500
Monthly payment
$400
Standard
$291 IBR
$300
PAYE
$194
$200
$100 $68
$45
$-
Single, with $40K in Discretionary Family of four with $40K in
Income Discretionary Income

28. Example
 If borrower does not qualify for IBR or PAYE
Consider the Income Contingent Plan (ICR)
 Considers Discretionary Income
 Family Size
 Total amount of Direct Loans

29. “Right now only 972,000 graduates—about
2.6 percent of all borrowers—are using
Income-Based Repayment plans. Two to
three million further borrowers could
qualify for the program.”
Mark Kantrowitz, Publisher of FinAid.org

30. Try Out This Calculator
 http://studentaid.ed.gov/repay-
loans/understand/plans/income-based/calculator

31. The Case of Joe Borrower,
Master of Theological Studies 2006
 Joe is single, his income $30,000
 Under IBR Joe generally pays 15% of his discretionary income
 Payments only based on income
 Payments capped at what he would have paid on the ten-year
standard repayment plan
 Note: ICR does not cap payments relative to standard 10
year plan, so payments could become higher than in the ten-
year standard repayment plan.

32. Is Joe eligible for PayAsYouEarn?
 He’s not part of the 2008AY-2012AY cohort of
borrowers
 The majority of theology graduates likely borrowed
before this cohort
 The best deal will take some crunching of numbers
 Use the calculators
 The Department of Education ultimately has to approve
a plan

33. What Borrowers Don’t Know Can Hurt
Them!
 Private lenders are not required to explain repayment
options.
 Federal loan websites are informative and easiest to
use—at a minimum, point students toward these
resources.
 Make good faith efforts to educate alums, as well as
graduating students, about alternative repayment plans.

34. Impacts of Recent Legislation
 There is a window of people who are eligible now who
can go to the Pay As You Earn Plan—you are currently
working with these students!!
 If students choose occupations in public service and have
made 120 full on-time monthly payments, they could be
eligible to have the remaining balance forgiven through
the Public Service Loan Forgiveness Program.
 New benefit: A borrower can switch to another
repayment plan pretty easily, but annual application and
yearly approval of Department of Education will be
required.

35. On the Horizon?
 Possible expansion of PAYE in 2014
 The Department of Education is pursuing administrative
action that may extend lower payments to more
students as soon 2013

36. Helpful Links
 Repayment Plans and Calculators
 www.studentaid.ed.gov
 Income Contingent Repayment (ICR)
 http://studentaid.ed.gov/repay-loans/understand/plans/income-contingent
 Income Based Repayment Plan (IBR)
 http://studentaid.ed.gov/repay-loans/understand/plans/income-based
 Pay As You Earn Plan (PAYE)
 http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn
 Public Service Loan Forgiveness
 http://www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
 Improving Repayment Options for Federal Student Loan Borrowers (A Presidential
Document by the Executive Office of the President on 06/13/2012)
 https://www.federalregister.gov/articles/2012/06/13/2012-14537/improving-repayment-
options-for-federal-student-loan-borrowers
 ICR Update:
 https://federalregister.gov/a/2012-12420
 Federal Student Aid Resources
 www.studentaid.ed.gov/pubs

37. Helpful Links
 Federal Student Aid Conference 2012 link:
 Conference link: http://fsaconferences.ed.gov/index.html
 Sessions link: https://client.blueskybroadcast.com/fsa/2012/index.html
 US Department of Education Loan home page:
 https://studentloans.gov/myDirectLoan/index.action
 http://www.nslds.ed.gov/nslds_SA/SaEcTour.do?page=SaEcIntro1
(exit interview)
 Information on the temporary suspension of grace-period interest subsidy
currently in effect:
 http://studentaid.ed.gov/sites/default/files/2012-13-funding-your-education-
errata.pdf
 Elimination of Grace Period Interest Subsidy This provision eliminates the interest
subsidy provided during the six-month grace period for Direct Subsidized Loans for which
the first disbursement is made on or after July 1, 2012, and before July 1, 2014. Students
receiving a subsidized loan during this timeframe will be responsible for the interest that
accrues on the loan during the grace period. If a student does not pay the interest accrued,
the interest will be added (capitalized) to the principal amount of their loan when the
grace period ends.

38. We want to help people avoid this situation :)

39. Conclusion
 Update on Auburn Study
 Contact us at:
www.auburnseminary.org/CSTE
CSTE@auburnseminary.org