ABC COMPANY - Federal Student Aid · Web viewThe public service loan forgiveness program is another...

PSC-ED-FSA-TISDModerator: Christal Simms

6-25-15/4:00 pm CTConfirmation # 3664604

PSC-ED-FSA-TISD

Moderator: Christal SimmsJune 25, 20154:00 pm CT

Coordinator: Welcome and thank you for standing by. At this time all participants will be

on listen-only mode for the duration of today’s conference. This call is being

recorded. If you have any objections, you may disconnect at this time. I would

now like to turn the call over to Mr. (Ian Foss). Sir, you may begin.

(Ian Foss): Thank you so much and thank you everyone for attending our repayment

webinar this afternoon - this evening. This webinar is really designed to

balance sort of basics of federal student loan repayment with just enough

detail for you to - on your own time - go investigate a little bit further what

might be a good repayment strategy for you.

One housekeeping item - you’re in a listen-only mode. There’s no way for you

to talk to us but you do have the ability to ask us questions. On your screen

there’s a Q&A module. (Claire) and I who are presenting this webinar will be

monitoring that module throughout the session and when we are done

presenting, we’ll go through and answer some of the questions that we

received.



So that being said, let’s go ahead and get started. The first section that we’re

going to talk about is really just basics. We’re going to talk about the various

types of loans. What a loan servicer is because not everybody knows. I know I

didn’t know what a loan servicer was when I started to repay my student

loans.

We’re going to talk about interest a lot. That’s going to be a theme that you’re

going to hear us talk about considerably throughout the - throughout this

webinar. Interest is really important when it comes to loan repayment.

So first let’s talk about the two types of student loans. Broadly speaking there

are two main classes of student loans. There’s federal student loans which is

basically going to be all we’re going to talk about today and there are private

student loans which when you hear the Department of Education talk about

student loans, it’s everything but the loans that we have. So we’ll talk a little

bit more about how we define federal student loans in a moment but know that

you can identify your federal student loans all the time by going to the

national student loan data system.

This is a website that we maintain and is available to you at nflds.ed.gov. Note

on the slide it says that you can login using your federal student aid pin. We

have recently moved to a new authentication mechanism that basically

modernizes the way that you log into all of our websites - the username and

password. If you already have a federal student aid pin, you’ll be asked to

convert from a pin to a username and password when you first try to login. It’s

pretty simple and hopefully pretty painless.

So federal student loans are in the national student loan data system. Private

student loans - there is no centralized data system like there is for federal

student loans. So it’s incredibly important for you to - if you have a private



student loan - first of all keep personal records of the debt for yourself. All of

these loans - federal and private - are your responsibility to repay but because

there’s no centralized data system for private student loans, it’s doubly

importantly for you to keep all of your paperwork.

Other places where you can find out what you owe and to whom is your credit

report. All student loans - federal and private - are reported to the three credit

reporting bureaus and they’ll all have records of what you owe and to whom.

And also even for private student loans, the financial aid office at your school

likely has records of what you borrow and because the private student loan

lender in almost all cases would have worked with the financial aid office at

your school to be sure that this was the loan that was for an educational

purpose.

Now when we’re talking about the types of federal student loans, they’re

going to have a variety of names and they may be defined differently

depending on who you talk to. So the names that you see on this slide are

what you will most commonly see. You have almost certainly heard of

Stafford loans. These are subsidized Stafford loans or unsubsidized Stafford

loans. They may also be called direct subsidized or direct unsubsidized loans

depending on who you’re talking to but they’re most commonly known as

Stafford loans and they are the most common federal student loan that

students receive.

There are also two types of what we call plus loans. One type is made to

parents of dependent undergraduate students. This is where your parents may

have borrowed to help you finance your own education. For this type of loan

your parent is the borrower. You do not have a responsibility to repay us - the

Department of Education - or in some cases your lender.



Graduate plus loans are another type of plus loan that are made to - as the

name would suggest - graduate or professional students. So if you’re an

undergraduate student, you cannot receive this type of loan but if you’re a

graduate student, you can and may have.

Another type of loan is a Perkins loan. These loans are fundamentally

different than the other types of federal student loans because of how they’re

administered. They’re a very small loan type. Not many students receive them

and I bring it up only to let you know that it is not a loan type that we’re going

to spend really any time at all talking about except to let you know that first of

all it exists and second of all that it is a federal student loan.

And the last type of loan that’s a federal loan is a consolidation loan. Now a

consolidation loan is also something that exists in the private student loan

arena. There is a loan type that we offer that is a federal student loan that is

also called a consolidation loan. So if you have a consolidation loan or are

reading about consolidation loans, note that it could be federal or private

information that you’re reading about.

Now all of these types of federal student loans are or were made under three

different student loan programs. The first loan program is the direct loan

program and this is far and away the biggest federal student loan program that

exists today. Under this loan program loans are made by us directly - the

Department of Education. We will contract with an organization called the

loan servicer that will oversee the administration of the repayment of your

loan. They’ll answer questions. They’ll collect payments. They’ll process

paperwork, etcetera but the Department of Education is your lender.

The other type of loan program that was formerly quite large is the federal

family education loan or FFEL or FFEL program. Under this program loans



were made by banks and other financial institutions but were guaranteed by

the Department of Education. Now while no new loans have been made under

this program since 2010, I want to take a moment to emphasize that just

because the loan was made by a private organization does not mean that it is

not a federal student loan.

Even though these loans were made by banks, there are guaranteed terms and

conditions that are part of the loan that are provided for in law. And so even

though your lender a bank, you have very favorable terms and conditions and

we’ll talk about what all of those are throughout the remainder of this

presentation.

I talked briefly about the Perkins loan program and I’m going to touch on it

again. Perkins loans are made under the Perkins loan program. This is one of

those duh moments where sometimes federal government programs can make

sense. But under this program loans are made by schools. That’s why these

loans are so different in terms of how they’re administered.

The federal government gives loans - money to schools - so that they can

make loans to you so in this loan program usually the school is your lender

and that’s basically the last time you’re going to hear any of us talk about

Perkins loans.

Now your loan servicer - I’ve already let the cat out of the bag - is an

organization that basically oversees almost everything related to the

repayment of your loan. They’re going to collect payments. They’re going to

respond to questions that you may have and they’re basically going to do

everything that’s related to the repayment of your loan, processing paperwork,

etcetera.



This is another time when I’m going to talk about the national student loan

data system. If you don’t know who your loan servicer is and I know many

people don’t. I know that I didn’t know first of all what a loan servicer was or

second of all who mine was when I entered repayment. You can find this

information at the national student loan data system. Again that’s

nflds.ed.gov.

You will log into that website and you can click through and learn all about

the various types of loans you have, the amounts and also your loan servicer,

what the name of the organization is and how to get in touch with them. It’s

very important to maintain communication with your loan servicer throughout

the repayment cycle.

(Claire): Yes (Ian). Hi everyone. This is (Claire). I would also like to mention about the

loan servicer - they’re really, really great people to talk to. Not only are they

well informed but a lot of times they just want to make this whole repayment

process as easy as possible. So if you do have questions, of course today we’re

going to go over all of the repayment options but also calling and talking to

your loan servicer - they can also give you plenty of information about how to

make the payments work best for you.

(Ian Foss): Right. They can really give you individualized information in a way that

people like (Claire) and I are just not equipped to because we don’t actually

know about what you owe, who you owe it to, what your financial situation is,

etcetera but your loan servicer can provide you that type of individualized

device.

On this slide there are lists of loan servicers that we the Department of

Education contract with in terms of the loans that we own. Now of course

we’ve talked about the direct loan program and loans being made directly by



the Department of Education through your school to you so we own and hold

all of the direct loans but we also own a significant number of loans that may

have initially been made to you under the federal family education loan

program - the bank backed loan program. We now own a lot of those.

And we contract with the organizations that you see here on this slide to

oversee the repayment of your federal student loans that we own. Now just

because you don’t see an organization listed here doesn’t mean that they’re

not also a loan servicer because there are a large number of loan servicers out

there that are primarily responsible for some of the older federal family

education loans.

So know that just because you don’t see an organization here doesn’t mean

they’re not a service or that you shouldn’t talk to them but that’s also not to

say that just because they’re not here on this slide doesn’t mean that you

should talk to them. You should be very careful about who you discuss your

federal student loan payments - your repayment situation with - than for no

other reason than there are a lot of organizations that have popped up over the

last few years that are happy to help you manage your repayment for a fee.

Know that if you’re ever contacted by somebody who’s offering you help but

wants a large upfront payment, they’re probably not working with your best

interest at heart and you probably should not work with those types of

companies. You should probably instead call your loan servicer who can help

you for free. Your loan servicer will never charge you a fee for help.

Now that we talked a little bit about the administration of repayment, I want to

talk about some of the basics of just what a loan is, how it works, etcetera.

Interest is basically what makes a loan a loan. It’s the cost to borrow money.



Federal student loans are simple daily interest loans and I’m going to

breakdown what that means.

Simple is that it’s non-compounding so in the credit card environment interest

is charged to you and immediately becomes part of your balance and interest

accrues on interest. That’s how interest compounding works.

Federal student loans don’t have compounding rules like credit cards do.

That’s not to say that interest never compounds. In our terminology we call

that capitalization but it doesn’t happen except in specific circumstances.

Daily interest means exactly what you would think that it means.

(Claire): Every day.

(Ian Foss): Interest accrues every day that your loan is outstanding. It’s not like a

mortgage where interest accrues monthly or credit cards where interest

accrues monthly. It’s every day. And if you think that that’s not a good thing,

I’ll hopefully explain to you in a few slides how it is actually a very good

thing. It may help you save money.

But first of all I want to just give you a very brief example of how interest

accrues. So you have a $10,000 loan that has an interest rate of 6.8%. To

figure out how much interest accrues every day on that loan - that $10,000

loan - you’re going to take your interest rate as a decimal so 0.068, not 6.8

divided by the number of days in a year and then multiply it by your principal

balance on the loan.

So in this example a $1.86 of interest is going to accrue every day while your

loan has an outstanding principal balance of $10,000. Interest accrues on the

outstanding principal balance. So every time you reduce your loan principal,



you reduce the amount of interest that will accrue going forward and that

works very neatly in terms of how payments are applied.

Payments are always applied first to fees then to interest then to principal. I’m

going to go out of my way here and make sure that you all know that on loans

that we own - the Department of Education owns - you never are charged a

fee - a late fee in particular here. But in the commercial environment where

loans that are owned by banks - they have the authority to assess you fees for

making late payments and they may do so. Not all do but some do. We never

do.

In any case payments are always applied to at least interest before principal.

So if again taking the example of a $10,000 loan with an interest rate of 6.8%.

Let’s say that the monthly payment is $115.08. When you make that first

payment on that $10,000 loan, $55.80 of interest will have accrued from when

your loan is in repayment to when you make that first payment a month later.

So when you make that payment on your due date, $55.80 of it has to go to

interest. All interest has to be satisfied before any principal will be satisfied

with any loan payment you make. So the remaining $59.28 of your $115

payment will go toward loan principal. Now your loan principal will be

$59.28 less for the next month. Less interest will accrue going forward and

that’s how you pay your loan off over a period of time. Reducing your

principal will reduce the amount of interest and eventually more of your

monthly payment will go to principal than interest.

I’m going to talk in detail about repayment plans in a moment but I’m going

to turn it over (Claire) to give you a little bit of an introduction.



(Claire): Thanks (Ian). So as he explained about interest and the principal balance and

all of that and the example of the $10,000 loan - how much you pay - now

you’re thinking okay, what does this mean for me. What are my options in my

payment? What if that $100 isn’t what I want to pay? What if I want to pay

more or what if I want to pay less? What’s so awesome about our loans is that

we have many repayment options so you can really pay what works for you.

We’re going to talk about the different resources and different options that

you have with repaying that balance. So first of all I want to talk about the two

different main types of repayment plans that we have. We have plans based on

income and we also have plans based on the amount of your loan debt.

So the plans based on income are exactly like they sound. We calculate your

payment based on your AVI - based on the income that you have for that year.

So those income based payments - as you’ll see when we talk about the

specific plan - because they’re based on your income, you have to recertify

every year to qualify for those plans.

Now the interest - I mean the repayment plans based on your loan debt are all

about the amount that you have in loans and we’re going to go through and

talk about all the programs that we have there as well.

(Ian Foss): So I know that when I first started learning about repayment plans, the

examples were basically the only way that they really started to make sense to

me.

(Claire): Me too.

(Ian Foss): So instead of walking through each plan line by line and throwing a lot of text

at you, let’s walk through an example borrower - Billy borrower who has



about $40,000 in direct loan debt and he has an interest rate of 6.8%. He has

an income that starts out at $35,000. He’s single and lives in Virginia and

believe it or not, all of these factors are relevant to figuring out what you

would pay under each repayment plan.

We’ll also assume that his income is going to increase 5% every year. So

before I even talk about this, know that this is an example. It’ll help you

compare and contrast the various repayment plans but it may not reflect first

of all what you owe, the interest rate on what you owe, your income, whether

you’re single or married, where you live, what happens with your income in

the future. All of these things are going to affect your own repayment

situation.

(Claire): Exactly.

(Ian Foss): So understand that this is an example that will help you compare and contrast

the plans but - as they say - your mileage may vary. So that being said, we’ll

start with the traditional or traditional repayment plans are the repayment

plans that are based on your loan debt. That’s the standard plan, the graduated

plan and the two variants of the extended repayment plan.

Now these repayment plans broadly speaking work very similar to how all

other forms of consumer financial debt operates. They have a period of time

that you have to repay the loan - the repayment period - and they take your

loan debt and your interest rate and figure out how much you have to pay

every month based on your interest rate to pay the loan off in full at the end of

the repayment period.

The repayment plans that are based on income take that traditional debt

repayment framework and throw it completely out the window. They say we



don’t care what your interest rate is. We don’t care how long it would take

you to repay your loan. We’re going to instead look at what you can afford to

repay and set your repayment amounts accordingly which isn’t to say that

you’ll be in repayment for 30 years or 40 years or 50 years or something

longer if your income is low.

These repayment plans do have a repayment period but instead of it being a

benchmark at which point your loan must be paid in full, it’s a counter

towards loan forgiveness which is to say if your loan is not repaid at the end

of the repayment period on the repayment plans based on income, the

remaining balance is forgiven.

So those are the two broad differences between the plans. Let’s walk through

and get a little bit more detailed about how each of the repayment plans

operates. First you have the standard repayment plan. It is standard. It is the

payment plan that you will be placed on if you do not make another election

with your loan servicer which isn’t to say that if you start out on standard you

can’t later change to something else. You can change to another repayment

plan at any time.

(Claire): Yes.

(Ian Foss): But if you make no other election before you enter repayment, you’ll be on

the standard plan.

(Claire): Basically the default plan.

(Ian Foss): Exactly. This is also the plan that you’ll see has the highest monthly payment

amount but as you’ll also see, a higher monthly payment amount means you



pay the least interest over time because you’re paying them more loan

principal with that loan repayment.

So for Billy with a $40,000 debt and a 6.8% interest rate, his payments are

$460. He makes them reliably for ten years. He pays about $15,000 in interest

for a total amount of $55,000 paid back in full.

The graduated repayment plan you’ll notice has different initial and final

payments. It starts lower than standard but progressively becomes higher than

what would have been paid under standard. This is a plan where payments

start low and gradually - emphasis on gradually - increase every two years

over the course of the ten year repayment period. If you are trying to picture

what this repayment plan would look like on a graph, picture a staircase that

has payments that start low and gradually increase.

Because payments start lower, interest accrues on a higher principal balance

for longer than would have been the case under standard. And so instead of

only paying $15,000 in interest as would have been the case under standard,

Billy would pay about $19,000 of interest which increases the total cost.

The extended rating of plans pick the ten year repayment plans associated

with the standard and graduated plans and if you haven’t figured this out yet...

(Claire): Extends them...

(Ian Foss): Extends them out to 25 years instead of ten. Now not all borrowers qualify for

the extended repayment plans unlike the standard and graduated plans. The

rule of thumb is that you need to owe more than $30,000 of debt to qualify for

these extended repayment plans.



Now there’s an extended plan that looks a lot like the standard plan that has

six payments and then there’s an extended plan that has graduated payments

so it looks just like the graduated plan except for 25 years instead of ten.

You’ll notice that the payments under the extended plan are lower than they

would have been under the standard and graduated plan. That's because as a

traditional repayment plan, it takes your repayment period into account when

setting your monthly payment.

So extending your payment period decreases your monthly payment amount

relative to the standard and graduated plan but at a cost - an interest cost.

Again interest accrues on your principal balance. A lower payment means a

higher principal balance for longer and that means more interest.

The other class of repayment plans are the income driven repayment plans.

These have - these are called income based, pay as you earn or income

contingent repayment plans. The amount that you will pay each month is

going to depend on the plan that you choose and when you borrowed but it’ll

be something like 10% of your discretionary income, 15% of your

discretionary income or generally speaking 20% of your discretionary income.

Pay as you earn is 10%. IBR or income based repayment is usually 15% and

the income contingent repayment plan is usually 20%. That’s why you see pay

as you earn having a lower initial payment amount than IBR and ICR having a

higher initial payment amount than the other two income driven repayment

plans.

So while the payments start out at a much lower rate, as income rises every

year - and (Claire) mentioned the requirement to annually recertify or provide

documentation of income with these plans. The payment amounts will slowly



or quickly - depending on how quickly your income rises - increase. If your

income falls then your payment will also fall.

So if you’re uncertain about what your income is going to be, the income

driven repayment plan’s going to be a very powerful tool to help you basically

approach student loan repayment with certainty that you should always be

able to afford your student loan payments.

(Claire): Exactly (Ian). The one thing I do want to mention about that - (Ian) in the

beginning mentioned all of Billy’s factors - Billy (unintelligible) - that he’s

single, that he lives in Virginia, what his current income is. Imagine that he’s

single now but my next year he gets married and has triplets. Of course that

family size will make a big difference on what his ultimate income is and of

course what one of his income driven payment plans might be.

(Ian Foss): Exactly. The family size is relevant here because it’s not 15% or 10% or 20%

of Billy’s or your total income. It’s discretionary income.

(Claire): Exactly.

(Ian Foss): And we take your family size into consideration when determining what

amount of your income is discretionary or not. So again the income driven

repayment plans in particular - there are a lot of additional factors that make it

difficult to estimate what any individual is going to actually repay but I will

say that the repayment periods for the income driven rate payment plans are

usually ten - or I’m sorry - 20 or 25 years.

Now that isn’t to say that everyone is going to receive forgiveness under these

plans. You can see that Billy under the income based or income contingent

repayment plan would repay his loans in full before the end of 20 or 25 years.



And so there’s no actual loan forgiveness that Billy would receive under those

plans but pay as you were because it keeps payments lower. If he actually is in

repayment for the full 20 years then may have a balance left to be forgiven.

Now again even though the payments are lower, it doesn’t affect the amount

of interest that is accruing on those loans. For income driven repayment

something called negative amortization can happen. That’s a big word and

really all it means is that there’s more interest accruing in a month than you’re

required to pay. So your total loan balance sort of grows instead of goes down

and that can really seem like a negative thing or a scary thing.

(Claire): It does sound scary.

(Ian Foss): My loan’s negatively amortized right now. I repay under IBR but it’s really

the best option for me for repaying my loans and even though it doesn’t make

me feel great to see my loan balance go up every month, I can sleep easier at

night knowing that next month I can afford to make my student loan payment

because none of the other repayment plans that I know would work for me.

(Claire): Exactly.

(Ian Foss): Now we’ve given you a lot of caution here about the repayment estimates that

you saw on the last slide. You can get a better idea of what you might pay

under not only the income driven repayment plans but also the traditional

repayment plans like the standard or extended repayment plan by going to the

repayment estimator. The repayment estimator - the link is here on this slide -

studentaid.gov/repayment-estimator or you can just go to studentloans.gov as

well and login.



We’ll pull your own loan information in, ask you a few questions about your

income and will then tell you not only which plans are going - may offer you

loan forgiveness which are the repayment plans based on income - income

based income contingent pay as you earn - but also how much you will pay

under the traditional repayment plans. It’s an individualized estimate but it is

still an estimate.

If you want more information, your best point of contact is your loan servicer.

Now there’s a whole piece of student loan repayment that we haven’t even

talked about yet and it’s loan consolidation. Loan consolidation is kind of like

refinancing your debt but what it does is it takes all of the various loans that

you may have received when you were in school - I know I had a lot of them

by the time I was done with grad school - and just combines them into one

new loan - one lender, one servicer, one loan, one repayment plan, one

payment every month. It’s a really great way to simplify repayment.

(Claire): Yes, it works for me. I actually consolidated my loans and it’s super simple to

have everything in one place, one interest rate and not have to worry about

looking at them as separate loans but just one big loan.

(Ian Foss): Right. Now the standard and the graduated repayment plans work a little bit

differently when you consolidate than if you didn’t. So if you consolidate the

repayment period, the amount of time you have to pay your loan in full is

based on the amount of your student loan debt which can also take into

consideration your private student loans.

So instead of it just being a fixed ten year or a fixed 25 year repayment period,

you can actually have a repayment period that extends out to 30 years which

will also further lower your student loan payment relative to sometimes the

extended repayment plan.



So if you owe a lot of debt or if you have private student loans and want to

have your federal student loan payments lowered to take into account the fact

that you do owe some other debt someplace else, consolidation can also be

another way to help you manage repayment but it’s not right for everybody.

You can lose certain benefits you have on your loans by consolidating

including forgiveness options that you might have through your lender or

other repayment incentives that you might have through your lender. So it’s

really important to weigh the pros and cons for you.

At our studentaid.gov website - there’s a link here on this slide - but you can

navigate to this page by just going to studentaid.gov as well. It will help you

self-assess whether consolidation may be right for you but it really helped me.

It really helped (Claire) just simplify repayment and there’s a lot of power and

simplicity.

(Claire): Definitely.

(Ian Foss): So I’m now going to turn it over to (Claire) who’s going to talk about

discharge forgiveness and cancellation.

(Claire): Yes so of course one of the biggest things that a lot of people want to know

about is okay, I have all this student loan debt. Okay so how do I get rid of it

and what are my options? And I’m all about options so let’s talk about yours

today.

So in terms of getting your loans discharged there are a couple of options. One

of the most morbid ones to talk about is death. For the federal loans if you do

die, your loans do die with you. You don’t have to worry about your spouse or

anyone else having to take the burdens of those loans so that is one option that



I hope nobody has to worry about any time soon but it is something that we do

want to tell you all about.

Disability - if by chance you are unable to have gainful employment and pay

your loans due to a disability, there is an option to have your loans discharged

due to that. And also public service loan forgiveness - that’s a really, really

popular one that we’re actually going to spend a little bit of time delving into

today. The public service loan forgiveness program is another way for you to

have your loans forgiven after ten years or 120 on time payments of your

federal student direct loans.

Also teaching - we have forgiveness for students who become teachers and for

a couple of our loan programs as you can see there - the Perkins loan and the

direct loan programs. So that is also another option that is out there for you as

well.

So let’s talk a little bit about public service loan forgiveness because this is a

very, very popular one that we get questions about a lot. As I mentioned, after

about ten years or 120 qualifying payments you can have your loans forgiven

on your direct loans. It’s great. So you get this while you’re working full time

at a qualifying employer which is awesome and the other thing about that is in

terms of the IRS and your loans being forgiven - the forgiven amount is not

treated as taxable income so you don’t have to worry about that being added at

that time.

(Ian Foss): And just to draw a distinction here, one thing that I didn’t reference when I

was talking about the income driven repayment plans - even though they do

provide for forgiveness - under the current tax law any amount that’s forgiven

under an income driven repayment plan like the income based repayment plan

is treated as taxable income by the IRS.



So just understand that if you sign up for an income driven repayment plan,

there’s forgiveness that’s provided for and that’s great but unless the law

changes and I know that a lot of people really are trying to have this type of

law change. But unless the law changes, any amount forgiven under an

income driven repayment plan would be treated as income but - as (Claire)

just said - not under public service loan forgiveness. So keep the distinction in

mind as you plan repayment for yourself.

(Claire): Yes, thank you (Ian). It’s so important. So let’s talk about the qualifying

repayment plans and actually this is one of the questions that we received in

our Q&A about which plans are good for a public service loan forgiveness.

Because it is kind of designed to be all your loans forgiven after ten years, the

income driven plans are the ones that you’d want to get into if you know that

you would qualify for public service loan forgiveness because of the fact that

it kind of puts you on a plan where you’re not paying them all off by that time.

If you pay off your loans after 120 payments then there’s nothing to forgive so

you do want to keep that in mind in terms of the best payment plan for you

when qualifying for this program.

So we talked about this qualifying employment and public service but what

does that really mean? Any government organization - that’s local, state or

federal - would qualify. Any not for profit organization - a 501C3

organization - and they’re also other ones that would count too. All of this

information is available on studentaid.gov. If you literally go to

studentaid.gov and search public service loan forgiveness, you can find

detailed information about what employers qualify and which don’t.



And if you’re not sure, you can also ask your employer if you’re considered a

501C3. But ultimately I think the best way to really be sure is to go on our

website and find out more information about that.

(Ian Foss): And not only can you find out more information on our website but there is a

form that all of you who are working in public service can fill out and send in

to us - the Department of Education - or actually one of our loan servicers to

receive confirmation of whether your employer qualifies. Not only will you

get confirmation that your employer qualifies but they will then go through

and audit your repayment history to be sure that you’re doing everything that

you need to do like paying your loans on the right repayment plan to qualify

after ten years for public service loan forgiveness.

So if you go to our website studentaid.gov, find information about public

service loan forgiveness, that form is there. I encourage you all to fill it out

early and fill it out often because if you don’t fill it out early or you don’t fill

it out often, you’re going to have to do it for ten years’ worth of employment

when you try to qualify for public service loan forgiveness. And I don’t know

about you but I know that I’ve worked a lot of places in the last ten years and

the prospect of trying to go back ten years later...

(Claire): And get that certification...

(Ian Foss): And get certification from an employer that I haven’t seen in a decade would

be tough so fill it out early. Fill it out often.

(Claire): Great advice. So now that you know about that, let’s talk about other ways to

postpone your payments and avoid default. So default - every time I hear that

word or think of that word, it sounds super scary. It’s something that you

definitely want to avoid however we’re also going to talk about if you are in



default the things that you can do to get out of it but of course you want to try

to be proactive and avoid it as well.

So in talking about postponing payment, there’s deferment and forbearance.

So you can see here on this slide kind of the different reasons that there are for

deferment and forbearance. I know for me when I first finished graduate

school and they told me my loan payment, I was completely overwhelmed. I

had just started by job and saw my standard repayment number and was like

oh my gosh, I can’t do this.

I called my loan servicer and they said hey, we can defer you for a month until

you figure out, you know, the best plan for you and what you want to do and it

was as simple as that. I was deferred. The next month I picked it up. I picked

the plan that was the best for me and went on. So there are a lot of reasons

why. So if you can look under the deferment, the economic hardship - that

was mine - and it was as simple as that.

(Ian Foss): Right but it’s important to understand that these tools are best used if you have

a temporary problem making your payments.

(Claire): Temporary being the key word because isn’t there a limit to the amount of

time that you can claim a deferment or forbearance (Ian)?

(Ian Foss): There are some deferments and forbearances that are time limited - for

example - the unemployment deferment is only allowed for up to three years.

But the biggest way to be sure that you’re going to limit the cost of your loan

in terms of interest is to actually repay the loan of course. Paying down the

loan principal decreases interest that will accrue in the future.



Deferment and forbearance while they’re great because they don’t allow you

to - they allow you to stop making payments - except for subsidized loans

interest is always accruing on those loans and it’s ultimately your

responsibility. It’s also one of the times that interest will compound on a

federal student loan. Interest will capitalize when deferment or forbearance

ends and capitalization is where interest becomes part of the principal and

because interest accrues on the principal, when your principal goes up, the

amount of interest that accrues goes up.

So deferment and forbearance are good. They are helpful but they should be

used sparingly and they should be used temporarily. So don’t not use them

because I’ve provided this caution. Use them if you need them but if you’re

having a longer term problem, you should probably investigate one of the

other repayment plans that may be available to you.

(Claire): Definitely. So talking about default - so I mentioned about what is default and

if you’re in default what you can do. So basically default means that after 270

days of delinquency you go into default and delinquency means that after 270

days you haven’t paid anything on your loans at all.

So this is kind of a last ditch effort for the loan services to collect. So there are

so many options that you could have before you get to this point of getting to

default. That’s why I can’t stress enough how important it is to communicate

with your servicer if you are having problems. We talked about how

forbearance and deferment are used for temporary but let’s say you have

something that’s a little more long term. Talk about moving into one of those

income driven repayment plans if you’re having issues with your income.

That’ll make a huge difference but you do get to the point where you haven’t

made any efforts to change your payment plan and haven’t made any



payments, you can go into default and all of these scary things listed can and

will happen - specifically hits to your credit, your wages being garnished,

issues with your taxes and not getting your refund and it can be really bad. It

even - it could hinder your chances of getting certain jobs as well.

(Ian Foss): Absolutely. Just one more point about default. There’s no reason to default.

Income driven payment plans can have payments that are as low as zero

dollars a month.

(Claire): How many dollars - zero dollars (Ian)?

(Ian Foss): Zero dollars a month. If your income is low or your family size is on the

higher side of things then you can very possibly have a payment amount of

zero dollars a month. It may not be that forever. We all want your income to

go up.

(Claire): Yes.

(Ian Foss): That will mean your student loan payment will go up but these repayment

plans are like insurance. They’re insurance in a way that if you’re making

money now and you lose your job tomorrow, you can call and your payment

amount under this plan could drop to zero dollars a month because you’ve

become unemployed for example.

So really just understand that there’s no reason to default. If you ever go

delinquent, don’t stress out about it. Talk to your loan servicer. Never be

afraid or ashamed of the fact that you’ve gone delinquent.

(Claire): Not at all.



(Ian Foss): Talk to your loan servicer. They’re going to be trying to contact you if you go

delinquent but know that you always have options and you should avail

yourself of one of those options because the consequences of default are

severe.

(Claire): So let’s say that I’m already in default. (Ian) what do you think is the best

thing I should do to try to get out of that?

(Ian Foss): Well there are a number of ways that you can go about getting out of default.

Some of them are better than others depending on what your desired outcome

is. The best two ways to get out of default are to either consolidate your loans.

Loan consolidation will allow you to get out of default on the loans that you

currently have but as a condition for being allowed to consolidate and get out

of default, you’ll be required to repay your loans under one of the income

driven rate payment plans that we’ve spent so much time talking about today.

So you can consolidate and get out of default but this will not remove the fact

that you defaulted on that loan from your credit report and for a lot of people

who are trying to move on with their lives financially after defaulting on their

student loans, removing the default record from your credit report is a big

motivating factor for trying to get out of default. And the other good way to

get out of default is what we call loan rehabilitation.

This is where you work with your lender to establish a payment amount that

you can afford but the you reliably repay that for nine or ten months

depending on your agreement and your behavior and after that point your loan

will no longer be in default just like if you had consolidated but also the

default notation will be removed from your credit report and it may allow you

more easy access to credit going forward.



So the two options again are loan consolidation and repayment under income

driven repayment plan or loan rehabilitation. Specifically about loan

rehabilitation - this is such a powerful benefit that it is limited to one time per

loan. So if you default on a loan and you are rehabilitated and if you ever

default again - I hope no one on this webinar ever defaults the first time or let

alone a second - but if you default again, you can’t rehabilitate again.

So again there’s no reason to go into default but you do have options to get

out of default if you do happen to do so.

(Claire): Yes, thanks for all those options. That’s really great to know. So I’m sure that

- I don’t know about you guys but I know that when I first started with all this,

I was super overwhelmed and I had to ask so many questions over and over

again to really understand.

So I hope that me and (Ian) were able to give you a lot of great information

however studentaid.gov has so much information and so much more detail

than we were able to give you in this short time today. I encourage you -

highly encourage you to check it out - studentaid.gov. You can click right at

the types of aid, click loans and get all the information you want. You can go

in the search box and check for repayment options or a payment plan and

they’ll talk about all the ones that we talked about today and even more stuff

that you didn’t even know you wanted to know. You can go on and find out.

I’m also looking in the Q&A box. Thank you so much for everyone who’s

been asking those great questions and if you have any more, keep going.

We’re going to continue to look at the questions and answer all of the ones

that you’ve asked now. And obviously (Ian) and I can answer things high

level from our federal perspective but ultimately - like we’ve stressed during

the entire webinar - your loan servicer is really who you want to contact about



those specific questions about your specific loan and the amount and all of

those things as well.

Not only can you go to nflds.ed.gov to find out but you can also call FSAIC -

our federal student aid information center at 1-800-4FED8. Some of you guys

who may have had trouble back in the day completing your FAFSA and doing

all of that, you may have called our hotline before if you’re familiar with

them. They also do help with borrower tacking. So if you do want to find out

your servicer or want some more information about that, you can definitely go

ahead and call our hotline as well.

(Ian Foss): Alright, so I think we’re ready to start going through some of the questions

and (Claire) do you want to read one of the questions that we received?

(Claire): Sure. So one of the questions that was asked is what’s the difference between

a subsidized and an unsubsidized loan and that’s a wonderful question. The

difference - the main difference in the direct loans talking about un-sub and

subsidized loans is that if you received a subsidized loan, that interest is

subsidized by us - by the government.

(Ian) mentioned when talking about the compounding interest and how that

could happen after deferment and forbearance how that won’t happen on a

subsidized loan since the government is covering it however it does in an

unsubsidized loan. So an unsubsidized loan is where you the borrower is

responsible for the interest. So that interest is constantly accruing.

However - like I mentioned for the subsidized loan - while you’re in different

times like while you’re at school or in your grace period no interest is

accruing on that loan.



(Ian Foss): Sure. So another good question that we have more than once is about public

service loan forgiveness and the requirement to make 120 payments and if

they have to be consecutive - whether they need to be consecutive and

whether you can get credit for time spent in deferment and forbearance.

(Claire): Great question.

(Ian Foss): The answer frankly is that payments don’t need to be consecutive. So for

whatever reason you miss a payment and you’re eight years in, you don’t start

over when you...

(Claire): That would be a nightmare.

(Ian Foss): That would be a nightmare. Ten years is a long time. But know that only

periods during which you’re in repayment and required to make a payment

count toward public service loan forgiveness. So if you were making

payments on say the income based plan for five years and you go into

deferment for one year because things were just so difficult for you financially

that you couldn’t afford to pay anything and then you start making payments

again after your deferment’s over, you’re not going to get any credit for the

time spent in deferment but you won’t start over with your pickup starting

with your six.

Now again for public service loan forgiveness you have to get on an income

driven repayment plan in order to have any remaining balance left to be

forgiven after ten years.

(Claire): Right.



(Ian Foss): The ten year standard plan - like (Claire) said - does qualify but if you make

payments on that plan for the full ten years...

(Claire): You’re going to pay it off yourself.

(Ian Foss): Right, you’ll qualify for public service loan forgiveness in the amount of zero

dollars. So...

(Claire): And that’s not what any of us want.

(Ian Foss): No. If you qualify for public service loan forgiveness, you need to couple that

program with an income driven repayment plan.

(Claire): Yes and one other thing I did want to mention I get questions about a lot is we

mention okay, within the ten years - let’s say for the first couple of years I was

working at a federal agency but then I left and I got an awesome private sector

job. What happens? How does that work?

And just like he mentioned, it doesn’t start all over. All of those payments

where you were full time and one of the qualifying employers will count but

the time you spent at your private sector job - they won’t. So that’s why, you

know, you can’t just say ten years or just say 120 payments. It really just

depends on how it works for you.

(Ian Foss): We received a request to go back to the slide comparing the various - the

various repayment plans and since a lot of the questions I think we’re

receiving are about that, I think it’s a good idea to just go back and leave the

slide here while we answer the rest of the questions.



(Claire): Yes, definitely. And I did see a question. Somebody asked will this

PowerPoint be available. I believe that we are going to be putting it up online

on our toolkit website but everyone registered. We have everyone’s email so

I’ll make sure that everyone who is registered for this webinar will have

access to this presentation.

(Ian Foss): Great. Another question that we’re getting is again about public service loan

forgiveness. Like I expected, it’s a hot topic. The question specifically is

about consolidation loans and whether payments on consolidation loans can

count towards public service loan forgiveness. The answer is yes, they can but

they need to be payments that are made on an income based repayment plan.

The other thing to know about public service loan forgiveness and

consolidation and this is very technical but if you made payments on for

example a direct loan and then you consolidate that loan, you will start over in

making qualifying payments.

So it’s important to keep in mind that if you want to consolidate your loans,

it’s best to do it when you’re early on in the repayment cycle to avoid - to

avoid having to start over if you do consolidate and are seeking public service

loan forgiveness.

(Claire): Yes, definitely. We have another great question asking about is there a cap

amount a month that you can use on the deferment and forbearance plan. I did

mention to use despairingly because there is a limit and I know that they may

vary. (Ian) if you can...

(Ian Foss): Right. There are some deferments that have time limits.

(Claire): Right.



(Ian Foss): The ones that do have time limits are generally limited to three years so that’s

36 months.

(Claire): Good mental note.

(Ian Foss): The deferments that are time limited are things like economic hardship

deferments, unemployment deferments and those are the big two that are time

limited. You can defer your loans to go back to school for the period of time

that you’re in school. There are also types of deferments that are - I’m sorry -

forbearances that are time limited. Some of them are not. It really depends on

the type.

The biggest type of forbearance that’s offered is generally called a general or

discretionary forbearance. It’s a forbearance that your lender is not required to

grant to you. Some of the lenders and some of the servicers will institute time

limits on the amount of time that you can receive these forbearances and it’ll

vary lender to lender. So it’s important to keep in mind that not only are

deferments time limited but so too are a lot of the forbearances.

We’re receiving a lot of questions about the - whether how frequently we

update the repayment estimator when there are changes to the programs. And

I’ll go out of my way right now to say that we’re working right now on

updating the repayment estimator to account for another repayment option that

may become available later in the year.

So we do keep it updated regularly. We always update it to account for new

metrics that are used in performing the calculations. So there are annual

updates to the repayment estimator and there are as needed updates for the

rate payment estimator.



(Claire): That’s helpful. Well ultimately I think just calling your loan servicer and

knowing for sure your exact case will always be the best way to determine

what you would actually have to pay in the different plans. I know that’s what

helped me determine what income driven plan was best for me and actually I

switched from last year. I was previously income based but after hearing the

new payments after I recertified, I realized hey paying more is sounding a

little bit better so I ended up switching.

So yes, talking to your loan servicer is another great way obviously. The

estimator is a wonderful resource and option and tool to use but your loan

servicer I just feel like can just tell you exactly what you need to know

specifically about your loan.

(Ian Foss): Here’s another good question about public service loan forgiveness and the

question is about whether payments under the extended or the graduated

repayment plans can qualify you for loan forgiveness. The answer is no. Only

payments under the ten year standard plan or income driven repayment plan

will really ever count toward public service loan forgiveness.

There was a notation on this slide about other repayment plans that are - have

payments that are at least equal if not more than the ten year standard

repayment plan. But the extended plan and the graduated plan is desired to

lower your payment relative to the ten year standard repayment plan so those

payments will never really count toward public service loan forgiveness.

So if you’ve been making payments during that time and paying - you start

making - you start getting credit for public service loan forgiveness when you

make that first payment when you work for a qualifying employer. But if

you’re making payments under those repayment plans and want public service



loan forgiveness, you do need to change your repayment plan in order to do

so.

(Claire): Okay, great. We’re getting a couple of other questions here about interest

accruing while you’re in forbearance, deferment or while you’re still in school

and we kind of touched on that when talking about kind of the subsidized and

unsubsidized loans. We mentioned that if you have a subsidized loan that no,

it does not...

(Ian Foss): During a deferment only.

(Claire): Okay, thank you. Yes and while you’re in school.

(Ian Foss): Right. Well if you have a subsidized loan, interest doesn’t accrue while you’re

in school. It doesn’t - it almost never accrues while you’re in your grace

period which is what you get for about six months after you leave school and

any time that you’re in deferment. That’s for a subsidized loan.

However in a forbearance on a subsidized loan interest always accrues and on

an unsubsidized loan and on a plus loan no matter what interest accrues from

the date your loan is made until the date that it’s paid in full or forgiven or

discharged. So unsubsidized loans are less favorable in that way. They’re also

made to those - I mean unsubsidized loans are made to all borrowers but

subsidized loans are made to those who demonstrate financial need and

because they’re made to those who have that lower income, there are

additional interest benefits provided for.

(Claire): Yes, great question.



(Ian Foss): Another question we’re receiving is how somebody can find out how many

qualifying payments for public service loan forgiveness that they have made.

The answer is to submit the form that we referenced earlier. This is the - it’s

called the employment certification for public service loan forgiveness form.

It’s on the studentaid.gov website and that form you will submit with

documentation from your employer - a certification. We will then evaluate

whether your employer qualifies and if it does then we will then go through

the process of auditing all of the payments that you’ve made from 2007

forward.

There is a date - a beginning date for public service loan forgiveness and it’s

October of 2007. So only payments made after October 1st 2007 can count

toward the ten years of payments for public service loan forgiveness but after

you submit that form then you will receive a payment audit from our servicer

at loan servicing with a count of how many payments you’ve made and an

estimate of when you’ll be eligible to receive public service loan forgiveness.

(Claire): Okay, great. We have about a minute left. We’re looking to see if we have any

other final questions to answer and I think we have one more. (Ian) do you

want to tackle it?

(Ian Foss): Yes, one more and it hits on a really important topic that really distinguishes

public service loan forgiveness from the other types of forgiveness programs

like teaching - the teaching loan forgiveness.

Now public service loan forgiveness looks at your employer. If you work for a

government organization or certain types of not for profit organizations, the

mere fact that you work for that organization means that your employment

qualifies. So it doesn’t matter what you do for your employer. It matters

where you work, who you work for.



(Claire): Right.

(Ian Foss): So unlike various other forms of forgiveness that are offered like teacher loan

forgiveness where you have to actually be a teacher teaching in a low income

school sometimes in specific subject matters in order to qualify for loan

forgiveness. Public service loan forgiveness only looks at where you work,

who you work for, not what you actually do for your job on a daily basis.

(Claire): Right, exactly. Perfect. Well we’re just hitting the six o’clock mark. Thank

you all for participating and asking your amazing questions. I’m so sorry there

was a couple more we couldn’t get to but I promise all your information can

be - we can get all the information you need to answer all of your questions on

our website - studentaid.gov - from your loan servicer and yes, by also finding

out about your loans at nslds.ed.gov as well.

(Ian Foss): Thanks so much for joining, everyone. Have a good evening.

END

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