Frequently
Asked Questions about the College
Cost Reduction Act and Access Act (CCRAA) of 2007
What is the College Reduction Act
and Access Act of 2007?
In
September 2007 the College Cost Reduction and Access Act (CCRAA) was signed
into Public Law 110-84. The College Reduction Act and
Access Act of 2007 is a new federal loan repayment program for Direct Loan and
FFELP borrowers. This act will cancel the balance owed by borrowers who, after October 1, 2007,
have made 120 payments under income-based or standard repayment plans while
employed in certain public service jobs. Periods of deferment and forbearance
are not counted toward the 120 payments. Payments made before October 1, 2007,
do not count. Likewise, only payments on a Federal Direct Loan are counted. The new
law will redirect taxpayer subsidies away from student loan companies and
toward increased grant aid and improved benefits for borrowers.
When will this
legislation become effective?
Most of the changes will take effect October 1, 2007. Borrowers may consolidate into
Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.
At
present, there are no specific regulations implemented under the bill.
Section
203 of the Act takes effect on July 1, 2009. Please note that private loans
will not be eligible for this program. Therefore, students should consider
their federal loan options first.
This contrasts with the loan forgiveness of the remaining balance after 25
years of repayment under the income-contingent and income-based repayment plans
for borrowers who are not employed full time in public service jobs.
What is the Income-based Repayment
Program?
The legislation established an income-based repayment program (IBR) that
would allow borrowers in either the Direct Loan or FFELP program to have their
lender [that is, the Department of Education in the case of the Direct Loan
program] restrict their annual payments to 15% of the amount that their
adjusted gross income exceeds 150% of poverty, based on a 10-year repayment
plan. The lender would apply payments first to interest and then to principal.
On subsidized loans, the Department of Education would pay unpaid interest for
three years; after that, interest would be capitalized. The Department of
Education would pay or cancel loans after 25 years for borrowers who continue
to be eligible for this program or choose to repay under the income-contingent
repayment program (ICRP) or who have qualified for economic hardship deferment.
The new IBR program would be an additional option for qualified borrowers to
the existing income-contingent repayment program, which is open to all
borrowers in the Direct Loan Program. Access the U.S. Department of Education’s
website at www.ed.gov for information about
college financial aid.
Who is eligible for
the loan forgiveness portion of the legislation?
H.R. 2669 defines a "public service job" as
"(i) a full-time job in emergency management, government, military
service, public safety, law enforcement, public health, public education
(including early childhood education), social work in a public child or family
service agency, public interest law services (including prosecution or public
defense or legal advocacy in low-income communities at a nonprofit organization),
public child care, public service for individuals with disabilities, public
service for the elderly, public library sciences, school-based library sciences
and other school-based services, or at an organization that is described in
section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation
under section 501(a) of such Code; or (ii) teaching as a full-time faculty
member at a Tribal College or University as defined in section 316(b) [of the
Higher Education Act] and other faculty teaching in high-needs areas, as
determined by the Secretary [of Education]."
What loans are
eligible for the loan forgiveness program?
The coverage is broad. Eligible loans include federal
Direct Stafford Loans (Subsidized and Unsubsidized), Federal Direct PLUS Loans, and Federal Direct Consolidation Loans.
Borrowers in the Direct Loan program do not need to consolidate in order to
qualify for loan forgiveness. Borrowers in the FFEL program will need to
consolidate into Direct Loans.
Although the Federal Perkins Loans are not eligible for
public service loan forgiveness, if they are included in a Federal Direct
Consolidation Loan the entire consolidation, including the Federal Perkins
Loans, is eligible for public service loan forgiveness. One may use the income-based
repayment and income-contingent repayment on such a consolidation loan.
Federal Perkins loan borrowers will need to consider the
tradeoffs of including the Perkins loans in a Federal Direct Consolidation
loan. When Federal Perkins loans are consolidated, they lose several favorable
benefits, such as subsidized interest, a 9 month grace period, and a generous
loan forgiveness program.
How do I find out
if I am eligible for the loan forgiveness program?
Contact the U.S. Department of Education at 1-800-USA-LEARN,
to determine whether or not you are eligible for this program. The Department
of Education will be issuing regulations within the coming months to provide
the public with more guidance on the legislation’s implementation. You can also
contact the Federal Student Loan Information Line at 1-800-433-3243.
How much of my loan
does this affect?
After ten years of service in an eligible profession, 100% of federal loans
and interest are forgiven.
Where can I get the latest
information on this act?
For the latest information, and to
see how the new law affects federal student loans visit www.FederalStudentAid.ed.gov,
click on “Students, Parents and Counselors.” You will find the information you
need in the “Announcement” section. This site provides comprehensive, FREE information on the student aid process, and it
links to other student aid-related sites. You may also call the Federal Student Aid
Information Center
at 1-800-4-FED-AID (1-800-433-3243).
TTY users can call 1-800-730-8913.
Callers in locations without access to 1-800- numbers may call 319-337-337-5665
(this is not a toll-free number).
Who will benefit from the College Reduction Act and Access Act of
2007?
This program is for borrowers who
pursue public service careers and who have high debt and low income. Borrowers
with low debt or high income will not benefit as much.
What if a borrower has bank-based (FFEL) loans?
Borrowers with FFEL loans (from banks and companies like Sallie Mae) should
consider consolidating these loans into the Direct Loan program. There is no
deadline for starting the forgiveness clock, but the sooner borrowers start,
the sooner they will qualify.
Some borrowers may be told that they cannot consolidate their loans because
they already have a consolidation loan. Starting July 2008, the new law gives
these borrowers the right to re-consolidate into the Direct Loan program in
order to access the public service provisions.
What else is important to know?
Under current tax law, cancelled and forgiven
debts are generally treated as income, creating a tax liability for the
borrower--with certain exceptions. It appears that debts forgiven under this
public service program would not
be taxed as income. The savings for borrowers who pursue public service jobs
will exceed the tax liability. There is a strong possibility that Congress will
decide to exclude such loan forgiveness from taxable income before this becomes
an issue in 2017. It is also possible that the public service loan forgiveness
qualifies for an exclusion from income under IRC Section 108(f), although this
has not yet been determined by the Internal Revenue Service.
In addition to being employed in the public
service sector when the payments are made, you have to be employed in public
service whethe forgiveness is requested or grante
Borrowers should examine what they will be
giving up by consolidating their FFELP loans in the Federal Direct loan Program
Will you work full-time in a qualifying public
service position for at least 10 years?
Will you be making qualifying loan payments
during the entire 10 year period of public service employment?
Why is the program available only in the
Direct Loan program?
Direct loans are less expensive for the government to offer than to
subsidize bank-based loans. The costs of the loan forgiveness program are paid
for in part by the savings from borrowers entering the Direct Loan program.
Who can I contact if I need further assistance?
If you need assistance in solving a loan dispute, contact the U.S.
Department of Education’s Federal Student Aid Ombudsman at http://www.ombudsman.ed.gov/
Other Federal Resources
Additional Links
Note: This summary is not financial advice and is based on the text as
signed. There will likely be “technical amendments” clarifying some of the
language of the law.
Disclaimer: CUNY
School of Law is not responsible for
the content on the Web sites maintained by third parties nor do the links to
these third-party Web sites imply or constitute an endorsement of the
information contained therein. CUNY
School of Law is not
responsible for reviewing the information contained in these Web sites and can
not ensure the accuracy of their content.
Office of Financial Aid: 718-340-4284 Joseph@mail.law.cuny.edu
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