Rulemaking Panel Advances Income-Based Repayment Expansion

Negotiators on a federal rulemaking committee reached consensus last week on a proposal to expand and remake the Pay as You Earn (PAYE) student loan income-based repayment plan, reported Inside Higher Ed. The approved proposal would allow many existing federal student loan borrowers to lower their monthly payments and qualify for loan forgiveness sooner.

The plan calls for the creation of a new income-based repayment program – called REPAYE, short for Revised PAYE – that would be available to all federal direct loan borrowers, regardless of income or origination date. The existing Pay as You Earn program is available only to borrowers who first took out loans after September 2007, borrowed at least once more after September 2011, and can demonstrate a "financial hardship."

The revised program, like the existing program, would allow borrowers to cap monthly payments at 10 percent of their discretionary income and have any remaining debt forgiven after 20 or 25 years. However, under the revised program, higher-income borrowers would pay a larger share of their income each month. Students who borrowed for graduate school would pay for an additional five years before their loans were forgiven, and married borrowers would, with some exceptions, be required to make payments based on their joint income and debt.

Struggling borrowers, meanwhile, would have more of their debt forgiven, according to The Chronicle of Higher Education. Under the new plan, borrowers whose monthly payments did not cover the interest on their debt would have only half, at most, of the unpaid interest added to their loan balance each month.

Taken together, the changes attempt to combat concerns that the existing PAYE program is a windfall for some students at expensive professional schools and encourages those graduate programs to raise tuition on the taxpayer's dime.

The U.S. Education Department plans to formally propose the new repayment program and seek public comment on the plan in early July. Officials will then finalize the rule by Nov. 1, an agency spokesperson told the rulemaking panel Thursday. The department will expedite the implementation of the new repayment program so that borrowers can apply starting in December.

The package of regulations advanced last week also included a proposal to make it easier for colleges with high loan default rates but few students taking out loans to avoid losing federal funding, Inside Higher Ed reported.

The proposal would largely benefit community colleges. If finalized by this November, as expected, the changes to the default rate appeal process would not go into effect until next July.

 

Related Links

Inside Higher Ed

https://www.insidehighered.com/news/2015/05/01/federal-rule-making-panel-oks-plan-expand-income-based-repayment-program

The Chronicle of Higher Education

http://chronicle.com/article/Revisions-Make-a-Key/229861