1) Jan 10 [press release] -- New Proposed Regulations Would Transform Income-Driven Repayment by Cutting Undergraduate Loan Payments in Half and Preventing Unpaid Interest Accumulation
Today, the U.S. Department of Education (Department) proposed regulations to reduce the cost of federal student loan payments, especially for low and middle-income borrowers. The regulations fulfill the commitment President Biden laid out in August when he announced his Administration's plan to provide student debt relief for approximately 40 million borrowers and make the student loan system more manageable for student borrowers. The proposed regulations would create the most affordable income-driven repayment (IDR) plan that has ever been made available to student loan borrowers, simplify the program, and eliminate common pitfalls that have historically delayed borrowers' progress toward forgiveness. . . .
The proposed regulations would amend the terms of the Revised Pay As You Earn (REPAYE) plan to offer $0 monthly payments for any individual borrower who makes less than roughly $30,600 annually and any borrower in a family of four who makes less than about $62,400. The regulations would also cut in half monthly payments on undergraduate loans for borrowers who do not otherwise have a $0 payment in this plan. The proposed regulations would also ensure that borrowers stop seeing their balances grow due to the accumulation of unpaid interest after making their monthly payments.
While these regulations would provide critical relief to student borrowers, the Biden-Harris Administration is also committed to ensuring postsecondary institutions and programs are held accountable if they leave borrowers with unaffordable debts. The Department is currently working on a proposed gainful employment regulation that would cut off federal financial aid to career training programs that fail to provide sufficient financial value and require warnings for borrowers who attend any program that leaves graduates with excessive debts. The same regulatory package will also include proposals to strengthen the conditions that can be placed on institutions that fail to meet the requirements of the Higher Education Act or exhibit signs of risk.
Estimated effects of the proposed IDR Plan: The proposed regulatory changes would substantially reduce monthly debt burdens and lifetime payments, especially for low and middle-income borrowers, community college students, and borrowers who work in public service. Overall, the Department estimates that the plan would have the following effects compared to the existing REPAYE plan:
-- Future cohorts of borrowers would see their total payments per dollar borrowed decrease by 40%. Borrowers with the lowest projected lifetime earnings would see payments that are 83% less, while those in the top would only see a 5% reduction.
-- A typical graduate of a four-year public university would save nearly $2,000 a year relative to the current REPAYE plan.
-- A first-year teacher with a bachelor's degree would save more than $17,000 in total payments while pursuing Public Service Loan Forgiveness—a two-thirds reduction in what they would pay in total under REPAYE.
-- 85% of community college borrowers would be debt-free within 10 years
-- On average, Black, Hispanic, American Indian and Alaska Native borrowers would see their lifetime payments per dollar borrowed cut in half.
The draft regulations build upon the work the Biden-Harris Administration has already done to improve the student loan program, make colleges more affordable, approve $48 billion in targeted relief to nearly 2 million student loan borrowers, and fight to provide up to $20,000 in one-time debt relief to over 40 million eligible borrowers, including 26 million who have already applied. These regulations also propose to build on the Administration's commitment to ensuring IDR plans deliver relief to eligible borrowers. This includes ongoing steps to provide accurate counts of progress toward forgiveness for borrowers through a one-time account adjustment.
Fact sheet: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/idrfactsheetfin.pdf
Press release: https://www.ed.gov/news/press-releases/new-proposed-regulations-would-transform-income-driven-repayment-cutting-undergraduate-loan-payments-half-and-preventing-unpaid-interest-accumulation
2) Jan 11 -- FRN: Improving Income-Driven Repayment for the William D. Ford Federal Direct Loan Program
The Secretary proposes to amend the regulations governing income-contingent repayment plans by amending the Revised Pay as You Earn (REPAYE) repayment plan, and to restructure and rename the repayment plan regulations under the William D. Ford Federal Direct Loan (Direct Loan) Program, including combining the Income Contingent Repayment (ICR) and the Income-Based Repayment (IBR) plans under the umbrella term of “Income-Driven Repayment (IDR) plans.” We must receive your comments on or before February 10, 2023.
College affordability and student loan debt are significant challenges for many Americans. Student loan debt has risen to $1.6 trillion in aggregate over the past 10 years, and the inability to repay student loan debt has been cited as a major obstacle to middle class milestones such as homeownership. In this notice of proposed rulemaking (NPRM), the Department proposes several significant improvements to the repayment plans available to student loan borrowers to make it easier for borrowers to repay their loans.
The Department convened the Affordability and Student Loans negotiated rulemaking committee (Committee) between October 4, 2021, and December 10, 2021, to consider proposed regulations for the Federal student financial aid programs authorized under title IV of the Higher Education Act of 1965, as amended (title IV, HEA programs). The Committee operated by consensus, which means that there must be no dissent by any member for the Committee to be considered to have reached agreement. The Committee did not reach consensus on the topic of IDR plans.
On July 13, 2022, the Department published in the Federal Register (87 FR 41878) an NPRM related to other topics which were considered by the Affordability and Student Loans Committee. The Department published the final rule on November 1, 2022, 87 FR 65904, (Affordability and Student Loans Final Rule).
This NPRM addresses IDR plans (repayment plans that base a borrower's monthly payment amount on the borrower's income and family size). These proposed changes to the rules governing IDR plans would help ensure that student loan borrowers have greater access to affordable repayment terms based upon their income, resulting in lower monthly payments and lower amounts repaid over the life of a loan.
The Department proposes to amend §§ 685.102, 685.208, 685.209, 685.210, 685.211, and 685.221 to reflect the proposed changes to IDR plans. The proposed IDR regulations would expand the benefits of the REPAYE plan, including providing more affordable monthly payments, by increasing the amount of income protected from the calculation of the borrower's payments, lowering the share of unprotected income used to calculate payment amounts on undergraduate debt, reducing the amount of time before reaching forgiveness for borrowers with low balances, and not charging any remaining accrued interest each month after applying a borrower's payment. The proposed regulations would also allow borrowers to receive credit toward forgiveness for certain periods of deferment or forbearance.
The proposed regulations would streamline and standardize the Direct Loan Program repayment regulations by categorizing existing repayment plans into three types: fixed payment repayment plans, which are plans with monthly payments based on the scheduled repayment period, loan debt, and interest rate; IDR plans, which are plans with monthly payments based in whole or in part on the borrower's income and family size; and the alternative repayment plan, which is only used on a case-by-case basis when a borrower has exceptional circumstances. As part of the reorganization of the regulations, the Department seeks to standardize and clarify the regulations (including changes to the terms of the plans themselves), refine sections of the regulations that may be ambiguous to reflect the Department's long-standing interpretation of those regulations, and simplify the procedures and terms of the existing plans.
The Affordability and Student Loans Committee discussed and reached consensus on proposed regulatory changes that would remove most events from the current rules that require interest capitalization. That Committee also discussed but did not reach consensus on IDR. This NPRM proposes changes to IDR. We addressed interest capitalization in the Affordability and Student Loans Final Rule. In this NPRM, we make technical and conforming changes to that language as part of the reorganization of regulatory language for IDR plans.
The proposed regulations would make the following changes to the IDR plans (§ 685.209):
-- Expand access to affordable monthly payments on Direct Loans through changes to the REPAYE repayment plan.
-- For borrowers on the REPAYE plan, increase the amount of income exempted from the calculation of the borrower's payment amount from 150 percent of the applicable poverty guideline to 225 percent of the applicable poverty guideline.
-- Lower the share of discretionary income that the REPAYE formula would mandate be put toward monthly payments so that borrowers with only outstanding loans for an undergraduate program pay 5 percent of their discretionary income and those who have outstanding loans for undergraduate and graduate programs pay between 5 and 10 percent based upon the weighted average of their original principal balances attributable to those different program levels.
-- Provide for a shorter repayment period and earlier forgiveness for borrowers with low original loan principal balances.
-- Simplify the provision that a borrower who fails to recertify their income is placed on an alternative repayment plan.
-- Under the modified REPAYE plan, cease charging any remaining accrued interest each month after applying a borrower's payment.
-- Make additional improvements that help borrowers benefit from the IDR plans by allowing borrowers to receive credit toward forgiveness for certain periods of deferment or forbearance. For periods of deferment or forbearance for which borrowers do not automatically receive credit, borrowers could make additional payments through a new provision that would allow them to also get credit for those months. The proposed regulations would also allow borrowers to maintain credit toward forgiveness for payments made prior to consolidating their loans.
-- Streamline and standardize the Direct Loan Program repayment regulations by locating all repayment plan provisions in sections of the regulations that are listed by repayment plan type: fixed payment, income-driven, and alternative repayment plans.
-- Clarify the repayment plan options available to borrowers through streamlining of the regulations and reduce complexity in the student loan repayment system by phasing out enrollment in the existing IDR plans to the extent that current law allows, except that no borrower would be required to switch to a different repayment plan.
-- Eliminate burdensome and confusing recertification regulations for borrowers using IDR plans.
-- Make updates to appropriate cross-references.