Back in the spring of 2014, President Barack Obama's budget
request proposed expanding the Pay As You Earn income-driven repayment
program, with some caveats, to more federal student loan borrowers.
Several months later, the president strengthened that request
by issuing an executive order requiring the Department of Education to
promulgate regulations to implement that expansion no later than the end of
December 2015.
To fulfill that order, the Department of Education initiated
a process called negotiated rulemaking this past fall. This process is required
under the Higher Education Act and entails a series of public hearings,
meetings with constituents of the parties that will be affected by the proposed
regulatory changes and a sometimes extensive public comment period. This
Student Loan Ranger attended these sessions. The goal is to obtain consensus on
several proposed regulatory changes although consensus is not required.
A consensus was reached at the most recent session. Here's
what will be offered for public comment, and likely implemented, later this
year or early next year.
Currently, all federal loan borrowers other than Parent PLUS
and Perkins borrowers are eligible for the traditional income-based repayment
plan that caps payments at 15 percent of their discretionary income and
forgives any balance remaining after 25 years.
Direct loan borrowers who only have loans made after October
2007 and who have borrowed since October 2011 are also eligible for Pay As You
Earn, which caps the payments at 10 percent of discretionary income and
forgives the balance after only 20 years. The new plan, tentatively called
Revised Pay As You Earn – or REPAYE – will likely feature the
following attributes, though things could change due to public comment expected
to be solicited sometime this summer.
All direct loan, Stafford and Graduate PLUS borrowers will
be eligible for Revised Pay As You Earn, regardless of when they took out their
loans. Parent PLUS loans or consolidation loans containing Parent PLUS loans
will not be eligible. Other federal loans, other than parent PLUS loans, will
in most cases be able to consolidate into the direct loan program to use the
new plan. This option is allowed today for Perkins Loans under income-based
repayment and Pay As You Earn.
• Payments under Revised Pay As You Earn will be no more than
10 percent of the borrower's adjusted gross income, minus 150 percent of the
poverty guidelines for their family size. Borrowers with negative results from
this calculation will have a payment of $0 per month.
• If a borrower is married, both spouses' incomes will be
taken into consideration, whether they file their taxes as married or
separately. Other income-driven plans exclude the spouse's income if the couple
files taxes separately. Exceptions will be made for victims of domestic
violence.
• If a borrower only has undergraduate loans under the new
plan, forgiveness of any remaining balance will occur after 20 years on the
Revised Pay As You Earn plan. Borrowers with graduate loans, or both
undergraduate and graduate loans, will enjoy forgiveness after 25 years. Both
forgiveness benefits will be taxable as income, as with the other income-driven
repayment plans.
• If borrowers' Revised Pay As You Earn payments do not
satisfy monthly interest accrual, any interest not covered by the payment will
be reduced by 50 percent.
• Payments made under the revised plan count toward the 120
payments needed for Public Service Loan Forgiveness. There were no other
changes made to the forgiveness program during this negotiated rulemaking.
Speaking of the PSLF, last week the House and Senate passed a
conference agreement on the 2016 budget resolution that sets tax and spending
priorities for the upcoming fiscal year. While the PSLF was not mentioned
specifically, the agreement does reduce spending over the next 10 years on
education, social services, training and employment by $162 billion.
There is speculation that these savings may come from
eliminating the expansions to the income-driven plans, the in-school subsidy
for undergraduate Stafford loans and public service loan forgiveness – remember
that this is only speculation and historically, Congress has grandfathered in
existing eligible borrowers whenever they have changed or eliminated a program
or benefit in the federal aid programs. We'll be sure to keep you posted.
There was discussion at the negotiated rulemaking meetings
that at some point in the future, the desire is for Revised Pay As You Earn to
be the only income-driven repayment plan offered to new borrowers. There is
currently no discussion of eliminating the current plan availability to
existing borrowers.
What the Educational Loan
Ranger loves about the negotiated rulemaking process is the fact that anyone
can participate. If you have an opinion about these proposed changes, keep an
eye out this summer for a Federal Register Notice of Proposed Rulemaking that
will outline these proposals and ask for public comment. The process rules
require the Department of Education to read and respond in a later publication
to all comments and questions received, so your opinion does matter.
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