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New Income-Driven Repayment Plan

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 rule making 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 or who have not 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 Student 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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