IBR Presentation Shoup 11-23-11

8/3/2019 IBR Presentation Shoup 11-23-11

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PRESENTATIONTO THE UCLAGRADUATESTUDENTASSOCIATION

By

Daniela

Simunovic

NOVEMBER23, 2011

INCOME BASEDREPAYMENT (IBR)


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Alternat ive

Affordablemonthlypayments

Consider

Abil i ty to Pay

INCOME

BASEDREPAYMENT PLANS


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Loan + InterestDivided Equally10-year PeriodEqual PaymentsExample

$ 100,000 Debt7.4% Interest

$ 25,000 IncomeDebt as % of Income

58% Initially37% Lowest

CONVENTIONAL LOAN REPAYMENT


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putting a college education within reach for everyAmerican has never been more important, but its alsonever been more expensive. Thats why were taking steps to help nearly 1.6 million Amer icans lower their

monthly student loan payments.


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Payment Capped10% of disposable incomeOver 150% FPL

Income less than 150%FPLPay nothing

Debt cancelled after 20years

Subsidized LoansGovt Pays InterestFirst threes years

Public Service LoanForgiveness

H OW DOES IBR WORK?


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T o t a l A G I

D i s p o s a b l e I n c o

m e

IBR PAYMENT10% OF DISPOSABLE

INCOME

AGI NEEDED FOR BASICNEEDS150%

FEDERAL POVERTY LINE

AGI FOR OTHEREXPENSES


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Applies to FederalLoans

Stafford, Grad Plus,Federal Consolidation

Must demonstrate Partial FinancialHardship

Uses Sliding Scale toDetermine MonthlyPayment

INCOME BASED REPAYMENT


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INCOME BASED REPAYMENT

VS

CONVENTIONAL REPAYMENT


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IBR VS. CONVENTIONAL

0%

10%

20%

30%

40%

50%

60%

70%

0 2 4 6 8 10 12 14 16 18 20 22 24

D e b t S e r v i c e a s P e r c e n t a g e o f i n c o m e

Number of Years

Debt Service as % of Income Overtime*Income $ 25,000 ; Debt $ 100,000 ; 7.4% Interest

Conventional Repa

IBR


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IBR VS. CONVENTIONAL

0%

5%

10%

15%

20%

25%

1 3 5 7 9 11 13 15 17 19 21 23 25

D e b t S

e r v i c e a s P e r c e n t a g e o f I n c o m e

Years

Debt Service as % of Income*Income $ 75,000 ; Debt $ 100,000 ; 7.4% Interest

Conventional

IBR


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Example: Bart & Lisa$ 100,000 debt

7.4% interest rate

25 year period

Low-Income: Bar t$ 25,000 Starting Salary

High-Income: Lisa$ 75,000 Starting Salary

5% Increase Salary

H OW MUC H DO STUDENTS REPAY?


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$ 25,000 Star ting SalaryNo interest first 3 yearson sub. LoanLow Income = LowPayment

3% of IncomePays off less of PrincipalInterest Accrues rapidly

$ 57,000 Total Payment$ 376,000 DebtCancelled

BARTS REPAYMENT SC H EDULE


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$ 75,000 Star ting Salary

No interest first 3 years

on sub. LoanPays More of Principal$ 225,000 Total Payment

Repays Entire Loan

Pays more overall withIBR

Lower monthly payment

LISAS REPAYMENT SC H EDULE


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Incentivizes studentsNon-profits

Public Service

Government

Cancels Debt After10 years

PSLFBart Pays: $ 12,000

Lisa Pays: $ 75,000

PUBLIC SERVICE LOANFORGIVENESS


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IS IBR FAIR?


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Conventional SystemBrokenBased on Abili ty to Pay

Affordable PaymentsPrevents Defaults

Progressive Financing Shifts burden from low tohigh income borrowers

Helps Students in Need1.6 million qualifyRelieves Pressure forhigh paying jobs

IBR FAIR APPROAC H STUDENTLOANS


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K ey Component25 years

20 years new policy

10 years PSLF

Protects Borrowersfrom Higher Principal

Low-income BorrowersBenefit Most

DEBT CANCELLATION BENEFITSBORROWERS


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Cancelled DebtTreated as TaxableIncome

Accrue More Interest

Borrower must reneweligibility each year

Step in RightDirection

IBR NOT A SILVER BULLET


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IBR Provides Borrowers Much Needed Relief IBR Protect Borrowers from DefaultWin-WinGSA Should Support IBRAdditional Reforms

Recommend reforming IBR so amount forgiven is nottreated as taxable incomeGSA should look into the benefits of IncomeContingent Repayment

CONCLUSION

Documents

IBR Presentation Shoup 11-23-11