FiCEP Student Loan Counseling 2 — Questions and Answers
Question 1: The Pay As You Earn (PAYE) repayment plan generally caps monthly payments at what percentage of a borrower's discretionary income?
- 5%
- 8%
- 10% (Correct answer)
- 15%
Correct answer: 10%
PAYE caps payments at 10% of discretionary income and offers loan forgiveness after 20 years of qualifying payments for eligible new borrowers.
Question 2: Under the Graduated Repayment Plan for federal student loans, how do monthly payments change over the repayment period?
- Payments remain fixed for the entire repayment term
- Payments decrease as the borrower's income rises
- Payments start lower and increase every two years (Correct answer)
- Payments are recalculated annually based on income
Correct answer: Payments start lower and increase every two years
The Graduated Repayment Plan starts with lower payments that increase every two years, typically over a 10-year period, on the assumption the borrower's income will grow.
Question 3: What is the maximum repayment term available under the Extended Repayment Plan for federal student loans?
- 10 years
- 15 years
- 20 years
- 25 years (Correct answer)
Correct answer: 25 years
The Extended Repayment Plan allows borrowers with more than $30,000 in federal loans to repay over up to 25 years, with either fixed or graduated payments.
Question 4: Under Income-Based Repayment (IBR) for borrowers who first borrowed after July 1, 2014, monthly payments are capped at what percentage of discretionary income?
- 5%
- 10% (Correct answer)
- 15%
- 20%
Correct answer: 10%
Newer IBR borrowers (first borrowing after July 1, 2014) benefit from a reduced cap of 10% of discretionary income, compared to 15% for earlier borrowers.
Question 5: For Income-Driven Repayment (IDR) plans, 'discretionary income' is defined as the amount above what percentage of the federal poverty guideline for the borrower's family size?
- 100%
- 125%
- 150% (Correct answer)
- 200%
Correct answer: 150%
Discretionary income is calculated as the difference between the borrower's annual income and 150% of the federal poverty guideline for their family size and state, for most IDR plans.
Question 6: A borrower experiencing temporary financial hardship who is not yet in default may apply for which relief option to pause or reduce federal student loan payments?
- Immediate loan cancellation
- Deferment or forbearance (Correct answer)
- Automatic loan forgiveness
- Voluntary transfer to a private lender
Correct answer: Deferment or forbearance
Deferment (for qualifying circumstances like unemployment or enrollment) and forbearance (for general hardship) are the primary options to temporarily pause or reduce payments without entering default.
Question 7: Which repayment plan would a financial counselor most likely recommend to a recent graduate with variable income who wants the lowest possible payment today but expects strong income growth?
- Standard Repayment Plan
- Graduated Repayment Plan (Correct answer)
- Extended Fixed Repayment Plan
- Income-Contingent Repayment Plan
Correct answer: Graduated Repayment Plan
The Graduated Repayment Plan starts with lower payments and increases every two years, making it suitable for borrowers confident their income will rise over time.
FiCEP Student Loan Counseling 2
The Pay As You Earn (PAYE) repayment plan generally caps monthly payments at what percentage of a borrower's discretionary income?