[Federal Register Volume 88, Number 7 (Wednesday, January 11, 2023)]
[Proposed Rules]
[Pages 1894-1930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28605]
[[Page 1893]]
Vol. 88
Wednesday,
No. 7
January 11, 2023
Part V
Department of Education
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34 CFR Part 685
Improving Income-Driven Repayment for the William D. Ford Federal
Direct Loan Program; Proposed Rule
Federal Register / Vol. 88, No. 7 / Wednesday, January 11, 2023 /
Proposed Rules
[[Page 1894]]
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DEPARTMENT OF EDUCATION
34 CFR Part 685
[Docket ID ED-2023-OPE-0004]
RIN 1840-AD81
Improving Income-Driven Repayment for the William D. Ford Federal
Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: 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.''
DATES: We must receive your comments on or before February 10, 2023.
ADDRESSES: Comments must be submitted via the Federal eRulemaking
Portal at regulations.gov. However, if you require an accommodation or
cannot otherwise submit your comments via Regulations.gov, please
contact the program contact person listed under FOR FURTHER INFORMATION
CONTACT. The Department will not accept comments submitted by fax or by
email or comments submitted after the comment period closes. To ensure
that the Department does not receive duplicate copies, please submit
your comment only once. Additionally, please include the Docket ID at
the top of your comments.
The Department strongly encourages you to submit any comments or
attachments in Microsoft Word format. If you must submit a comment in
Adobe Portable Document Format (PDF), the Department strongly
encourages you to convert the PDF to ``print-to-PDF'' format, or to use
some other commonly used searchable text format. Please do not submit
the PDF in a scanned format. Using a print-to-PDF format allows the
Department to electronically search and copy certain portions of your
submissions to assist in the rulemaking process.
Federal eRulemaking Portal: Please go to www.regulations.gov to
submit your comments electronically. Information on using
Regulations.gov, including instructions for finding a rule on the site
and submitting comments, is available on the site under ``FAQ.''
Privacy Note: The Department's policy is to generally make comments
received from members of the public available for public viewing at
www.regulations.gov. Therefore, commenters should include in their
comments only information about themselves that they wish to make
publicly available. Commenters should not include in their comment any
information that identifies other individuals or that permits readers
to identify other individuals. If, for example, your comment describes
an experience of someone other than yourself, please do not identify
that individual or include information that would allow readers to
identify that individual. The Department will not make comments that
contain personally identifiable information (PII) about someone other
than the commenter publicly available on www.regulations.gov for
privacy reasons. This may include comments where the commenter refers
to a third-party individual without using their name if the Department
determines that the comment provides enough detail that could allow one
or more readers to link the information to the third party. If your
comment refers to a third-party individual, to help ensure that your
comment is posted, please consider submitting your comment anonymously
to reduce the chance that information in your comment about a third
party could be linked to the third party. The Department will also not
make comments that contain threats of harm to another person or to
oneself available on www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Richard Blasen, Office of
Postsecondary Education, 400 Maryland Ave. SW, Washington, DC 20202.
Telephone: (202) 987-0315. Email: [email protected].
If you are deaf, hard of hearing, or have a speech disability and
wish to access telecommunications relay services, please dial 7-1-1.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of This Regulatory Action
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.\1\ 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.
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\1\ R. Chakrabarti, N. Gorton, and W. van der Klaauw, ``Diplomas
to Doorsteps: Education, Student Debt, and Homeownership,'' Federal
Reserve Bank of New York Liberty Street Economics (blog), April 3,
2017, https://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-and-homeownership/http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-andhomeownership.html.
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The Department convened the Affordability and Student Loans
negotiated rulemaking committee (Committee) between October 4, 2021,
and December 10, 2021,\2\ 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.
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\2\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn#loans?
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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 Sec. Sec. 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
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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.\3\
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.
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\3\ https://www.ecfr.gov/current/title-34/subtitle-B/chapter-VI/part-685/subpart-B/section-685.208.
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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.
Summary of the Major Provisions of This Regulatory Action
The proposed regulations would make the following changes to the
IDR plans (Sec. 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.
Costs and Benefits: As further detailed in the Regulatory Impact
Analysis (RIA), the proposed regulations would have significant impacts
on borrowers, taxpayers, and the Department. The effects related to the
Department could also include some costs on the entities it contracts
with to service student loans.
Borrowers would benefit from more affordable IDR plans and
streamlining of existing IDR plans. The proposed IDR changes would help
borrowers to avoid delinquency and defaults, which are harmful for
borrowers and create administrative complexities for collection. For
borrowers who might otherwise be averse to taking on debt and who would
be willing to borrow Federal student loans under this more affordable
IDR plan, the additional borrowing may help them to enroll, stay in
school, and complete their degrees.
Additionally, the Department would benefit from streamlining
existing IDR plans as administration of repayment plans would be
easier.
Costs associated with these proposed changes to IDR plans include
implementation costs and increased costs of the student loan programs
to the taxpayers in the form of transfers to borrowers who would pay
less on their loans. The implementation costs include paying student
loan servicers to adjust their systems. As detailed in the RIA, the
proposed changes are estimated to have a net budget impact of $137.9
billion across all loan cohorts through 2032.
Invitation to Comment: We invite you to submit comments regarding
these proposed regulations. To ensure that your comments have maximum
effect in developing the final regulations, we urge you to clearly
identify the specific section or sections of the proposed regulations
that each of your comments addresses and to arrange your comments in
the same order as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Orders 12866 and 13563 and their overall
requirement of reducing regulatory burden that might result from these
proposed regulations. Please let us know of any further ways we could
reduce potential costs or increase potential benefits while preserving
the effective and efficient administration of the Department's programs
and activities. The Department also welcomes comments on any
alternative approaches to the subject addressed in the proposed
regulations.
During and after the comment period, you may inspect public
comments about these proposed regulations by accessing Regulations.gov.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a
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disability who needs assistance to review the comments or other
documents in the public rulemaking record for these proposed
regulations. If you want to schedule an appointment for this type of
accommodation or auxiliary aid, please contact one of the persons
listed under FOR FURTHER INFORMATION CONTACT.
Background
The Department's regulations currently contain more than a half
dozen repayment plans: standard, extended, graduated, alternative, IBR,
ICR, Pay As You Earn (PAYE), and REPAYE. Of these, eligible borrowers
may choose from up to four different repayment plans where monthly
payment amounts are based in part on a borrower's income, referred to
collectively as IDR plans: IBR, ICR, PAYE, and REPAYE.
When the HEA was initially enacted, it contained only one repayment
plan: the standard repayment plan. Under the standard repayment plan,
borrowers are required to repay their loans in full within 10 years
from the date the loan entered repayment by making fixed monthly
payments, or between 10 and 30 years if the loan is a Direct or Federal
Family Education Loan (FFEL) Program Consolidation Loan. Over the
years, Congress has added other plans designed to keep amortized
repayment amounts affordable. Those plans relied on traditional tools
like extending the repayment period and allowing for lower initial
payments that increase on a set schedule over time. More specifically,
the extended repayment plan provides for fixed, but smaller, monthly
payments over a 25-year period instead of a 10-year period. However,
the extended repayment plan is only available if the borrower owes more
than $30,000. The plan is also limited to those who borrowed after
October 7, 1998. However, that date limitation alone is unlikely to
affect significant numbers of borrowers at this time.
The graduated repayment plan allows borrowers to repay their loans
by making small payments at the beginning of their repayment period,
and gradually increasing payments in later years. Under the graduated
repayment plan, a borrower is required to repay the loan in full within
10 years from the date the loan entered repayment, or between 10 and 30
years if the loan is a Direct or FFEL Consolidation loan.
When Congress passed legislation to create the Direct Loan Program,
it included the original ICR plan as an option for borrowers in that
program.\4\ ICR provides a flexible alternative to the traditional
standard, extended, and graduated repayment plans also offered under
the HEA.\5\ Under the ICR plan, a borrower's monthly payment amount is
generally calculated based on the total amount of the borrower's Direct
Loans, family size, and adjusted gross income (AGI). A borrower's
required monthly payment amount is determined to be the lesser of (1)
20 percent of their discretionary income (AGI less 100 percent of the
applicable poverty guideline), divided by 12, or (2) the amount the
borrower would repay annually over 12 years when using standard
amortization multiplied by an income percentage factor corresponding to
the borrower's AGI, divided by 12.
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\4\ This NPRM uses the term income-driven repayment (IDR) to
refer to all payment options that allow borrowers to make payments
based upon their income. Income-contingent repayment plans refer to
a subset of IDR options, whose terms are created through regulation.
The plans created under the ICR authority are income-contingent
repayment, Pay As You Earn, and Revised Pay As You Earn.
\5\ https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm.
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In 2007, Congress established the IBR plan and made it available to
borrowers in both the Direct Loan and FFEL Programs. The IBR plan
requires borrowers to make monthly payments of 15 percent of their
discretionary income (AGI minus 150 percent of the poverty guideline
based upon their family size, divided by 12) and provides forgiveness
after the equivalent of 25 years' worth of monthly payments. Congress
modified the IBR plan in 2010 to lower the percentage of income a
borrower must pay monthly to 10 percent of their discretionary income
and shortened the time to forgiveness to 20 years' worth of monthly
payments. These revised IBR terms are only available to new borrowers
as of 2014. This revised plan is sometimes referred to as the ``New
IBR.'' Congress also required that, to qualify for either version of
the IBR plan, a borrower must have a partial financial hardship (PFH).
A PFH means that a borrower's calculated payment on IBR had to be at or
below what the borrower would have paid on the 10-year standard plan.
The next income-contingent repayment plan, the PAYE repayment plan,
became available on July 1, 2013. In general, the PAYE plan was
designed for certain borrowers to get repayment terms similar to IBR
even if they borrowed before 2014. PAYE is available to borrowers who
did not have an outstanding loan balance on or after October 1, 2007,
but who received at least one loan disbursement on or after October 1,
2011. The PAYE plan also includes a PFH requirement identical to IBR,
sets payments at 10 percent of discretionary income, and a loan
forgiveness time frame equivalent to 20 years of qualifying monthly
payments.\6\
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\6\ https://www.govinfo.gov/content/pkg/FR-2012-11-01/html/2012-26348.htm.
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The latest income-contingent repayment plan became available on
July 1, 2016, in accordance with President Obama's memorandum directing
the Department to ensure more Direct Loan borrowers could limit their
loan payments to 10 percent of their monthly incomes.\7\ To meet this
goal, the Secretary issued final regulations that added a new income-
contingent repayment plan, the REPAYE plan. This plan was modeled on
the PAYE plan and may be used to repay any outstanding loans made to a
borrower under the Direct Loan Program, except for defaulted loans,
Direct PLUS loans made to a parent borrower to pay the cost of
attendance for a dependent student, or Direct Consolidation Loans that
repaid Parent PLUS loans.\8\
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\7\ https://obamawhitehouse.archives.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments.
\8\ https://www.federalregister.gov/documents/2015/10/30/2015-27143/student-assistance-general-provisions-federal-family-education-loan-program-and-william-d-ford.
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In recent years, the Department has become increasingly concerned
that the current IDR plans do not adequately serve struggling
borrowers.\9\ Borrowers face a maze of repayment options that may lead
some borrowers to make suboptimal decisions, struggle with annual
income re-certification requirements, or never enroll in an IDR plan at
all and instead fall into delinquency and default. For some borrowers,
particularly low-income borrowers, the payments on an IDR plan may
still not be affordable. Borrowers who obtained even small loans, many
of whom did not complete their credentials, may end up in repayment for
decades. Borrowers who are making their monthly payments may also see
their loan balances balloon over time as interest accrues.
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\9\ See, for example, https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers; https://www.urban.org/research/publication/income-driven-repayment-student-loans-options-reform; and https://bfi.uchicago.edu/working-paper/2020-169/.
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This proposed regulation is intended to address these challenges
for borrowers by ensuring access to a more generous, streamlined IDR
plan. The Department initially considered creating another new
repayment plan; however, based on concerns about the complexity
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of the student loan repayment system and the challenges of navigating
multiple IDR plans, we instead propose to reform the current REPAYE
plan to provide greater benefits to borrowers.\10\
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\10\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/nov4pm.pdf, p. 68.
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Making the REPAYE plan more generous would help address concerns
around borrower confusion, because the Department and those who provide
repayment plan information to borrowers would be able to present the
revised plan as the IDR option that would be most affordable for a
large majority of student borrowers.
Public Participation
The Department has significantly engaged the public in developing
this NPRM, including through review of oral and written comments
submitted by the public during four public hearings. During each
negotiated rulemaking session, we provided opportunities for public
comment at the end of each day. Additionally, during each negotiated
rulemaking session, non-Federal negotiators obtained feedback from
their stakeholders that they shared with the negotiating committee.
On May 26, 2021, the Department published a notice in the Federal
Register (86 FR 28299) announcing our intent to establish multiple
negotiated rulemaking committees to prepare proposed regulations on the
affordability of postsecondary education, institutional accountability,
and Federal student loans.
The Department developed a list of proposed regulatory provisions
for the Affordability and Student Loans Committee based on advice and
recommendations submitted by individuals and organizations in testimony
at three virtual public hearings held by the Department on June 21 and
June 23-24, 2021. Additionally, the Department accepted written
comments on possible regulatory provisions that were submitted directly
to the Department by interested parties and organizations. You may view
the written comments submitted in response to the May 26, 2021, Federal
Register notice on the Federal eRulemaking Portal at
www.regulations.gov, within docket ID ED-2021-OPE-0077. Instructions
for finding comments are also available on the site under ``FAQ.''
Transcripts of the public hearings can be accessed at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn.
Negotiated Rulemaking
Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to
obtain public involvement in the development of proposed regulations
affecting programs authorized by title IV of the HEA. After obtaining
extensive input and recommendations from the public, including
individuals and representatives of groups involved in the title IV, HEA
programs, the Secretary, in most cases, must engage in the negotiated
rulemaking process before publishing proposed regulations in the
Federal Register. If negotiators reach consensus on the proposed
regulations, the Department agrees to publish without substantive
alteration a defined group of regulations on which the negotiators
reached consensus--unless the Secretary reopens the process or provides
a written explanation to the participants stating why the Secretary has
decided to depart from the agreement reached during negotiations.
Further information on the negotiated rulemaking process can be found
at: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
The Department held negotiated rulemaking related to this NPRM. The
negotiated rulemaking session for the Committee consisted of three
rounds of negotiations that lasted 5 days each.
On August 10, 2021, the Department published a notice in the
Federal Register (86 FR 43609) announcing its intention to establish
the Committee to prepare proposed regulations for the title IV, HEA
programs. The notice set forth a schedule for Committee meetings and
requested nominations for individual negotiators to serve on the
negotiating committee. In the notice, we announced the topics that the
Committee would address.
The Committee included the following members, representing their
respective constituencies:
Accrediting Agencies: Heather Perfetti, Middle States
Commission on Higher Education, and Michale McComis (alternate),
Accrediting Commission of Career Schools and Colleges.
Dependent Students: Dixie Samaniego, California State
University, and Greg Norwood (alternate), Young Invincibles.
Departments of Corrections: Anne L. Precythe, Missouri
Department of Corrections.
Federal Family Education Loan Lenders and/or Guaranty
Agencies: Jaye O'Connell, Vermont Student Assistance Corporation, and
Will Shaffner (alternate), Higher Education Loan Authority of the State
of Missouri.
Financial Aid Administrators at Postsecondary
Institutions: Daniel Barkowitz, Valencia College, and Alyssa A. Dobson
(alternate), Slippery Rock University.
4-Year Public Institutions: Marjorie Dorim[eacute]-
Williams, University of Missouri, and Rachelle Feldman (alternate),
University of North Carolina at Chapel Hill.
Independent Students: Michaela Martin, University of La
Verne, and Stanley Andrisse (alternate), Howard University.
Individuals With Disabilities or Groups Representing Them:
Bethany Lilly, The Arc of the United States, and John Whitelaw
(alternate), Community Legal Aid Society.
Legal Assistance Organizations That Represent Students
and/or Borrowers: Persis Yu, National Consumer Law Center, and Joshua
Rovenger (alternate), Legal Aid Society of Cleveland.
Minority-Serving Institutions: Noelia Gonzalez, California
State University.
Private Nonprofit Institutions: Misty Sabouneh, Southern
New Hampshire University, and Terrence S. McTier, Jr. (alternate),
Washington University.
Proprietary Institutions: Jessica Barry, The Modern
College of Design in Kettering, Ohio, and Carol Colvin (alternate),
South College.
State Attorneys General: Joseph Sanders, Illinois Board of
Higher Education, and Eric Apar (alternate), New Jersey Department of
Consumer Affairs.
State Higher Education Executive Officers, State
Authorizing Agencies, and/or State Regulators: David Tandberg, State
Higher Education Executive Officers Association, and Suzanne Martindale
(alternate), California Department of Financial Protection and
Innovation.
Student Loan Borrowers: Jeri O'Bryan-Losee, United
University Professions, and Jennifer Cardenas (alternate), Young
Invincibles.
2-Year Public Institutions: Robert Ayala, Southwest Texas
Junior College, and Christina Tangalakis (alternate), Glendale
Community College.
U.S. Military Service Members and Veterans or Groups
Representing Them: Justin Hauschild, Student Veterans of America, and
Emily DeVito (alternate), The Veterans of Foreign Wars.
Federal Negotiator: Jennifer M. Hong, U.S. Department of
Education.
The Department also invited nominations for two advisors. These
advisors were not voting members of the Committee and did not impact
the consensus vote; however, they were
[[Page 1898]]
consulted and served as a resource. The advisors were:
Rajeev Darolia, University of Kentucky, for issues related
to economic and/or higher education policy analysis and data.
Heather Jarvis, Fosterus, for issues related to qualifying
employers on the topic of Public Service Loan Forgiveness.
The Committee met to develop proposed regulations in October,
November, and December 2021.
At its first meeting, the Committee reached agreement on its
protocols and proposed agenda. The protocols provided, among other
things, that the Committee would operate by consensus. The protocols
defined consensus as no dissent by any member of the Committee and
noted that consensus votes would be taken issue by issue.
The Committee reviewed and discussed the Department's drafts of
regulatory language and alternative language and suggestions proposed
by negotiators and Subcommittee members. The Committee reached
consensus on interest capitalization. It also reached consensus on
proposed regulations relating to prison education programs, Total and
Permanent Disability, and False Certification Discharges that are not
included in this publication. For more information on the negotiated
rulemaking sessions, including the work of the Subcommittee, please
visit: https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
Summary of Proposed Changes
These proposed regulations would--
Amend Sec. 685.208 to cover only fixed payment repayment
plans, which are plans under which monthly payments are based on
repayment period, loan debt, and interest rate.
Amend Sec. 685.209 to include regulations for all IDR
plans, which are plans with monthly payments based in whole or in part
on income and family size.
Modify the terms of the REPAYE plan in Sec. 685.209 to
reduce monthly payment amounts for borrowers. A borrower who only has
outstanding loans for an undergraduate program would pay 5 percent of
their discretionary income, and a borrower who only has outstanding
loans for a graduate program would pay 10 percent of their
discretionary income. A borrower with outstanding loans from both an
undergraduate and graduate program would pay an amount between 5 and 10
percent based upon the weighted average of the original principal
balances of the loans attributed to the undergraduate or graduate
programs.
Modify the REPAYE plan regulations in Sec. 685.209 to
reduce monthly payments for borrowers by increasing the amount of
discretionary income exempted from the calculation of payments to 225
percent of the poverty guideline.
Modify the REPAYE plan regulations in Sec. 685.209 by
ceasing to charge any unpaid accrued interest each month after applying
a borrower's payment.
Simplify the alternative repayment plan that a borrower is
placed on if they are removed from the REPAYE plan because they fail to
recertify their income, and only allow up to 12 payments on this plan
to count toward forgiveness in Sec. 685.221.
Reduce the time to forgiveness under the REPAYE plan
regulations in Sec. 685.209 for borrowers with low original principal
loan balances.
Adjust the REPAYE plan regulations in Sec. 685.209 to
allow borrowers whose tax status is married filing separately to
exclude their spouse from both the borrower's household income and
family size.
Modify the IBR plan regulations in Sec. 685.209 to
clarify that borrowers in default are eligible to make payments under
the plan.
Modify the regulations for all IDR plans in Sec. 685.209
to allow the following periods of deferment and forbearance to count
toward forgiveness:
Cancer treatment deferment under section 455(f)(3) of the
HEA;
Rehabilitation training program deferment under Sec.
685.204(e);
Unemployment deferment under Sec. 685.204(f);
Economic hardship deferment under Sec. 685.204(g), which
includes deferments for Peace Corps service;
Military service deferment under Sec. 685.204(h);
Post-active duty student deferment under Sec. 685.204(i);
National service forbearance under Sec. 685.205(a)(4);
National Guard Duty forbearance under Sec. 685.205(a)(7);
U.S. Department of Defense Student Loan Repayment Program
forbearance under Sec. 685.205(a)(9); and
Administrative forbearance under Sec. 685.205(b)(8) and
(9).
Modify the regulations applicable to all IDR plans in
Sec. 685.209 to allow borrowers an opportunity to make payments for
all other periods in deferment or forbearance.
Modify the regulations for all IDR plans in Sec. 685.209
to clarify that a borrower's progress toward forgiveness does not fully
reset when a borrower consolidates loans on which a borrower had
previously made qualifying payments.
Modify the regulations for all IDR plans in Sec. 685.209
to automatically enroll any borrowers who are at least 75 days
delinquent on their loan payments in the IDR plan for which the
borrower is eligible and that produces the lowest monthly payments for
them.
Modify Sec. 685.209 to limit eligibility for the PAYE
plan to borrowers who began repaying under the PAYE plan before the
effective date of these regulations and who continue to repay on that
plan, and to limit eligibility for the ICR plan to (1) borrowers who
began repaying under the ICR plan before the effective date of these
regulations and who continue to repay on that plan, and (2) borrowers
whose loans include a Direct Consolidation Loan made on or after July
1, 2006, that repaid a parent PLUS loan.
Make conforming changes to Sec. Sec. 685.102, 685.210,
685.211, and 685.221 based on revisions to the sections noted above.
Significant Proposed Regulations
We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.
Income-Driven Repayment (Sec. Sec. 685.208 and 685.209)
Statute: Section 455(d) of the HEA provides that the Secretary will
offer a variety of plans for repayment of eligible Direct Loans,
including principal and interest on the loans. Section 455(d)(1)(D) of
the HEA requires the Secretary to offer an income-contingent repayment
plan with varying annual repayment amounts based on the borrower's
income, paid over an extended period of time prescribed by the
Secretary, not to exceed 25 years. Section 455(e)(4) of the HEA
authorizes the Secretary to establish income-contingent repayment plan
procedures and repayment schedules through regulations. Section
455(e)(2) provides that a repayment schedule for a Direct Loan that is
repaid pursuant to income-contingent repayment is based on the AGI (as
defined in section 62 of the Internal Revenue Code of 1986) of the
borrower or, if the borrower is married and files a Federal income tax
return jointly with the borrower's spouse, on the AGI of both the
borrower and the borrower's spouse. Section 455(d)(7) of the HEA
identifies the periods that the Secretary must include in the
[[Page 1899]]
calculation of the maximum repayment period under the ICR repayment
plans. This section does not specifically limit the calculation to only
those periods or specifically preclude the Secretary from using the
regulatory authority to add additional periods. Additionally, Section
410 of the General Education Provisions Act (20 U.S.C. 1221e-3)
provides the Secretary with authority to make, promulgate, issue,
rescind, and amend rules and regulations governing the manner of
operations of, and governing the applicable programs administered by,
the Department. Furthermore, under section 414 of the Department of
Education Organization Act (20 U.S.C. 3474), the Secretary is
authorized to prescribe such rules and regulations as the Secretary
determines necessary or appropriate to administer and manage the
functions of the Secretary or the Department.
Current Regulations: Section 685.209 provides for three income-
contingent repayment plans in which a borrower's monthly payment amount
is based on their AGI, loan debt, and family size. Those plans are the
ICR, PAYE, and REPAYE plans. Additionally, Sec. 685.221 provides for
the IBR plan.
The current regulations in Sec. 685.208(k) provide for a
discretionary income amount for the ICR plan of the borrower's AGI
minus the amount for the Federal poverty guidelines for the borrower's
family size. For the IBR, PAYE, and REPAYE plans, the current
regulations provide for a discretionary income amount of the borrower's
AGI minus 150 percent of the Federal poverty guidelines for the
borrower's family size.
The current regulations for PAYE, REPAYE, and IBR, at Sec. Sec.
685.209(a)(1)(i), 685.209(c)(1)(i), and 685.221(a)(1), define
``adjusted gross income'' as the AGI as reported to the Internal
Revenue Service (IRS). For all three plans, the AGI of married
borrowers filing jointly includes both the borrower's and the spouse's
income. For PAYE and IBR, the AGI of married borrowers filing
separately includes only the borrower's income; for REPAYE, it includes
the AGI of the borrower and the spouse, unless the borrower certifies
that they are separated from or unable to access the spouse's income.
For the ICR plan, the current regulations at Sec.
685.209(b)(1)(iii)(A) refer to income as the borrower's AGI. The
current regulations also provide, at Sec. Sec. 685.209(a)(5)(i)(B),
685,209(b)(3)(i), 685.209(c)(4)(i)(A), and 685.221(e)(1)(ii), that
borrowers may submit alternative documentation if the AGI is not
available or does not reasonably reflect the borrower's current income.
The current regulations include the PAYE, REPAYE, and ICR plans
within Sec. 685.209; and the IBR plan in Sec. 685.221. The term
``income-driven repayment'' is not used in the current regulations.
Under current regulations, monthly payment amount formulas are
established for each of the IDR plans, but there is no definition of a
monthly payment. Current regulations at Sec. Sec. 685.209(a)(1)(iv),
685.209(c)(1)(iii), and 685.221(a)(3) provide that a borrower's
``family size'' includes individuals other than a spouse or children if
such individuals receive more than half of their support from the
borrower. The IBR regulations in Sec. 685.221(a)(3) specify that
support includes money, gifts, loans, housing, food, clothes, car,
medical and dental care, and payment of college costs. Section 685.208
provides general repayment plan information and specifies which types
of Direct Loans may be repaid under the various Direct Loan repayment
plans. This section of the current regulations also describes the terms
and conditions of the standard, graduated, extended, and alternative
repayment plans, and includes high-level summaries of the terms of the
income-contingent repayment plans and the IBR plan.
For the REPAYE plan, Sec. 685.209(c)(1)(ii) defines an ``eligible
loan'' for the purposes of adjusting a borrower's monthly payment
amount as any outstanding loan made to a borrower under the Direct Loan
Program or the FFEL Program except for a defaulted loan or any Direct
PLUS Loan or Federal PLUS Loan made to a parent borrower or any Direct
Consolidation Loan or Federal Consolidation Loan that repaid a PLUS
loan made to a parent borrower.
Section 685.209(c)(2)(ii)(B) provides that if a married borrower
and the borrower's spouse each have eligible loans, the Secretary
adjusts the borrower's REPAYE plan monthly payment amount by
determining each individual's percentage of the couple's total eligible
loan debt and then multiplies the borrower's calculated monthly payment
amount by this percentage.
Section 685.209(c)(3)(iii) specifies when the annual notification
for income recertification must be sent to a borrower, the date that
documentation should be received by the Secretary, and the consequences
if documentation is not received within 10 days of the annual deadline
specified in the notice.
Sections 685.210(a)(1) and 685.210(b) establish the requirements
for borrowers when they choose a repayment plan, including the
procedures for initial selection of a plan and for changing plans.
Section 685.210(a)(2) authorizes the Secretary to designate the
standard repayment plan for a borrower who does not select a plan
before they enter repayment.
In Sec. 685.211, which addresses miscellaneous repayment
provisions, Sec. 685.211(a) describes how payments and prepayments are
applied in the different repayment plans and Sec. 685.211(b) provides
that, to encourage on-time repayment, the Secretary may reduce the
interest rate for a borrower who repays a loan under a repayment plan
or on a schedule that meets the requirements specified by the
Secretary.
Section 685.221 describes the IBR plan, which is available to
borrowers who have a partial financial hardship. Pursuant to Sec.
685.221(b)(1), the borrower's aggregate monthly loan payments are
limited to no more than 15 percent or, for a new borrower as of 2014,
10 percent, of the amount by which the borrower's AGI exceeds 150
percent of the poverty guideline applicable to the borrower's family
size, divided by 12.
Proposed Regulations: The proposed regulations would simplify,
clarify, and standardize the Direct Loan Program repayment regulations,
including organizing the regulations by repayment plan type. In
particular, the regulations would significantly revise the terms of the
REPAYE plan to address a range of identified shortcomings in the
current IDR plans and limit future enrollment of student borrowers into
other repayment plans created by regulation. This would simplify
borrowers' repayment choices. In addition, the Department proposes to
revise other provisions related to the IBR and ICR plans to make it
easier for borrowers to make progress toward forgiveness.
Proposed revised Sec. 685.208 would be retitled ``Fixed payment
repayment plans'' and would cover the standard, graduated, and extended
repayment plans, which are plans under which monthly payments are based
on repayment period, loan debt, and interest rate.
The Department proposes to remove provisions related to the ICR
plan, the alternative repayment plan, and the IBR plan from Sec.
685.208(k), (l), and (m), and to remove the regulations governing the
IBR plan from Sec. 685.221. We propose to include the regulations
governing all of the IDR plans in revised Sec. 685.209, which would be
retitled ``Income-driven repayment plans.'' Proposed revised Sec.
685.221 would contain the regulations governing the alternative
repayment plan that are currently in Sec. 685.208(l). In
[[Page 1900]]
proposed Sec. 685.209(f)(1), (h)(i), and (k)(i)-(ix), the Department
proposes to modify the REPAYE plan to increase the amount of
discretionary income exempted from the calculation of payments to 225
percent of the applicable poverty guideline, reduce monthly payment
amounts as a percentage of discretionary income from 10 percent to 5
percent for the share of a borrower's total original loan principal
volume attributable to outstanding loans received by the borrower to
pay for an undergraduate program, not charge any remaining accrued
interest after applying a borrower's monthly payment, and reduce the
time to forgiveness under the plan for borrowers to as short as the
equivalent of 10 years of qualifying payments for those with original
loan balances of $12,000 or less.
The Department proposes a definition of ``discretionary income'' in
Sec. 685.209(b) that would increase the discretionary income
threshold, exempting a greater portion of borrowers' incomes from the
determination of payment amount, for the REPAYE plan. Discretionary
income would be defined as the borrower's AGI minus 225 percent of the
Federal poverty guidelines for the borrower's family size.
The Department proposes to clarify that, for all IDR plans,
``income'' means the borrower's AGI and, if applicable, the spouse's
income, as reported to the IRS. The definition of income would also
provide that, instead of AGI, the Secretary may accept an amount
calculated based on alternative documentation of all forms of taxable
income received by the borrower.
The proposed regulations would establish a new definition of
``income-driven repayment plans.'' That proposed definition would
specify that an IDR plan is one in which the monthly payment amount is
primarily based on the borrower's income.
The Department proposes to establish a new definition of ``monthly
payment or the equivalent'' in Sec. 685.209(b) that would define a
monthly payment as the required payment made under one of the IDR
plans; a month in which a borrower receives certain deferments or
forbearances under one of the conditions in proposed Sec.
685.209(k)(4)(iv)(A) through (J); or a month in which a borrower makes
a payment in accordance with the procedures in proposed Sec.
685.209(k)(6). Under proposed Sec. 685.209(k)(6)(i), borrowers
participating in any of the IDR plans would be able to apply toward the
time required for forgiveness any period of deferment or forbearance
that is not otherwise eligible to be counted toward forgiveness if the
borrower makes a payment equal to or greater than the amount that would
have been required during that period on any income-driven repayment
plan, including, pursuant to Sec. 685.209(k)(4)(i), a payment of $0.
The proposed regulations would establish a stand-alone definition
of ``support'' in proposed Sec. 685.209(b) that mirrors the definition
in the current IBR regulations at Sec. 685.221(a)(3).
Under Sec. 685.209(k)(5), the Department proposes to amend the
terms of the IBR plan to allow borrowers in default to make payments
under the IBR plan that would count toward loan forgiveness.
Proposed Sec. 685.209(k)(4)(v) would apply to all IDR plans and
would provide that a borrower's progress toward forgiveness does not
fully reset when a borrower consolidates one or more Direct or FFEL
Program Loans into a Direct Consolidation Loan, as it does under
current regulations. Instead, the Department would determine how many
qualifying payments the borrower made on the loans consolidated, and
then assign a qualifying payment count to the Direct Consolidation Loan
that is based on the weighted average of the qualifying payments, using
the loan balance as the weighting factor (as it is also used to prorate
borrower-level IDR payments down to the loan level).
Proposed Sec. 685.209(m)(3) would provide that any student
borrower who is at least 75 days delinquent on their loan payments
would be automatically enrolled in the IDR plan that results in the
lowest monthly payment based on the borrower's income and family size,
as long as the borrower has provided approval for the disclosure of tax
information, the borrower otherwise qualifies for the plan, and that
the IDR plan would lower the borrower's payment.
Under Sec. 685.209(c)(2), the Department proposes to modify the
eligibility requirements of the IBR plan to limit eligibility for this
plan to borrowers who have a partial financial hardship and who have
not made 120 qualifying payments on the REPAYE plan on or after the
effective date of the regulation.
Under Sec. 685.209(c)(3), the Department proposes to modify the
eligibility requirements of the PAYE plan to limit eligibility for this
plan to borrowers enrolled in the PAYE plan as of the effective date of
the regulation.
Under Sec. 685.209(c)(4), the Department also proposes to modify
the eligibility requirements of the ICR plan to limit eligibility for
this plan to borrowers currently enrolled in the ICR plan as of the
effective date of the regulations, or to borrowers whose loans include
a Direct Consolidation Loan that repaid a Parent PLUS loan.
The Department proposes to amend Sec. Sec. 685.102, 685.210,
685.211, and 685.221 to include conforming changes based on revisions
to the sections noted above. We also propose to make technical
corrections to Sec. Sec. 685.219, 685.220, 685.222, and 685.403 for
consistency with the changes related to interest capitalization in the
Affordability and Student Loans Final Rule.
Reasons
Definitions (Sec. 685.209(b))
For ease of understanding, the Department has combined all of the
IDR plans in proposed Sec. 685.209. This would ensure all the relevant
information is available to borrowers and other stakeholders in a
single location in the regulations.
The Department has proposed to incorporate into the definition of
``discretionary income'' an increase in the amount of the discretionary
income level for the REPAYE plan, exempting more of borrowers' incomes
from being used to calculate their monthly payment amounts on that
plan. As discussed elsewhere in this NPRM, the Department is concerned
that payments remain unaffordable on IDR plans for too many borrowers.
By definition, borrowers in poverty have family financial resources
insufficient to meet the costs of basic necessities and should not be
expected to afford any amount of loan payments. The Department sought
to define the level of necessary income protection by assessing the
level where rates of financial hardship are significantly lower than
the rate among those in poverty. Based upon an analysis discussed
further in the Income Protection Threshold section of this document,
the Department found that point to be 225 percent of the Federal
poverty guidelines.
To simplify the definition of ``income,'' the Secretary has
proposed to clarify that the Secretary will rely on the borrower's AGI,
the spouse's AGI, if applicable, or alternative documentation of the
borrower's income. These changes are largely technical, designed to
streamline the regulations and ensure consistency in the language.
The Department has proposed to add a definition of ``IDR plans'' to
ensure clarity in the new organization of the regulations, which places
all IDR plans in Sec. 685.209.
The Department is concerned that the current approach to defining a
monthly payment is too narrow. Some borrowers are forced to choose
between accessing
[[Page 1901]]
a deferment or forbearance for which they qualify or losing out on
progress toward forgiveness. In some cases, borrowers have found it
difficult to navigate those decisions. As described later in this NPRM,
the Department has proposed to include certain deferments and
forbearances as the equivalent of a qualifying payment, ensuring
borrowers will continue to receive progress toward forgiveness. We also
propose to establish procedures that would provide borrowers with some
greater flexibility in such cases. This definition would incorporate
both such circumstances into the definition of a ``monthly payment or
equivalent.''
The inclusion of a proposed definition of ``support'' would ensure
greater consistency in the treatment of borrowers' family size across
IDR plans, providing for a single and consistent defined term. The
proposed language itself reflects existing language for the IBR plan.
Borrower Eligibility for IDR Plans (Sec. 685.209(c))
The Department is not proposing to change which types of loans are
eligible to be repaid under the different IDR plans. We propose to
maintain the current practice in which all types of Direct Loans to
students are eligible to be repaid on the REPAYE plan. With regard to
parent PLUS loans, the HEA states that such loans may not be repaid
under an ICR plan or the IBR plan, and Direct Consolidation Loans that
repaid a parent PLUS loan may not be repaid under the IBR plan.
However, a Direct Consolidation Loan disbursed after July 1, 2006, that
repaid a parent PLUS loan may be repaid under an ICR plan (but not
under any of the other IDR plans).
The Department is proposing additional eligibility changes to
streamline the repayment options available to borrowers. As part of the
Department's goal of creating an IDR plan that is the best option for
borrowers, we propose to limit future enrollment in the PAYE or ICR
plans after the effective date of these regulations. The Department
proposes limiting enrollment in PAYE to borrowers enrolled on that plan
as of the effective date of these regulations so long as the borrowers
stay enrolled on that plan. Borrowers who have not yet signed up for
PAYE by the effective date of these regulations, or those who leave the
plan, would not be eligible to sign up for it after the effective date
of these regulations. The Department proposes the same change with
respect to ICR with one exception. Borrowers with a Direct
Consolidation loan made on or after July 1, 2006, who repaid a parent
PLUS loan could continue to choose the ICR plan after the effective
date of these regulations.
The Department believes these changes would help accomplish its
goal of simplifying repayment options for borrowers. With this change,
all student borrowers in repayment would be able to access an IDR
option through REPAYE, and many would be able to choose between two IDR
options: IBR, for which the terms are specified in the statute, and
REPAYE. The Department anticipates that REPAYE would provide the lowest
monthly payments for essentially all low- or moderate-income student
borrowers; this change would make it easier for borrowers to navigate
repayment and enroll in the most affordable IDR plans.
The Department also proposes to limit the ability of borrowers to
switch into IBR once they have completed 120 payments on REPAYE.
Because the Department is proposing that borrowers with loans
attributed to a graduate program must make 300 qualifying payments to
receive forgiveness, we are concerned that a borrower might choose to
make the lower payments available on REPAYE and then switch to IBR to
receive immediate forgiveness. Doing so would run counter to the goals
for the REPAYE plan, which is to reduce payments for all borrowers but
still require borrowers with graduate loans to pay longer before
receiving forgiveness. As graduate borrowers generally have larger
balances than undergraduate borrowers, this helps to ensure that both
groups repay a similar share of their balances. In addition, by
preventing borrowers from switching after 120 payments, we propose to
give borrowers ample time to decide between making lower payments on
REPAYE or the possibility of forgiveness after the equivalent of 20
years on IBR.
Income Protection Threshold (Sec. 685.209(f))
Several non-Federal negotiators argued that a larger amount of
borrowers' income should be excluded from the formula for calculating
monthly payments. They stated that the current protection level in the
PAYE and REPAYE plans of 150 percent of the poverty guideline ($20,385
for a single individual and $41,625 for a family of four in 2022) is
not adequate to ensure low-income borrowers can afford their basic
needs and that the amount of income protection should be increased.\11\
Some of the non-Federal negotiators argued that the threshold should be
250 percent of the poverty guideline, while several others suggested
that 400 percent of the poverty guideline would be more appropriate,
especially in areas where the cost of living is substantially
higher.\12\
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\11\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/107pm.pdf, p. 64.
\12\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/108am.pdf, p. 28.
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The Department agrees with the non-Federal negotiators that the
current amount of income protected is too low. Accordingly, in Sec.
685.209(f)(1), the Department proposes to increase the amount of
discretionary income exempted from the calculation of payments in the
REPAYE plan to 225 percent of the Federal poverty guideline. The
Department chose this threshold based on an analysis of data from the
Survey of Income and Program Participation (SIPP) for individuals who
are aged 18-65 who attended college and who have outstanding student
loan debt. The Department looked for the point at which the share of
those who report material hardship--either being food insecure or
behind on their utility bills--is statistically different from those
whose family incomes are at or below the Federal poverty
guidelines.\13\ The results of this analysis are shown in Table 1
below.
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\13\ Department analysis of data from the Survey of Income and
Program Participation, Census Bureau. For more on the SIPP, please
see: https://www.census.gov/programs-surveys/sipp.html. The data
track a subset of proxies for material hardship. We focus on two
measures commonly used in the literature on material hardship and
poverty: food insecurity and being behind on utility bills. We focus
on differences in these measures across income categories relative
to rates of hardship for individuals living in poverty, rather than
comparing the absolute levels to any particular reference standard.
We avoid interpretation of the absolute level since the measures do
not offer a comprehensive indication of hardship; it should not be
inferred, for example, that individuals who do not report these two
measures of hardship experience no material hardships.
[[Page 1902]]
Table 1--Rates of Material Hardship by Family Income Groups Relative to
Poor Individuals
------------------------------------------------------------------------
Fraction who are
Family income as a multiple of the Federal Poverty food insecure or
Line (FPL) \14\ behind on bills
------------------------------------------------------------------------
Poor (family income < 100% FPL)..................... ** 0.279 (0.016)
------------------------------------------------------------------------
Rate of material hardship relative to families in poverty
------------------------------------------------------------------------
100-125% FPL........................................ 0.040 (0.039)
125-150% FPL........................................ 0.000 (0.033)
150-175% FPL........................................ -0.037 (0.032)
175-200% FPL........................................ -0.046 (0.033)
200-225% FPL........................................ -0.060 (0.033)
225-250% FPL........................................ **-0.088 (0.033)
250-275% FPL........................................ **-0.151 (0.025)
275-300% FPL........................................ **-0.167 (0.028)
300-325% FPL........................................ **-0.148 (0.024)
325-350% FPL........................................ **-0.180 (0.025)
350-375% FPL........................................ **-0.189 (0.024)
375-400% FPL........................................ **-0.188 (0.025)
400-450% FPL........................................ **-0.219 (0.021)
450-500% FPL........................................ **-0.224 (0.018)
500-600% FPL........................................ **-0.230 (0.019)
600-700% FPL........................................ **-0.243 (0.017)
>700% FPL........................................... **-0.247 (0.016)
N................................................... 13,513
------------------------------------------------------------------------
** p<0.01
Note: Analysis based on 2020 Survey of Income and Program Participation.
In the analysis, an indicator for whether an individual experiences
material hardship (i.e., reports either being food insecure or behind
on bills) is regressed on a constant term and a series of indicators
corresponding to categories of family income relative to the Federal
poverty line. Both hardship and family income are measured during
2019. The estimation sample includes individuals aged 18 to 65 who
have outstanding education debt, are not enrolled as of December in
the reference year (2019), and report at least some college
experience. The first row of the table displays the estimated
coefficient on the constant term, showing that about 27.9 percent of
individuals in poverty experience material hardship. Subsequent rows
show the estimated difference in the rate of material hardship for
each income group relative to those in poverty. Standard errors shown
in parentheses are estimated using replicate weights from the Census
that account for the SIPP survey design, and 2 stars denote estimated
coefficients that are statistically different from zero at the 0.01
significance level.
Based upon this analysis, individuals with family incomes up to and
including 225 percent of the Federal poverty guidelines have rates of
material hardship that are statistically indistinguishable from
borrowers with income below 100 percent of the Federal poverty
guidelines. Drawing on these results, we believe borrowers with income
below 225 percent of the Federal poverty guidelines should not be
expected to make loan payments.
---------------------------------------------------------------------------
\14\ This table uses the phrase Federal Poverty Line in place of
the term Federal Poverty Guidelines.
---------------------------------------------------------------------------
Moreover, the 225 percent threshold would be better aligned with
the minimum wage in many States. Assuming an average of 2,000 hours
worked in a year, an individual who makes 150 percent of the poverty
guideline for a single-person household is earning $10.19 an hour. That
is below the minimum wage in 22 States plus the District of Columbia
and less than $0.25 above the rate for three other States.\15\
Combined, those 25 States plus the District of Columbia are home to 56
percent of Americans aged 25 or older with at least some college
education.\16\ By contrast, a threshold of 225 percent of the poverty
guideline represents an hourly wage of $15.28 in 2022 for a single-
person household. At this level, the REPAYE plan would continue to
protect the amount a single minimum-wage worker with no dependents
would earn in every State in 2023.\17\ The higher income protection
amount would also address the Department's concern that a too-high
payment amount is one reason that many borrowers fall behind on their
payments or default on their loans, despite the availability of IDR
plans. This concern is particularly germane to lower-income borrowers,
who cannot afford to repay at all. The Department believes that
protecting more of a borrower's income, coupled with other proposed
regulatory changes related to auto-enrollment for delinquent borrowers,
would result in more low-income borrowers enrolling in IDR and in fewer
defaulting on their student loans. Increasing the income protection
threshold would better achieve the goals of IDR, allow more low-income
borrowers to qualify for $0 monthly payments, and allow more borrowers
to cover the cost of necessities without becoming delinquent on their
student loans.
---------------------------------------------------------------------------
\15\ https://www.dol.gov/agencies/whd/mw-consolidated.
\16\ U.S. Census Bureau, ``Table S1501: Educational
Attainment,'' 2020 ACS 5-year estimates, https://data.census.gov/cedsci/table?q=education%20by%20state&tid=ACSST5Y2020.S1501&moe=false&tp=true.
\17\ https://www.dol.gov/agencies/whd/minimum-wage/state.
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Payment Amounts (Sec. 685.209(f))
Many non-Federal negotiators also emphasized the need to reduce the
required payments for borrowers on IDR plans. This included some
suggestions that the Department should limit all payments to 5 percent
of a borrower's discretionary income. Qualitative research shows that
high numbers of borrowers on IDR plans still find their payments to be
unaffordable,\18\ and the most common complaint received by the
Department from borrowers on the structure of IDR plans is that their
payments are still unaffordable on those plans.
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\18\ https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers.
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Borrowers who struggle to repay their student loans are likely to
have a lower payment option on IDR than other repayment plans. If the
payment amount under IDR is still not affordable, then a borrower may
not be able to make any payments and, as a result, end up in
[[Page 1903]]
delinquency or default. When that occurs, the IDR plans do not achieve
their goals of establishing affordable payments for borrowers. By
contrast, requiring a lower monthly payment amount would increase the
likelihood that a borrower can afford and will make their required
payments. Research has shown that usage of existing IDR plans reduces
delinquencies by 33 percentage points.\19\ Offering lower payment
amounts under the REPAYE plan than those available on the other IDR
plans would also contribute to the goals of being affordable based on
income and family size, as well as providing the lowest payment option
of any IDR plan for almost all borrowers.
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\19\ https://www.aeaweb.org/articles?id=10.1257/app.20200362.
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In proposed revisions to the REPAYE plan in Sec.
685.209(f)(1)(ii), the Department proposes to reduce--to 5 percent of
discretionary income--the payment on the share of a borrower's total
original loan principal balance that is attributable to loans they
received as a student in an undergraduate program. Under proposed Sec.
685.209(f)(1)(iii), borrowers would continue to pay 10 percent of their
discretionary income on the share of their total original principal
loan balances attributable to loans they received as a student in a
graduate program that are still outstanding when the borrower begins
using the REPAYE plan. Borrowers who have outstanding loans for both
undergraduate and graduate programs would pay an amount between 5 and
10 percent based upon the weighted average of their original principal
loan balances, regardless of whether the loans have been consolidated
or not. For example, a borrower who has $20,000 in loans received as a
student for undergraduate study and $60,000 in loans received as a
student for graduate study would pay 8.75 percent of their
discretionary income, while one who has $30,000 from their
undergraduate education and $10,000 from their graduate education would
pay 6.25 percent of their discretionary income. The Department proposes
to use the original principal loan balance a borrower received for
these calculations so that it would be easier for a borrower to
understand how their payment rate is calculated and so that future
borrowers can factor this information into decisions about how much to
borrow. This calculation would only be based on loans that are still
outstanding.
The Department proposes to treat loans attributed to undergraduate
programs differently than graduate programs for several reasons. First,
there are lower annual and cumulative limits on loans for undergraduate
borrowers than there are for loans for graduate borrowers. Graduate and
professional students are eligible to receive Direct PLUS Loans in
amounts up to the cost of attendance established by the school they are
attending, less other financial aid received. The lack of specific
dollar limits on the amount of PLUS loans for graduate students means
borrowers can take on significantly more debt for those programs than
they can for undergraduate programs. The Department is concerned that
setting payments at 5 percent of discretionary income for graduate
loans could result in borrowers taking on significant additional debt
that they will not be able to repay. The Department is not concerned
that keeping the rate at 10 percent for graduate loans would create a
further incentive for additional borrowing because that is the same
rate that is already available to graduate borrowers on several
different IDR plans. We do not, however, propose to increase the
payment rate for graduate borrowers above the current REPAYE threshold
of 10 percent. The Department is concerned that setting a higher
payment rate for graduate borrowers--beyond what is available on IBR
for new borrowers, PAYE, and the existing REPAYE plan--would not result
in a plan that is clearly the best IDR option for most student
borrowers. That would result in the Department not achieving its
desired goal of making it easier for borrowers to navigate repayment.
Second, the Department is more concerned about the potential for
undergraduate borrowers to struggle with delinquency and default than
it is for graduate borrowers. Department data on borrowers in default
as of December 31, 2021 show that 90 percent of borrowers who are in
default on their Federal student loans had only borrowed for their
undergraduate education. Just 1 percent of borrowers who are in default
had loans only for graduate studies. Similarly, just 5 percent of
borrowers who only have graduate debt are in default on their loans,
compared with 19 percent of those who have debt from undergraduate
programs.\20\
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\20\ Department of Education analysis of loan data by academic
level for total borrower population and defaulted borrower
population, conducted in FSA's Enterprise Data Warehouse, with data
as of December 31, 2021.
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The Department proposes reducing the share of discretionary income
a borrower would pay on their loans that are attributable to an
undergraduate program to 5 percent as a way of addressing several
concerns raised by negotiators and public commenters during the
negotiated rulemaking process, as well as concerns identified through
focus groups of borrowers and reviews of complaints received by the
Ombudsman's office within the office of Federal Student Aid (FSA). In
the former category, the Department heard repeatedly about concerns
that the current amount of income required to be devoted to payments is
too high and that it is a particular challenge for borrowers who are
located in areas with higher costs of living, because current IDR
formulas do not consider expenses. In the latter category, the
Department has heard from borrowers who noted that they were willing to
make payments on their loans but could not afford amounts as large as
what current formulas calculate. A survey conducted by the Pew
Charitable Trusts also found that almost half of borrowers surveyed who
had been or were enrolled in an IDR plan at the time of the survey
still found their monthly payments unaffordable.\21\
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\21\ Travis Plunkett, Regan Fitzgerald, Lexi West, Many Student
Loan Borrowers Will Need Help When Federal Pause Ends, Survey Shows
(July 15, 2021), https://www.pewtrusts.org/en/research-and-analysis/articles/2021/07/15/many-student-loan-borrowers-will-need-help-when-federal-pause-ends-survey-shows
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The Department proposes the reduction of payments to 5 percent to
address these concerns through the REPAYE plan. The Department does not
think it would be feasible to vary the amount of student loan payments
by locality because it would introduce significant operational
complexity and result in inconsistent borrower treatment across the
country. Attempting to conduct individualized analyses of a borrower's
expenses would create similarly significant challenges to the point of
being impossible for the Department to administer. Reducing the share
of discretionary income applied to the payment amount would, however,
have a similar effect by providing borrowers with lower monthly loan
payments.
The Department proposes reducing the share of discretionary income
for loans obtained for undergraduate programs to 5 percent to ensure
better parity between the payment reductions undergraduate borrowers
receive from IDR, relative to the standard plan, compared to graduate
borrowers. Because graduate borrowers generally have higher loan
balances than undergraduate borrowers, if an undergraduate borrower and
graduate borrower have the same income level, it is highly likely that
the latter will have significantly larger reductions in
[[Page 1904]]
monthly payments than they would have on the 10-year standard plan due
to IDR than the former if undergraduate and graduate loans are treated
the same.
An example highlights how using the same share of income for
payments by undergraduate and graduate borrowers creates inequities.
All of these figures are based upon the 2015-16 National Postsecondary
Student Aid Study and use the 2016 Federal poverty guideline of $11,880
for a single individual. Consider two borrowers: Borrower A finished an
undergraduate program with the median amount of Federal loan debt for
an undergraduate borrower ($20,062), while Borrower B finished a
graduate program with the median amount of debt for a graduate program
($41,000). Borrower A's loans have a 4 percent interest rate, while
Borrower B's are at 5.55 percent, the same difference in interest rates
between undergraduate and graduate Direct Stafford loans that currently
exists in statute. They both earn $50,000 and are the only members of
their households. As a result, they would have equal payments of $162
per month in an IDR plan that uses the proposed 225 percent of the
Federal poverty level as the income protection threshold and charges 10
percent of discretionary income. However, for Borrower A, this is just
$41 less than the $203 they would pay on the 10-year standard plan.
Borrower B, however, pays $284 less because their 10-year standard plan
payment would have been $446. In fact, if both borrowers made $60,000,
then Borrower A would pay $42 more per month under IDR than on the 10-
year standard plan, while Borrower B would still pay $200 less.
The Department is concerned that using the same payment rate (as a
share of discretionary income) to determine payment amounts for
undergraduate and graduate borrowers would thus result in inequities
between the two, whereby an undergraduate borrower would receive lower
payment reductions relative to the 10-year standard repayment plan. It
is not possible to fix this problem by equalizing the amount that
monthly payments decrease, since the underlying payments on a 10-year
standard plan for higher-balance loans will always be larger than those
for lower-balance loans.
Instead of trying to equalize decreases in monthly payments, the
Department calculated how to construct a payment formula in which the
income at which an undergraduate borrower who completes their program
with median debt ceases to benefit from IDR is equal to the income at
which the graduate borrower who completes their program with median
debt also ceases to benefit. Put another way, the Department looked at
what share of discretionary income would ensure that a borrower with
only the typical level of graduate loan debt could not benefit more at
higher incomes than a borrower with only undergraduate loan debt.
To calculate that point, the Department first determined how much a
graduate borrower in a single-person household with the median graduate
loan balance could earn and still benefit from IDR. Another way to
think of this is, ``What is the income level at which the payment
calculated for IDR is equal to the payment on the 10-year standard
plan?''. For graduate borrowers, we used $41,000, which is the median
amount of Federal loans borrowed for graduate school among students who
borrowed for graduate school and finished their program in 2015-16.\22\
While this includes any completer who has Federal loan debt for
graduate school in this year, we intentionally did not include
undergraduate debt held by these borrowers, in order to address
potentially differential treatment between a borrower who only has
undergraduate debt from one who only has graduate debt. Based on that
$41,000 amount, the income level for a single individual where they
cease seeing a payment reduction under IDR is approximately $80,000 in
2016. Next, the Department performed the same calculation for a
borrower with the median undergraduate debt amount of $20,062, varying
the discretionary income amount in whole percentage points in
descending order from 10 percent.\23\ The Department found that a
payment rate equal to 5 percent of discretionary income would allow a
single borrower with only undergraduate loans up to $75,500 in 2016
income to receive benefits. That number is closer to the figure for a
graduate borrower than 4 percent would be ($87,700). Accordingly, the
Department believes charging borrowers 5 percent of discretionary
income for the undergraduate portion of their debt provides the
appropriate amount to ensure greater parity between graduate and
undergraduate borrowers, in terms of their incentives to choose an IDR
plan.
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\22\ Department analysis of data from the National Postsecondary
Student Aid Study 2015-16 using the PowerStats web tool at https://nces.ed.gov/datalab/. Table ID: rlaubc.
\23\ Department analysis of data from the National Postsecondary
Student Aid Study 2015-16 using the PowerStats web tool using the
PowerStats web tool at https://nces.ed.gov/datalab/. Table ID:
zonpin.
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By providing reduced payments for loans that a borrower received as
a student in an undergraduate program, the proposed regulations would
better target the benefits of the changes to IDR toward those who are
more likely to struggle with their debt. A borrower who has only
obtained loans for their graduate studies would still benefit from
several other provisions in the IDR payment plans. These benefits
include the larger amount of income protected from payments, not
charging borrowers any remaining accrued interest after applying their
monthly payment, and counting time spent in several deferments and
forbearances toward forgiveness. The Department believes the approach
to lower payments for undergraduate loans is preferable to setting an
even higher income exemption than the 225 percent of the Federal
poverty guideline proposed in this regulation. As noted in the
discussion on the rationale for the 225 percent threshold, that is the
point at which the share of those who report material hardship--being
either food insecure or behind on their utility bills--is statistically
different from those whose family incomes are at or below the Federal
poverty guidelines. The Department thus believes it is appropriate for
borrowers to make payments once their incomes exceed that 225 percent
threshold. However, we want to make sure the payment a borrower makes
when their income exceeds that threshold is affordable. This change
thus accomplishes that goal.
In proposing reductions in the payment rate solely for
undergraduate loans, the Department is consciously emphasizing greater
benefits for borrowers who have undergraduate debt compared to those
who only have debt for graduate school. As borrowers' monthly payments
are based on the ratio of their undergraduate borrowing to their
graduate borrowing, borrowers with the highest ratios of undergraduate
to graduate borrowing would have the lowest monthly payments, even if
they borrowed more overall. While graduate school can provide
significant benefits, the Department is concerned that the majority of
low-income students need to take out student loans in order to complete
an undergraduate education--particularly if they want to obtain the
bachelor's degree that is a necessary precursor to graduate school. For
instance, data from the 2015-16 National Postsecondary Student Aid
Study (NPSAS) show that 84 percent of Pell Grant recipients who
completed a bachelor's degree that year also had
[[Page 1905]]
Federal loan debt compared to 51 percent of those who did not receive
Pell.\24\ Not surprisingly then, approximately two-thirds of borrowers
who obtained a bachelor's degree in 2015-16 also received a Pell
Grant.\25\
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\24\ Department analysis of data from the National Postsecondary
Student Aid Study 2015-16 using the PowerStats web tool at https://nces.ed.gov/datalab/. Table ID: dzzbcp.
\25\ Department analysis of data from the National Postsecondary
Student Aid Study 2015-16 using the PowerStats tool at https://nces.ed.gov/datalab/. Table ID: jbryls.
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Setting payments at 5 percent of discretionary income for the
portion of loans attributed to undergraduate education means that a
lower-income borrower who has to take on debt for their undergraduate
and graduate education, and thus ends up with a larger debt balance
than someone who only had to borrow for graduate school, is not
penalized the way they would be if the share of income was calculated
based upon the total debt held or some similar way of calculating
payments. The Department does not believe that this possibility would
encourage many borrowers to take on significantly more undergraduate
debt to lower possible future graduate loan payments. For one, many
undergraduate students do not plan to attend graduate school. Second,
for those planning to attend graduate school, the strict loan limits
for undergraduate student borrowers would limit how much more they
could borrow.
Interest Benefits (Sec. 685.209(h))
Proposed Sec. 685.209(h) would address how the Secretary charges
the remaining accrued interest to a borrower if the borrower's
calculated monthly payment under an IDR plan is insufficient to pay the
accrued interest on the borrower's loans. For the REPAYE plan, the
Department proposes to not charge any remaining accrued interest to a
borrower's account each month after applying a borrower's payment.
This would be an expansion of the current REPAYE plan interest
benefit, which covers all of the remaining interest on subsidized loans
only for the first 3 years of repayment in the plan, and then 50
percent of the remaining interest on subsidized loans after the first 3
years. For unsubsidized loans, the current REPAYE plan interest subsidy
benefit covers 50 percent of the remaining interest during all years of
repayment under the plan.
The Department proposes to increase the interest benefit due to
concerns that the current structure of IDR plans risks discouraging
borrowers from selecting the plans in the first place or from
continuing to pay on them due to loan balance growth. The current IDR
plans allow borrowers to pay less each month than what they would under
the 10-year standard plan and, in the case of IBR and PAYE, require
borrowers to have monthly payments below what they would owe on the 10-
year standard plan. Unlike the standard, extended, or graduated plans,
there is no requirement that monthly payments be sufficient to at least
cover the amount of interest that accumulates each month. While most
IDR plans do not charge some of the accumulating interest, the
remaining portion of interest continues to accrue and over years that
amount of interest accrual may be significant. As a result, many
borrowers make their required payments each month but still see their
balances continue to grow. In fact, the Department estimates that 70
percent of borrowers on existing IDR plans have seen their balances
grow after entering those plans.\26\
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\26\ Department of Education internal analysis of loan data for
borrowers enrolled in IDR plans, conducted in FSA's Enterprise Data
Warehouse, with data as of March 2020.
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The Department is concerned that growing balances due to unpaid
interest may discourage borrowers from repaying their loans and, thus,
result in lower amounts repaid to the government. Focus groups
conducted by the Pew Research Center have found that interest accrual
is a common source of borrower frustration and creates negative
incentives for borrowers to stick with loan repayment.\27\ Those same
focus groups found that interest accrual created ``psychological and
financial barriers to repayment,'' as borrowers lost motivation to
repay and felt that they were trapped in debt indefinitely. Focus
groups conducted by New America in 2015 similarly found that while
borrowers understood the concept of how interest works, the rate of
accrual and seeing balances continuing to increase had negative
effects, such as higher-than-anticipated loan balances due to interest
that would accrue while they were enrolled in school, during a loan
deferment, or during a forbearance.\28\ Those same focus groups found
that while the borrowers who used IDR liked it, there were concerns
about borrowers ending up paying far more than they would have repaid
on the standard 10-year plan--an outcome that is a function of interest
accumulation. Multiple annual reports from the FSA Ombudsman have also
found that borrowers struggle to understand how the different repayment
plans work and the interplay between lower monthly payments and higher
interest accumulation.\29\ Because IDR plans are the only repayment
options that have no long-term protections against negative
amortization, the Department is concerned that continued balance growth
on these plans could dissuade borrowers from enrolling or recertifying
enrollment in these plans. The potential for these negative incentives
could be even greater as a result of the increases in the amount of
income protected from payments and the reduction in payments tied to
undergraduate loan balances. Were the Department to leave the interest
benefits unchanged, those payment reductions would result in even
greater amounts of interest accumulation for borrowers. That would risk
undermining the Department's overall goals of providing student
borrowers with one clear IDR option. Not all of the interest that would
no longer be charged under this proposal is a true new cost to the
government. Borrowers whose incomes are particularly low relative to
their debt balances would end up with significant interest accumulation
that would be forgiven after the borrower makes the necessary number of
qualifying payments. For those borrowers, not charging interest as it
accumulates instead of forgiving it at the end of the IDR repayment
term would have no additional cost to the government. And in doing so,
it has the added benefit of encouraging increased repayment.
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\27\ https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf.
\28\ https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf.
\29\ https://studentaid.gov/sites/default/files/FY_2019_Federal_Student_Aid_Annual_Report_Final_V2.pdf; https://studentaid.gov/sites/default/files/FSA-FY-2018-Annual-Report-Final.pdf; https://studentaid.gov/sites/default/files/fy2020-fsa-annual-report.pdf.
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Not charging any remaining accrued interest to the borrower's
account after applying a borrower's payment would also help the
Department accomplish its overall goals of simplifying repayment.
Adding this benefit would further cement REPAYE as the best IDR option
for most student borrowers.
This change to the interest benefits would also remove a
significant tradeoff for borrowers between choosing an IDR plan or one
of the fixed repayment plans, none of which allow for monthly payments
that are less than the amount of interest that accrues each month.
Limiting interest accumulation would also increase the attractiveness
of IDR relative to a discretionary forbearance. While borrowers on IDR
would still have to make a payment, they would also not see the
interest accumulation that happens to a borrower on a
[[Page 1906]]
discretionary forbearance. This may help more borrowers to enroll in
this affordable repayment plan, and may then reduce student loan
delinquencies and defaults, to the benefit of the Department and of
taxpayers.
For borrowers who may have already experienced interest
accumulation from being on an IDR plan, the Department notes that
changes to the treatment of interest capitalization in the final rule
published on November 1, 2022, 87 FR 65904, (Affordability and Student
Loans Final Rule) will provide some assistance. That rule eliminated
instances of interest capitalization when a borrower leaves the ICR,
PAYE, or REPAYE plans. That means if a borrower decides those plans are
no longer for them or they fail to recertify on time, they will not see
their principal balance grow. We incorporated conforming changes here
as part of our proposed changes to the IDR regulations.
That rule did not eliminate interest capitalization when a borrower
leaves the IBR plan, including if they fail to recertify. However, the
Department proposes to partly address this issue through the
implementation of changes made in accordance with the FUTURE Act (Pub.
L. 116-91), the Coronavirus Aid, Relief, and Economic Security (CARES)
Act (Pub. L. 116-136), and the Consolidated Appropriations Act, 2021
(Pub. L. 116-260), which direct the IRS, upon the written request of
the Department, to disclose to any authorized person tax return
information to determine eligibility for recertifications for IDR
plans. This will make it easier to automatically recertify a borrower's
participation in IDR plans.
Deferments and Forbearances (Sec. 685.209(k))
The Department also proposes to provide credit toward IDR
forgiveness for periods in which a borrower is in certain deferment and
forbearance periods by treating those periods as a qualifying payment
for the purposes of IDR. Overall, the Department's goal in providing
credit toward forgiveness for some of these deferments and forbearances
is to avoid situations in which a borrower is presented with
conflicting benefits, in these cases an opportunity to pause payments
or make progress toward ultimate loan forgiveness. There are many
different benefits available to borrowers in navigating student loan
repayment. This can create unintended consequences, such as confusing
choices for borrowers by putting in conflict the benefits of pausing
payments for specific activities or conditions, such as types of
national service or receiving certain medical care and making progress
toward forgiveness. As a result, there are too many instances in which
borrowers may inadvertently sacrifice months of credit toward
forgiveness.
During the negotiated rulemaking sessions, the negotiators focused
on proposals for providing credit toward forgiveness for each month
when a borrower was in one of the identified types of deferment and
forbearance. In addition, several of the negotiators felt it was
important to retroactively apply the benefit for borrowers who received
specific deferments and forbearances in the past.\30\ The Department
agrees that it is appropriate to allow certain past periods of
deferment and forbearance to count toward forgiveness because of
concerns that the Department's loan servicers did not provide
appropriate guidance and assistance to borrowers to ensure that they
understood the full consequences of their decisions to take a deferment
or forbearance. We believe that many borrowers did not understand that,
by taking out a deferment or forbearance, they were delaying the time
in which they could have the loan forgiven. To address this history, we
are proposing to give a borrower credit for specific periods of
deferment or forbearance because those deferments and forbearance
periods are most likely to be periods in which a borrower would have
benefitted from an IDR plan if they had received proper advice. This
change does not affect the borrower's past usage of these deferments or
forbearances. Rather, when a borrower requests an IDR repayment plan
after the effective date of these regulations, the Department would
award credit for those prior periods spent in a deferment or
forbearance.
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\30\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7pm.pdf, p. 33.
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This proposal aligns with administrative actions already announced
by the Department to address concerns about past handling of deferments
and forbearances. In April 2022, the Department announced it would make
an administrative account adjustment to award credit to borrowers with
Direct or FFEL Loans that we manage.\31\ As part of that announcement,
the Department announced that we would award credit toward forgiveness
on IDR when a borrower spent more than 12 months consecutive or more
than 36 months cumulative in forbearance. Similarly, the Department
would award credit toward IDR forgiveness for all periods spent in a
deferment prior to 2013, excluding time spent in an in-school
deferment. This reflects concerns that borrowers may not have been
getting proper credit for economic hardship deferments.
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\31\ https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=.
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Under current Sec. 685.209, only time spent in an economic
hardship deferment counts toward IDR forgiveness. However, borrowers
who meet the eligibility criteria for certain other types of deferments
might similarly be expected to have a $0 payment if they were making
payments under an IDR plan. For example, the unemployment deferment is
available to borrowers who do not have a job and are actively seeking
employment and who, therefore, might qualify for a $0 IDR payment.
Similarly, the rehabilitation training deferment requires a borrower to
make a substantial commitment that could prevent them from working
full-time, potentially resulting in a calculated IDR payment of $0.
Accordingly, we are proposing to count periods of unemployment and
rehabilitation training deferment as the equivalent of making
qualifying payments toward IDR plan loan forgiveness. We also seek
feedback on whether, if possible to operationalize, the Department
should include comparable deferments that are available under 34 CFR
685.204(j)(2) to Direct Loan borrowers who had an outstanding balance
on a FFEL Program loan made before July 1, 1993, when they received
their first Direct Loan.
In other situations, the Department proposes to provide credit
toward forgiveness by counting deferments and forbearances as
qualifying payments out of concern that borrowers should not have to
face the tradeoff of using an opportunity to pause their payments for a
specific situation versus continuing to make progress toward
forgiveness. Allowing these deferments and forbearances to count toward
IDR forgiveness would avoid the risk that a borrower could miss the
opportunity to gain months or years of progress toward forgiveness by
making the wrong choice or because they received inaccurate advice.
Specifically, in proposed Sec. 685.209(k)(4)(iv), the Department
proposes to include deferments tied to military service, service in the
Peace Corps, and post-active duty, and forbearances related to national
service or National Guard Duty, because the Department is concerned
that judging the relative tradeoffs between obtaining a deferment or
forbearance and otherwise making progress toward forgiveness generates
confusion for
[[Page 1907]]
borrowers and results in borrowers inadvertently losing months of
progress toward forgiveness because of the complexity. The Department
also proposes to provide credit toward forgiveness for time spent while
the borrower is in a forbearance for loan repayment through the U.S.
Department of Defense because of concerns about borrowers being
confused about this benefit versus seeking forgiveness in IDR.
Similarly, the Department is concerned about borrowers being able to
successfully navigate between the cancer treatment deferment and IDR
when they are ill and undergoing necessary medical care.
The Department also proposes to give credit toward forgiveness for
periods in which a borrower has their payments paused for reasons
outside their control. This would include periods of mandatory
administrative forbearance when a servicer, not at the request of the
borrower and for administrative reasons, pauses a borrower's payments
while the servicer reviews other information about the borrower's
loans. We believe that it is reasonable to assign credit toward
forgiveness for periods where the Department pauses payments while
reviewing paperwork so that the borrower is not worse off due to any
administrative challenges the Department faces. At the same time, the
Department hopes that the simpler rules around tracking payments for
IDR would reduce the time a borrower spends in one of these mandatory
administrative forbearances.
Several non-Federal negotiators also raised concerns that many
borrowers may have paused their payments through deferments or
forbearances because of misinformation or actions by their
servicer.\32\ This may include situations where a borrower would have
had a $0 payment on an IDR plan but was placed in a forbearance
instead. While the Department is deeply concerned about ensuring that
borrowers receive accurate counseling on the best repayment option for
them, we believe the best solution to this problem is the process in
proposed Sec. 685.209(k)(6) that gives borrowers a chance to gain
credit toward forgiveness for any month spent in a deferment or
forbearance. This option would not apply to months spent in a deferment
or forbearance that the Department is already proposing should be
treated as a qualifying month toward forgiveness. The proposed process
would give the borrower the opportunity to submit an additional payment
or payments for each month spent in deferment or forbearance at the
lesser of what they would have paid on the 10-year standard plan or an
IDR plan at that time. A borrower who ended up on a deferment or
forbearance when they should have had a $0 IDR payment would thus be
able to receive credit for all those months without making additional
payments. If the Department cannot calculate the IDR payment for that
period with existing data in its possession, then it would ask the
borrower to furnish the information it needs to calculate what the
payment on IDR should have been.
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\32\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/nov4pm.pdf.
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Non-Federal negotiators suggested some alternative ideas for
addressing concerns around usage of deferments or forbearances, which
included counting all periods of forbearance or automatically counting
certain periods of forbearance before a certain date. Under those
proposals, a borrower would have a strong incentive to request a
discretionary forbearance, which does not have the same explicit
eligibility standards as many other deferments and forbearances. This
would allow many borrowers who could make payments to receive credit
toward IDR forgiveness for months, if not years, when they could have
been making payments. Instead, we believe the inclusion of the specific
deferment and forbearance categories identified in this proposed rule
would strike an appropriate balance by removing the downside risk of
deferments and forbearances by allowing them to count towards
forgiveness, while ensuring that borrowers continue to make payments
when they are able.
Treatment of Income and Loan Debt (Sec. 685.209(e))
Some of the non-Federal negotiators argued that repayment should be
calculated based solely on the borrower's income and should not
consider the income of spouses who did not obtain student loans.
Ultimately, they argued, repayment of student loans is the
responsibility of the borrower.\33\ During the public comment period on
December 9, 2021, one participant stated, ``Calculating repayment using
the nonborrower's income, married filing jointly, dramatically
increases the repayment amount beyond the borrower's affordability. It
financially penalizes the nonborrowing spouse for being married to the
student. It creates an undue financial hardship on the nonborrower and
it disincentivizes some marriages in otherwise already stressed,
economic circumstances.'' \34\
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\33\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf, p. 104.
\34\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf, p. 104.
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The Department proposes in Sec. 685.209(e)(1) to make the
requirements for including or excluding married borrowers' incomes more
consistent across all IDR plans, and to avoid the complications that
might be created by requesting spousal information when married
borrowers have filed their taxes separately, such as in cases of
domestic abuse, divorce, or separation. The Department notes, however,
that section 455 of the HEA requires that the repayment schedule for an
ICR plan be based upon the borrower and the spouse's AGI if they file a
joint tax return.
The Department agrees that there are benefits to allowing the
treatment of spouses' income of married borrowers in all IDR plans to
mirror the PAYE and IBR plans, which include only the borrower's income
in the calculation of the monthly payment amount in the case of married
borrowers who file separate Federal income tax returns. First,
establishing the same procedures and requirements across each of the
IDR plans with respect to spouses' income would alleviate any confusion
a borrower may have when selecting a plan that meets their needs.
Secondly, having different requirements for different plans would
create operational difficulty for the Department in the processing of
application requests. Finally, excluding spousal income under all IDR
plans for borrowers who file separate tax returns would create a
process that is more streamlined and simplified when it comes to
borrowers enrolling in an IDR plan. For instance, if for all IDR plans
married borrowers are required to supply their spouses' incomes only if
they file a joint tax return, borrowers would be able to complete their
IDR applications more easily, and data-sharing to automate the transfer
of income information from tax records would be more straightforward.
Accordingly, we propose to change the terms of the REPAYE plan to
exclude spousal income for borrowers who are married and filing
separately.
Forgiveness Timeline (Sec. 685.209(k))
Forgiveness for borrowers after a set number of monthly payments is
another key component of IDR plans. Many of the non-Federal negotiators
took issue with the fact that loan forgiveness time periods are very
long. They asserted that loan forgiveness should not take 20 to 25
years for all borrowers. In fact, one non-Federal negotiator explained,
``I
[[Page 1908]]
would love to see 10 years of forgiveness, or 10 years to forgiveness
for those who have limited income because . . . carrying that burden
for 20 or 25 years is more than life altering, it's trajectory-
altering.'' \35\ A 2016 information experiment showed that the long
length of repayment in IDR discourages borrowers from signing up for an
IDR plan, especially for students who would benefit the most from lower
payments compared to payments under the 10-year standard repayment
plan.\36\
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\35\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7am.pdf, p. 17.
\36\ https://www.sciencebdirect.com/science/article/pii/S0047272719301288.
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The Department is not proposing to change the maximum forgiveness
timelines in REPAYE, which provides forgiveness after 20 years for
borrowers who only have undergraduate loans and 25 years for all
others. The Department recognizes that this means some borrowers with
loans for a graduate program could still have the option of choosing a
plan that provides forgiveness after 20 years, such as the IBR plan for
newer borrowers, which is shorter than what the Department is proposing
for REPAYE. However, as discussed elsewhere in this notice of proposed
rulemaking, a borrower would not be allowed to switch to the IBR plan
after making 120 or more qualifying payments on REPAYE. Moreover, the
Department is also proposing to restrict future enrollment in the PAYE
and ICR plans only to student borrowers who were enrolled in that plan
on the effective date of the regulations and who stay enrolled in that
plan. The Department believes that the more generous repayment benefits
proposed under this plan would outweigh the tradeoffs of a slightly
longer time to forgiveness.
While the Department is not proposing to change the maximum time to
forgiveness, it proposes in Sec. 685.209(k)(3) to add a provision that
grants forgiveness starting at 10 years for borrowers whose original
total Direct Loan principal balance was less than or equal to $12,000,
with the time to forgiveness increasing by 1 year for each additional
$1,000 added to their original principal balance above $12,000. For
example, a borrower whose original principal balance was $13,000 would
receive forgiveness after the equivalent of 11 years of payments, while
someone who originally borrowed $20,000 would receive forgiveness after
the equivalent of 18 years of payments. The overall caps of 20 years
(for those with only undergraduate loans) or 25 years (for those with
graduate loans) would still apply. The result would be that a borrower
with $22,000 in loans for an undergraduate program or $27,000 in loans
for a graduate program would not benefit from the shortened time to
forgiveness. The eligibility for the shortened forgiveness period would
be based upon the original principal balance of all of a borrower's
loans, such that if they later borrow additional funds their time to
forgiveness would adjust to include those new balances. Borrowers in
this situation would, however, maintain at least some of the credit
toward forgiveness from prior payments.
The Department proposes the $12,000 threshold for early forgiveness
based upon considerations of how much income a borrower would have to
make to be able to pay off a loan without benefiting from this
shortened repayment period. The Department then tried to relate that
amount in terms of the maximum amount of loans an undergraduate
borrower could receive so the connection would be easier for a future
student to understand when making borrowing decisions. That amount
worked out to the maximum amount that a dependent undergraduate student
can borrow in their first 2 years of postsecondary education ($5,500
for a dependent first-year undergraduate and $6,500 for a dependent
second-year undergraduate, for a total of $12,000).
For the income analysis, we looked at what a one-, two-, and four-
person household would have needed to earn in 2020 to pay off a $12,000
loan at a 5 percent interest rate in 10 years, assuming that all of
their debt was for an undergraduate program, they maintained that
household size, and their income rose exactly with the Federal poverty
guidelines during this period. These calculations show that a borrower
in a one-person household would not benefit from the early forgiveness
if their starting income exceeded $59,257. The corresponding income
levels for two- and four-person households are $69,337 and $89,497.
These amounts can be compared to inflation-adjusted estimates of family
income for adults early in their careers (aged 25 to 34) who have
completed different levels of postsecondary attainment and are not
currently enrolled.\37\ The Department chose 25 to 34 to better reflect
the ages of individuals who are just starting to repay their student
loans. These figures are calculated using the 2019 American Community
Survey 5-year sample, inflation-adjusted to 2020 dollars. The overall
median for those with at least some college education (including those
with less than a bachelor's degree and those with a bachelor's degree
or higher) is $74,740. Within that group the figures are $58,407 for
those with less than a bachelor's degree and $89,372 for those with a
bachelor's degree or higher. The starting income at which an individual
would not benefit from early forgiveness is, thus, close to the median
family income for a 25- to 34-year-old individual with less than a
bachelor's degree, while the figure for a four-person household is
close to that of the family income for a young adult with a bachelor's
degree or higher. Hence, the benefits of early forgiveness are most
likely to be felt by middle- or low-income borrowers.
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\37\ Family income differs slightly from household income in
that it only captures the incomes of individuals related to the head
of the household, while household income includes all individuals
regardless of their relation to one another.
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The Department also compared the starting income at which a
borrower would not benefit from a shorter forgiveness period to the
2020 U.S. median household income at different levels of postsecondary
attainment. Median U.S. household income across all households in which
the highest attainment level is some college ($63,700) is similar to
the income level at which a borrower in a one- or two-person household
would not benefit from early forgiveness. The median household income
where the highest attainment level is at least a bachelor's degree
($107,000) is substantially higher than the income level at which a
borrower in a four-person household would not benefit from early
forgiveness.\38\ Thus, the Department believes that the threshold for
early forgiveness would be well aligned with the distribution of income
for households that have at least some postsecondary education.
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\38\ https://www.census.gov/content/dam/Census/library/visualizations/2021/demo/p60-273/figure1.pdf.
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The Department believes the $12,000 amount as a starting point for
forgiveness is also an appropriate threshold based upon the income a
borrower would have to earn to benefit from this assistance. Having the
time to forgiveness increase by 1 year for each $1,000 borrowed would
keep the income at which a borrower would benefit from this provision
roughly constant, such that a borrower would not be able to benefit
from forgiveness at years 11 through 19 at an income level far
different from what a borrower could earn and still receive forgiveness
at year 10. It would also ensure there is not a cliff at which
borrowers would
[[Page 1909]]
otherwise have to wait another 10 years for forgiveness.
In selecting the starting amount of $12,000 the Department also
considered the lower amount of $10,000 as well as the higher amount of
$19,000. The former is based upon the 1-year loan limit for an
independent undergraduate borrower, rounded up to the nearest $1,000,
while the latter is equal to the 2-year loan limit for an independent
undergraduate borrower. The Department did not select the higher amount
because that level of debt would not achieve the policy goal of
targeting the early forgiveness benefit on borrowers who were most
likely to struggle to repay their loans. While there are borrowers with
debt levels that high who may struggle to repay, the degree of default
and delinquency is not as high as it is for those with lower loan
amounts. For instance, 63 percent of borrowers in default had an
original loan balance of $12,000 or less, while just 15 percent of
borrowers in default originally borrowed between $12,000 and
$19,000.\39\ The Department also was concerned that starting with a
higher original loan balance threshold for 10-year forgiveness and
increasing the time to forgiveness by 12 monthly payments for each
additional $1,000 would also mean that the benefits to borrowers
receiving forgiveness in a period longer than 10 years but shorter than
20 or 25 years would be less well targeted. For instance, for a
borrower in a one-person household, raising the amount eligible for
early forgiveness from $12,000 to $19,000 would increase the amount the
borrower would need to earn to not receive early forgiveness from
$59,300 to approximately $77,000. The Department also decided against
proposing to start the shorter forgiveness period at original principal
balances of $10,000 because the incomes where a borrower would stop
benefiting from this option are too far below the national median
income for households with at least some college. For example, the
threshold for a one-person household would be $54,166, even further
below the two different measures of median income discussed above.
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\39\ Department analysis of data from the Office of Federal
Student Aid, FSA Data Center, Portfolio by Debt Size and IDR
Portfolio by Debt Size, May 2022, https://studentaid.gov/data-center/student/portfolio.
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We also considered multiple options for how the time to forgiveness
should change with the level of additional debt. We only considered
adjusting the time to forgiveness in one-year increments. We are
concerned that lesser increments (such as one month, three months, or
six months) would be confusing to explain to borrowers and create a
very wide range of repayment timeframes, making the policy harder to
implement. We looked at the starting income at which borrowers would
cease benefiting from the shortened repayment timeframe for different
dollar increments per additional year of payments. We modeled this for
undergraduate-only borrowers because we anticipate that they are the
most likely to have debt balances eligible for the shortened time to
forgiveness. The dollar increments we considered per additional year of
required payments were $500, $1,000, $1,500, and $2,000, as these round
dollar amounts would be easier to communicate to borrowers. Increments
of $500 produced the counterintuitive effect of the maximum starting
income for a borrower to benefit from the 10-year forgiveness on a
$12,000 original balance exceeding the maximum starting income for a
borrower who owed any of the higher amounts that would still be
eligible for the shortened forgiveness timeframe (e.g., $12,500 over 11
years, $13,000 at 12 years, etc.). By contrast, the difference in
starting incomes that would benefit from the shortened time to
forgiveness would be too large when using an increment of an extra year
for every $1,500 or $2,000. In those situations, increasing the time to
forgiveness by a year per additional $1,500 in a borrower's loan
balance would result in a situation where a borrower who receives
forgiveness after 19 years with a loan balance of $25,500 would be able
to make approximately $11,000 more in starting income than a borrower
with a loan balance of $12,000 and receives forgiveness after 10 years.
The gap in break-even starting income for lower- and higher-balance
borrowers when using a $2,000 increment is even larger, at more than
$18,000. By contrast, the gap using $1,000 increments is less than
$4,000. Selecting a slope in which every additional $1,000 adds 1 year
of payments thus ensures relatively consistent break-even starting
income thresholds for all borrowers who would benefit from the
shortened time to forgiveness.
The Department also recognizes that proposing to tie the starting
point for the shortened repayment period to a set dollar amount linked
to statutory loan limits means that any potential future changes to
Federal loan limits could result in a situation where the shortened
forgiveness period no longer matches what a dependent borrower could
take out in 2 years of a program. Accordingly, the Department seeks
comments as to whether it should define the starting point for the
shortened forgiveness to the first two years of loan limits for a
dependent undergraduate to allow for an automatic adjustment.
Similarly, we seek comments on whether we should consider a slope for
early forgiveness tied to a specific dollar amount or one that adjusts
for inflation.
The Department proposes starting the forgiveness period at 10 years
to align with the standard repayment plan. This would ensure that
lower-balance borrowers would not be worse off for having chosen IDR.
Using the same repayment time frames would also make it easier for
borrowers to choose among plans, which reduces complexity for them in
navigating the repayment system.
We believe it is reasonable to require borrowers who borrow smaller
amounts to repay for shorter periods of time than borrowers who borrow
larger amounts. This could encourage borrowers to be more sensitive to
the amount they borrow, which could reduce the chances that they borrow
more than they need. Conversely, it may encourage debt-averse borrowers
to be willing to borrow small amounts, which could help these students
persist and ultimately complete a credential.\40\
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\40\ https://www.aeaweb.org/articles?id=10.1257/pol.20180279.
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The Department is concerned that even though IDR plans have done a
great deal to help avert delinquency and default for the borrowers who
use them, levels of delinquency and default among the total population
of borrowers still remain unacceptably high. For instance, prior to the
COVID-19 national emergency and the pause on student loan interest,
repayment, and collections, there were more than 1 million Direct Loan
borrowers defaulting every year.\41\ Similarly, in the quarters prior
to the student loan repayment pause there were 1.9 million borrowers
whose loans were managed by the Department who were 90 or more days
late on their loans.\42\ The Department believes that the early
forgiveness option is one of several key changes that would help
encourage more low-balance borrowers to use IDR and to avoid
delinquency and default. A large majority of borrowers who defaulted on
their loans took out small loans, at least initially. Based upon an
analysis of borrower balances as of
[[Page 1910]]
December 2019, only 17 percent of borrowers in repayment who originally
borrowed $12,000 or less were using IDR, compared to 52 percent of
those who originally borrowed over $50,000.\43\ By contrast, 63 percent
of the borrowers in default had an original loan balance of $12,000 or
less.\44\ A shorter period to forgiveness would make this IDR plan more
attractive for the most vulnerable borrowers and help them avoid
defaulting on their loans.
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\41\ Department analysis of data from the FSA Data Center,
available at https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls.
\42\ Department analysis of data from the FSA Data Center,
available at https://studentaid.gov/sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls.
\43\ Department of Education analysis of data for the defaulted
borrower population, conducted in FSA's Enterprise Data Warehouse,
with data as of December 31, 2019.
\44\ Ibid.
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Importantly, the Department proposes to base early forgiveness on
what the borrower originally borrowed. The Department is concerned that
many borrowers who originally had lower balances owe more today than
what they originally borrowed due to accumulating interest, interest
capitalization, and prior defaults. For instance, among borrowers who
first entered college in the 2003-04 academic year, more than one-third
(37 percent) had a higher balance in 2015 than what they originally
borrowed.\45\ Of those who owed more than they originally borrowed, the
median borrower owed 119 percent of their original balance.\46\
Connecting repayment to the amount originally borrowed would also
ensure that future borrowers will be able to understand when they first
borrow a loan what the implications are for their future repayment time
frame. This early forgiveness provision would align with suggestions
made by several non-Federal negotiators to shorten the forgiveness
period but do so in a targeted manner that would provide benefits to
those who are most likely to struggle to repay. Adding these benefits
solely to the REPAYE plan would move in the direction of having one IDR
plan that is the most beneficial for almost all borrowers, thereby
simplifying loan counseling and servicing and making it easier for
borrowers to understand which plan is best for them.
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\45\ Department analysis of data from the Beginning
Postsecondary Students Longitudinal Study, 2003-04 using the
Powerstats web tool at https://nces.ed.gov/datalab/. Table ID:
iyaord.
\46\ Department analysis of data from the Beginning
Postsecondary Students Longitudinal Study, 2003-04 using the
Powerstats web tool at https://nces.ed.gov/datalab/. Table ID:
kxmelz.
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Automatic Enrollment in an IDR Plan (Sec. 685.209(m))
The Department proposes in Sec. 685.209(m) to allow the Secretary
to automatically enroll a borrower into the IDR plan that produces the
lowest monthly payment for which the borrower is eligible if the
borrower is 75 days or more past due on their loan payments. This would
occur if the borrower has provided approval for the IRS to share their
tax information with the Secretary, and if the Secretary determines
that the borrower's payment would be lowered by enrolling in an IDR
plan. This auto-enrollment provision would build on the Secretary's
authority in section 455 of the HEA to place a borrower who is in
default on an ICR plan.
The Department is proposing this change because far too often
borrowers end up in default on a student loan when they would have had
a low or even a $0 payment on an IDR plan. The Department is concerned
that these borrowers may not be aware of IDR plans, and automatically
moving them on to one of the plans and presenting them with the likely
lower payment would be a better way to raise awareness than additional
marketing or outreach. Moreover, the fact that borrowers have gone
delinquent on their payments suggests that payments on their current
repayment plans may be unaffordable. Automatically enrolling these
borrowers in an IDR plan would ensure that no borrower whom the
Department can identify as having a $0 payment would end up in default.
The Department proposes 75 days as the point for auto-enrollment to
avoid the negative credit reporting that first occurs on Federal
student loans when they are 90 days late. Negative credit reporting is
a significant step on the road to default and can cause broader harm
for the borrower. For instance, once a borrower's credit score drops,
it may be harder for that individual to obtain housing or acquire
different types of financial services. By implementing the 75-day rule
to place delinquent borrowers in an IDR plan, the Department would be
able to ensure more borrowers can avert default and help prevent those
borrowers from receiving a negative credit history report.
Defaulted Loans (Sec. 685.209(d) and (k))
The Department also proposes several additional changes that would
help borrowers in default benefit from IDR. Several non-Federal
negotiators agreed with the Department's proposal to allow a borrower
in default to enter an IDR plan that allows them to make progress
toward forgiveness.\47\
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\47\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf.
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The Department proposes in Sec. 685.209(d)(2)) to allow defaulted
borrowers to enroll in IBR so that they may receive credit toward
forgiveness. These borrowers would receive credit toward forgiveness
both for payments made through the IBR plan and any amounts collected
through administrative wage garnishment, the Treasury Offset Program,
or any other means of forced collection that are equivalent to what the
borrower would have owed on the 10-year standard plan.
The Department proposes to grant borrowers access to IBR as
permitted by section 493C of the HEA. While section 455 of the HEA
provides that the Secretary may enroll a borrower in default in an ICR
plan, that section also provides that periods while the borrower is in
default do not count toward the maximum repayment time frame on an ICR
plan. The Department believes borrowers in default would be better
served by using an IDR plan in which they would be able to accumulate
progress toward forgiveness.
The Department proposes to make defaulted borrowers eligible for
IBR because the Department believes that those who have defaulted on a
loan should still have access to more affordable payments and a path to
forgiveness. Moreover, given the limited number of pathways and
opportunities for getting out of default, this change would ensure
that, even if a borrower is unable to rehabilitate or consolidate their
loans, they would still have a way to establish more manageable
payments.
The Department also recognizes that many borrowers in default may
not make voluntary payments but could be subject to forced collections
activity. Since amounts collected through tools such as administrative
wage garnishment or the Treasury Offset Program are credited toward a
borrower's balance, the Department proposes in Sec. 685.209(k)(5) that
borrowers also receive credit toward IBR forgiveness for amounts
collected through these means that are equal to what a borrower would
have paid on the 10-year standard plan. In other words, if a borrower
has a $600 tax refund credited against their loan debt through the
Treasury Offset Program and their monthly payment on the 10-year
standard plan would have been $50, then they would receive a year's
worth of credit toward IBR forgiveness.
The Department recognizes that allowing borrowers in default access
to IBR provides them a path to forgiveness and also results in a higher
payment amount than the borrower would owe under REPAYE. Therefore, the
Department seeks comments on how to address the tradeoffs between lower
monthly payments versus credit toward forgiveness for borrowers in
default,
[[Page 1911]]
recognizing that the HEA explicitly states that time in default cannot
count toward forgiveness under plans such as REPAYE that are created
under the ICR authority.
Application and Annual Recertification Procedures (Sec. 685.209(l))
As a result of changes made by Congress in 2019 that allow
borrowers to grant multiyear approval for the sharing of their tax
information to the Department, we propose to provide borrowers with an
easier path to participating in IDR as well as to annually recertifying
their income to recalculate their payments. Currently, borrowers who
wish to participate in an IDR plan must complete an application and
furnish their income information either through an online tool that
allows them to transfer their data from the IRS or by providing an
alternative form of income documentation, such as pay stubs. Borrowers
also have to provide information on their family size. Borrowers must
then recertify their income and family size annually through the same
processes. The purpose of this recertification is to have the borrower
self-certify their family size, as well as provide documentation that
shows their annual AGI so that payments are based on more up-to-date
financial and familial circumstances.
The application and recertification processes create significant
challenges for the Department and borrowers. A borrower must be aware
of and complete paperwork for IDR to be told exactly what their payment
would be, since online estimator tools cannot guarantee what a borrower
would pay. The borrower must also repeat these steps every year,
requiring the Department to send a recertification reminder to the
borrower. The borrower has a limited period of time to return the
annual certification back to the Department's loan servicer. Failure to
meet the deadline can result in the borrower losing eligibility to
continue in their repayment plan and, under current regulations, having
their interest capitalized. Department data from 2019 show that 39
percent of borrowers on an IDR plan recertified on time and that only
57 percent had certified within 6 months after their recertification
deadline.\48\
---------------------------------------------------------------------------
\48\ Department of Education internal analysis of data for IDR
borrowers who had a recertification date during the 2018 calendar
year.
---------------------------------------------------------------------------
Due to the concern that the process is confusing for borrowers,
challenging for the Department to administer, and prone to potential
errors that could cause a borrower's removal from IDR plans, the
Department proposes to simplify the IDR application and annual
recertification process. Due to recent statutory changes regarding
disclosure of tax information, when the Department has the borrower's
approval, it will rely on tax data to provide a borrower with a monthly
payment amount and offer the borrower an opportunity to request a
different payment amount if it is not reflective of the borrower's
current income or family size.\49\
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\49\ https://www.congress.gov/bill/116th-congress/house-bill/5363/text/pl.
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Consequences of Failing To Recertify (Sec. 685.209(l))
Current regulations specify that a borrower who fails to recertify
their income and family size for the REPAYE plan is placed in an
alternative plan in which the borrower's monthly payment is the amount
to either repay the loan within 10 years of starting on the alternative
repayment plan or within 20 or 25 years of starting on the REPAYE plan.
The Department is concerned that the structure of the alternative
repayment plan provision is overly complicated and creates confusion
for borrowers as well as operational challenges. Accordingly, the
Department proposes to simplify this alternative repayment plan
provision. Borrowers who fail to recertify would initially be placed on
an alternative payment plan with payments set to the amount the
borrower would have paid on a 10-year standard repayment plan based on
the current loan balances and interest rates on the loans at the time
the borrower was removed from the REPAYE plan, except that no more than
12 of these payments could count toward forgiveness. If the borrower
wanted to change their repayment amount, the borrower could then submit
evidence of exceptional circumstances to support changing the amount of
the required payment under the alternative payment plan or change to a
different repayment plan. Simplifying the terms of the alternative plan
would assist in reducing complexity for borrowers.
Consolidation Loans (Sec. 685.209(k))
In response to concerns raised by non-Federal negotiators, the
Department proposes in Sec. 685.209(k)(4)(v) to provide that payments
made on loans prior to consolidation would count toward IDR forgiveness
without restarting the clock toward forgiveness. More specifically, the
Department proposes to allow a borrower who consolidates one or more
Direct Loan or FFEL program loans into a Direct Consolidation Loan to
count the qualifying payments the borrower made on the Direct Loan or
FFEL program loans prior to consolidating as qualifying payments on the
Direct Consolidation Loan.
The Department would effectuate this change by giving borrowers
credit toward forgiveness by calculating the weighted average of
qualifying payments made on the original principal balance of all loans
repaid by the consolidation loan. For example, if a borrower has made
30 qualifying payments on loans with an original principal balance of
$30,000 and consolidates them with a loan that includes another $30,000
of loans that have never had any qualifying payments, then the
borrower's consolidation loan would be credited with 15 payments toward
forgiveness.
The Department believes that the current regulations too often
force borrowers to choose between receiving more affordable loan
payments and losing out on progress toward forgiveness. For example,
consolidation is one of two pathways for borrowers to exit default and
re-enter repayment. While consolidation is typically the fastest route
out of default, borrowers who choose that option lose out on any
progress they made toward forgiveness prior to defaulting. Beyond these
specific circumstances, the Department is concerned more generally that
borrowers often do not understand the effect of consolidation on their
forgiveness progress and making this change would contribute to the
Department's goal of removing complications to loan repayment, which
can generate borrower frustration.
Conclusion
Under the proposed regulations, student borrowers seeking an IDR
plan would generally choose between the IBR plan under section 493C of
the HEA and the REPAYE plan, as modified by these proposed regulations.
(Borrowers with Direct Consolidation Loans that include a Parent PLUS
loan would still have access to the ICR plan.) This would significantly
simplify the landscape of available IDR plans that borrowers seeking to
enter an IDR plan currently navigate.
Borrowers who are currently enrolled in the ICR or PAYE plans could
remain in those plans. However, should they seek to change plans, they
would no longer have access to the original ICR plan and the PAYE plan
and instead would choose from, with respect to IDR plans, the REPAYE
plan or the IBR plan. The Department believes that most student
borrowers who are currently on
[[Page 1912]]
the original ICR or the PAYE plan would see significant payment
reductions by switching to the REPAYE plan, as modified by these
proposed regulations. The Department believes that borrowers would
benefit from a more affordable plan that provides more protected income
for borrowers to meet their family's basic needs.
The plan would also reduce the share of discretionary income that
goes toward loan payments for borrowers with undergraduate debt, stop
loan balances from growing due to unpaid interest, and reduce the
amount of time for which borrowers with lower loan balances need to
repay.
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether this regulatory action is ``significant''
and, therefore, subject to the requirements of the Executive Order and
subject to review by OMB. Section 3(f) of Executive Order 12866 defines
a ``significant regulatory action'' as an action likely to result in a
rule that may--
(1) Have an annual effect on the economy of $100 million or more,
or adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local, or
Tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule);
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
Executive Order.
The Department estimates the net budget impact to be $137.9 billion
in increased transfers among borrowers, institutions, and the Federal
Government, with annualized transfers of $14.8 billion at 3 percent
discounting and $16.3 billion at 7 percent discounting, and annual
quantified costs of $1.1 million related to administrative costs.
Therefore, this proposed action is ``economically significant'' and
subject to review by OMB under section 3(f) of Executive Order 12866.
Notwithstanding this determination, based on our assessment of the
potential costs and benefits (quantitative and qualitative), we have
determined that the benefits of this proposed regulatory action would
justify the costs.
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires that an agency--
(1) Propose or adopt regulations only on a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and taking into
account--among other things and to the extent practicable--the costs of
cumulative regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives--such as user fees or
marketable permits--to encourage the desired behavior, or provide
information that enables the public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' The Office of
Information and Regulatory Affairs of OMB has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these proposed regulations only on a reasoned
determination that their benefits would justify their costs. In
choosing among alternative regulatory approaches, we selected those
approaches that maximize net benefits. Based on the analysis that
follows, the Department believes that these regulations are consistent
with the principles in Executive Order 13563.
We have also determined that this regulatory action would not
unduly interfere with State, local, and Tribal governments in the
exercise of their governmental functions.
As required by OMB Circular A-4, we compare the proposed
regulations to the current regulations. In this regulatory impact
analysis, we discuss the need for regulatory action, potential costs
and benefits, net budget impacts, and the regulatory alternatives we
considered.
Need for Regulatory Action
The Department has identified a significant need for regulatory
action to promote access to more affordable repayment plans for student
loan borrowers.
IDR plans are created either through regulation or statute and base
a borrower's monthly payment on their income and family size. Under
these plans, loan forgiveness occurs after a set number of payments,
depending on the repayment plan that is selected. Because payments are
based on a borrower's income, they may be more affordable than other
fixed repayment options, such as those in which a borrower makes
payments over a period of between 10 and 30 years. There are four
repayment plans that are collectively referred to as IDR plans: (1) the
IBR plan; (2) the ICR plan; (3) the PAYE plan; and (4) the REPAYE plan.
Within the IBR plan, there are two versions that are available to the
borrower, depending on when they took out their loans. Specifically,
for a new borrower with loans taken out on or after July 1, 2014, the
borrower's payments are capped at 10 percent of discretionary income.
For those who are not new borrowers on or after July 1, 2014, the
borrower's payments are capped at 15 percent of their discretionary
income. IDR plans simultaneously provide protection for the borrower
against the consequences of ending up as a low earner and adjust
repayments to fit the borrower's changing ability to pay.\50\ Because
of these benefits, Federal student loan borrowers are increasingly
choosing to repay their loans using one of the IDR plans.\51\
Enrollment in IDR plans increased by about 50 percent between the end
of 2016 and the start of 2022, from approximately 6 million to more
than 9 million borrowers and more than $500 billion in debt is
currently being repaid through the IDR repayment plans.\52\ Similarly,
the share of
[[Page 1913]]
borrowers with Federally managed loans enrolled in an IDR plan rose
from just over one-quarter to one-third during this time.\53\
---------------------------------------------------------------------------
\50\ Krueger, A.B., & Bowen, W.G. (1993). Policy Watch: Income-
Contingent College Loans. Journal of Economic Perspectives, 7(3),
193-201. https://doi.org/10.1257/jep.7.3.193.
\51\ Gary-Bobo, R.J., & Trannoy, A. (2015). Optimal student
loans and graduate tax under moral hazard and adverse selection. The
RAND Journal of Economics, 46(3), 546-576. https://doi.org/10.1111/1756-2171.12097.
\52\ U.S. Dep't of Educ., Federal Student Aid Data Center,
Repayment Plans, available https://studentaid.gov/manage-loans/repayment/plans. Includes all Federally managed loans across all IDR
plans, measured in Q4 2016 through Q1 2022.
\53\ Ibid.
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Section 455(d)(1)(D) of the HEA, as discussed elsewhere in this
document, requires the Secretary to offer an income-contingent
repayment plan with terms prescribed by the Secretary. The Department
proposes to amend the regulations governing income-contingent repayment
plans by amending the REPAYE repayment plan, as well as restructuring
and renaming the repayment plans available in the Direct Loan Program,
including by combining the ICR and the IBR plans under the umbrella
terms of the ``IDR plans.''
The Department has identified several areas that need improvement
related to IDR plans. First, many struggling borrowers are not enrolled
in IDR plans that would improve their chances of avoiding delinquency
and default. Research shows that low-income borrowers and borrowers
with high debt levels relative to their incomes enroll in IDR plans at
lower rates.\54\ An analysis of IDR usage by the JPMorgan Chase
Institute found that there are two borrowers who could potentially
benefit from an IDR plan for each borrower who is using those
plans.\55\ Moreover, the borrowers not using the IDR plans appear to
have significantly lower incomes than those who are enrolled. An Urban
Institute analysis using the 2016 Survey of Consumer Finances found
that the share of Black borrowers using IDR was lower than the share of
borrowers not making any payments.\56\ The gap between IDR usage and
not making any payments was even larger for borrowers who were
receiving Federal benefits, such as support from the Supplemental
Nutrition Assistance Program.\57\ According to a 2012 U.S. Treasury
study, 70 percent of defaulted borrowers have incomes that would have
allowed them to reduce their payments compared to the standard 10-year
repayment plan by going onto IDR; these payment reductions could have
reduced the likelihood of default.\58\ Though IDR enrollment has
increased since 2012, in 2019 alone, more than 1.2 million Federal
student loan borrowers defaulted on their Direct Loans, and more were
behind on their payments and at risk of defaulting.\59\
---------------------------------------------------------------------------
\54\ Daniel Collier et al., Exploring the Relationship of
Enrollment in IDR to Borrower Demographics and Financial Outcomes
(Dec. 30, 2020); see also Seth Frotman and Christa Gibbs, Too many
student loan borrowers struggling, not enough benefiting from
affordable repayment options, Consumer Fin. Prot. Bureau (Aug. 16,
2017).
\55\ This analysis is restricted to borrowers with a Chase
checking account who meet certain other criteria in terms of
frequency of monthly transactions and amount of money deposited into
the account each year. https://www.jpmorganchase.com/institute/research/household-debt/student-loan-income-driven-repayment.
\56\ https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment.
\57\ Ibid.
\58\ U.S. Government Accountability Office, 2015. Federal
Student Loans: Education Could Do More to Help Ensure Borrowers are
Aware of Repayment and Forgiveness Options. GAO-15-663. U.S.
Government Accountability Office, 2016. Education Needs to Improve
its Income Driven Repayment Plan Budget Estimates. Technical Report
GAO-17-22.
\59\ U.S. Government Accountability Office, 2015. Federal
Student Loans: Education Could Do More to Help Ensure Borrowers are
Aware of Repayment and Forgiveness Options. GAO-15-663. U.S.
Government Accountability Office, 2016. Education Needs to Improve
its Income Driven Repayment Plan Budget Estimates. Technical Report
GAO-17-22.
---------------------------------------------------------------------------
While IDR options have helped to make loans more affordable for
many, borrowers often still face challenges with IDR plans. Most
borrowers enrolled in IDR plans experience increased loan balance
growth when their payments are not large enough to cover the interest
they accrue.\60\ Focus groups of borrowers also show that this
possibility may also serve as a source of stress even for borrowers who
do enroll in IDR plans and who are able to afford their payments.\61\
Additionally, some borrowers encounter barriers to accessing and
maintaining affordable payments on IDR plans. One barrier, in
particular, for some borrowers is in recertifying their incomes by the
annual deadline due to the burden of the recertification process for
the borrower, which may be one reason that some borrowers choose
instead to enter deferment or forbearance, or fall out of or leave IDR
plans.\62\ The Consumer Financial Protection Bureau found that
delinquency rates significantly worsened for those who did not
recertify their incomes on time after their first year in an IDR
plan.\63\ In contrast, delinquency rates for those who did recertify
their incomes slowly improved.
---------------------------------------------------------------------------
\60\ Department of Education analysis of loan data for borrowers
enrolled in IDR plans, conducted in FSA's Enterprise Data Warehouse,
with data as of March 2020.
\61\ Sattelmeyer, Sarah, Brian Denten, Spencer Orenstein, Jon
Remedios, Rich Williams, Borrowers Discuss the Challenges of Student
Loan Repayment (May 2020), https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf.
\62\ Consumer Financial Protection Bureau. Borrower Experiences
on Income-Driven Repayment. November 2019. https://files.consumerfinance.gov/f/documents/cfpb_data-point_borrower-experiences-on-IDR.pdf.
\63\ Ibid.
---------------------------------------------------------------------------
The Department is concerned that the current IDR plans may not
adequately serve borrowers and proposes the changes described in this
NPRM to improve access to effective and affordable loan repayment
plans. In particular, the Department proposes to amend the REPAYE plan
to reduce the required monthly payment amount to 5 percent of the
borrower's discretionary income for the share of a borrower's total
original principal loan volume attributable to loans received as a
student in an undergraduate program, increase the amount of
discretionary income exempted from the calculation of payment to 225
percent of the Federal poverty guidelines, not charge any remaining
monthly interest after applying a borrower's monthly payment, reduce
the time to forgiveness under the plan for borrowers with lower
original loan balances, and automate the application and
recertification process wherever possible, including automatically
enrolling delinquent borrowers. Additionally, the Department proposes
to modify the IBR plan in Sec. 685.209 to clarify that borrowers in
default are eligible to make payments under the plan. The Department
also proposes to modify all the regulations for all of the income-
driven repayment plans in Sec. 685.209 to allow certain periods of
deferment and forbearance to count toward forgiveness, including cancer
treatment deferments, unemployment and economic hardship deferments
(including Peace Corps service deferments), military service
deferments, and administrative forbearances. The Department also
proposes to stop resetting progress toward IDR loan forgiveness when a
borrower consolidates their loans after making payments that qualify
for forgiveness under an IDR plan.
We also propose to modify all the regulations governing the income-
driven repayment plans in Sec. 685.209 to automatically enroll any
borrowers who are at least 75 days delinquent on their loan payments,
and who have previously provided approval for the IRS to share tax
information on their incomes and family sizes with the Department, in
the IDR plan that is most affordable for them in monthly payments,
unless the borrower's current plan provides a lower monthly payment.
Finally, the Department proposes to simplify the complex rules
relating to the different IDR plans to the extent allowable by making
the REPAYE plan the best choice for most borrowers and by limiting
student borrowers already
[[Page 1914]]
enrolled in one of the existing ICR plans other than REPAYE from re-
enrolling in that plan after they leave it. This will result in phasing
out the older repayment plans for student borrowers and will ensure
that borrowers have access to the most generous IDR plan.
Summary of Proposed Provisions
----------------------------------------------------------------------------------------------------------------
Provision Regulatory section Description of proposed provision
----------------------------------------------------------------------------------------------------------------
Streamline the regulations........... Sec. 685.208......... Would house all fixed amortization repayment
plans under this section.
Streamline the regulations........... Sec. 685.209......... Would house all IDR plans under this section and
establish new terms for the REPAYE plan.
Reduce monthly payment amounts, Sec. 685.209......... Would reduce monthly payment amounts to 5
expand interest benefit for percent of discretionary income for the share
borrowers, and shorten the time to of a borrower's total original principal loan
forgiveness. volume attributable to loans received as
students for an undergraduate program (with a
weighted average between 5 and 10 percent for
borrowers with outstanding undergraduate and
graduate loans, and a payment of 10 percent for
borrowers with only outstanding graduate
loans), increase the amount of discretionary
income exempted from the calculation of
payments to 225 percent of the Federal poverty
guidelines, not charge any unpaid monthly
interest after applying a borrower's payment,
and reduce the time to forgiveness under the
plan for borrowers with lower original
balances.
Address defaulted borrowers.......... Sec. 685.209......... Would clarify that borrowers in default are
eligible to make payments under the IBR plan.
Address qualifying payments.......... Sec. 685.209......... Would allow certain periods of deferment and
forbearance to count toward IDR forgiveness.
Address qualifying payments.......... Sec. 685.209......... Would allow borrowers an opportunity to make
catch-up payments for all other periods in
deferment or forbearance.
Address qualifying payments.......... Sec. 685.209......... Would clarify that a borrower's progress toward
forgiveness does not fully reset when a
borrower consolidates loans on which a borrower
had previously made qualifying payments.
Address delinquent borrowers......... Sec. 685.209......... Would modify all IDR plans to automatically
enroll any borrowers who are at least 75 days
delinquent on their loan payments and who have
previously provided approval for the IRS to
share their tax information with the Secretary
in the IDR plan that is best for them.
Limiting new enrollments in older IDR Sec. 685.209......... Would limit new enrollments in PAYE after the
plans. effective date of these regulations, limit
enrollments in IBR to borrowers who have a
partial financial hardship and have not made
120 payments on REPAYE and would limit new
enrollments in the ICR plan after the effective
date of the regulations to borrowers whose
loans include a Direct Consolidation loan that
included a parent PLUS loan.
Consequences of not recertifying on Sec. 685.209......... Place borrowers who do not recertify on REPAYE
REPAYE. into an alternative payment plan where monthly
payments are equal to the amount a borrower
would pay each month to repay their original
balance in equal installments over 10 years and
allow no more than 12 of these payments to
count toward forgiveness.
Technical changes.................... Sec. Sec. 685,210, Would establish conforming changes based on
685.211, and 685.221. revisions to the sections noted above.
----------------------------------------------------------------------------------------------------------------
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated this rule
as a ``major rule,'' as defined by 5 U.S.C. 804(2).
Discussion of Costs and Benefits
The proposed regulations would expand access to affordable monthly
payments on the REPAYE plan by increasing the amount of income exempted
from the calculation of payments from 150 percent of the Federal
poverty guidelines to 225 percent of the Federal poverty guidelines,
lowering the share of discretionary income put toward monthly payments
to 5 percent for a borrower's total original loan principal volume
attributable to loans received as students for an undergraduate
program, not charging any monthly unpaid interest remaining after
applying a borrower's payment, and providing for a shorter repayment
period and earlier forgiveness for borrowers with smaller original
principal balances (starting at 10 years for borrowers with original
principal balances of $12,000 or less, and increasing by 1 year for
each additional $1,000 up to 20 or 25 years).
To better understand the impact of these proposed rules, the
Department simulated how future cohorts of borrowers would benefit from
enrolling in REPAYE under the proposed provisions. To do so, the
Department used data from the College Scorecard and Integrated
Postsecondary Education Data System (IPEDS) to create a synthetic
cohort of borrowers that is representative of borrowers who entered
repayment in 2017 in terms of institution attended, education
attainment, race/ethnicity, and gender. Using Census data, the
Department projected earnings and employment, marriage, spousal debt,
spousal earnings, and childbearing for each borrower up to age 60.
Using these projections, payments under a given loan repayment plan can
be calculated for the full length of time between repayment entry and
full repayment or forgiveness. To provide an estimate of how much
borrowers in a given group (e.g., lifetime income, education level)
would benefit from enrolling in REPAYE under the proposed provisions,
total payments per $10,000 of debt at repayment entry were calculated
for each borrower in the group and compared to total payments that the
borrower would make if they were to enroll in the standard 10-year
repayment plan and current REPAYE plan. Payments made after repayment
entry are discounted using the Office of Management and Budget's
Present
[[Page 1915]]
Value Factors for Official Yield Curve (Budget 2023) so that the
resulting amounts are all provided in present discounted terms.
These projections do not take into account borrowers' decisions of
which plan to choose and, thus, should not be interpreted as reflecting
estimates of the budgetary costs of the proposed changes to REPAYE.
Rather, these estimates reflect changes in simulated payments that
would occur if all borrowers enrolled and paid their full monthly
obligation in different plans to highlight the types of borrowers who
could benefit most under different repayment plans. They also do not
account for the possibility of borrowers being delinquent or
defaulting, which could affect assumptions of amounts repaid.
On average, if all borrowers in future cohorts were to enroll in
the 10-year standard repayment plan or the current REPAYE plan and make
all of their required payments on time, we estimate that borrowers
would repay approximately $11,800 per $10,000 of debt at repayment
entry in both the standard 10-year plan and under the current
provisions of REPAYE. The proposed changes to REPAYE would result in
the amount repaid per $10,000 of debt at repayment entry falling to
approximately $7,000. On average, borrowers with only undergraduate
debt are projected to see expected payments per $10,000 borrowed drop
from $11,844 under the standard 10-year plan and $10,956 under the
current REPAYE plan to $6,121 under the proposed REPAYE plan. The
average borrower with graduate debt, whose incomes and debt levels tend
to be higher, is projected to have much smaller reductions in payments
per $10,000 borrowed, from $11,995 under the 10-year standard plan and
$12,506 under the current REPAYE plan to $11,645.
Table 2--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment Cohorts,
Assuming Full Take-Up of Various Repayment Plans
----------------------------------------------------------------------------------------------------------------
Borrowers with
only Borrowers with
All borrowers undergraduate any graduate
debt debt
----------------------------------------------------------------------------------------------------------------
Standard 10-year plan......................................... $11,880 $11,844 $11,995
Current REPAYE................................................ 11,844 10,956 12,506
Proposed REPAYE............................................... 7,069 6,121 11,645
----------------------------------------------------------------------------------------------------------------
The Department has also estimated how payments per $10,000 borrowed
would change for borrowers in future repayment cohorts who are
projected to have different levels of lifetime individual earnings. For
this estimate borrowers are divided into quintiles based on projected
earnings from repayment entry until age 60. Borrowers in the first
quintile are projected to have lower lifetime earnings than at least 80
percent of all borrowers in the cohort, while those in the top quintile
are projected to have higher earnings than at least 80 percent of all
borrowers.
On average, borrowers in every quintile of the lifetime income
distribution are projected to repay less (in present discounted terms)
in the proposed REPAYE plan than in the existing REPAYE plan. However,
differences in projected payments per $10,000 borrowed are largest for
borrowers with only undergraduate debt in the bottom two quintiles
(i.e., those with projected lifetime earnings less than at least 60
percent of all borrowers in the cohort). Borrowers with only
undergraduate debt who have lifetime income in the bottom quintile are
projected to repay $873 per $10,000 in the proposed REPAYE plan
compared to $8,724 per $10,000 in the current REPAYE plan, and
borrowers in the second quintile of lifetime income with only
undergraduate debt are projected to repay $4,129 per $10,000 compared
to $11,813 per $10,000 in the current REPAYE plan. Borrowers in the top
40 percent of the lifetime income distribution (quintiles 4 and 5) are
projected to see only small reductions in payments per $10,000
borrowed.
Table 3--Projected Present Discounted Value of Total Payments per $10,000 Borrowed for Future Repayment Cohorts
by Quintile of Lifetime Income, Assuming Full Take-Up of Specified Plan
----------------------------------------------------------------------------------------------------------------
Quintile of lifetime income
-------------------------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
Borrowers with only undergraduate debt
----------------------------------------------------------------------------------------------------------------
Current REPAYE.................. $8,724 $11,813 $11,799 $11,654 $11,411
Proposed REPAYE................. 873 4,129 7,825 10,084 11,151
Average annual earnings in year 18,620 27,119 33,665 39,565 50,112
of repayment entry.............
Average annual family earnings 40,600 42,469 49,312 53,524 67,748
in year of repayment entry.....
----------------------------------------------------------------------------------------------------------------
Borrowers with any graduate debt
----------------------------------------------------------------------------------------------------------------
Current REPAYE.................. 7,002 10,259 11,849 12,592 12,901
Proposed REPAYE................. 6,267 8,689 10,476 11,344 12,248
Average annual earnings in year 19,145 28,099 35,316 42,226 54,039
of repayment entry.............
Average annual family earnings 41,174 43,753 52,144 59,351 79,368
in year of repayment entry.....
----------------------------------------------------------------------------------------------------------------
To compare the potential benefits for future borrowers from the
proposed REPAYE plan, these simulations abstract from repayment plan
choice and instead assume that all future borrowers enroll in a given
plan (i.e., the current or proposed REPAYE plan) and make their
scheduled payments. Future borrowers' actual realized benefits will
[[Page 1916]]
depend on the extent to which enrollment in IDR increases, which
borrowers choose to enroll in IDR, and whether borrowers make their
required payments. In general, the proposed REPAYE plan should reduce
rates of delinquency and default by providing more borrowers with a $0
payment and automatically enrolling eligible borrowers once they are 75
days late. That said, borrowers could still end up delinquent or in
default if they either owe a non-$0 payment or the Department cannot
access their income information and thus cannot automatically enroll
them on IDR.
The proposed regulations would make additional improvements to help
borrowers navigate their repayment options by allowing more forms of
deferments and forbearances to count toward IDR forgiveness. This
ensures that borrowers are not required to choose between pausing
payments and earning progress toward forgiveness by making IDR payments
and allows borrowers to keep progress toward forgiveness when
consolidating.
The proposed regulations streamline and standardize the Direct Loan
Program repayment regulations by housing all repayment plan provisions
within sections that are listed by repayment plan type: fixed payment,
income-driven, and alternative repayment plans. The proposed
regulations would also provide clarity for borrowers about their
repayment plan options and reduce complexity in the student loan
repayment system, including by phasing out the existing IDR plans to
the extent the current law allows.
Costs of the Regulatory Changes
The proposed increased benefits on the REPAYE plan, including
reduced monthly payments, a shorter repayment period for some
borrowers, and not charging unpaid monthly interest, all represent
costs in the form of transfers to borrowers. This will result in
transfers to borrowers currently enrolled on an IDR plan, as well as
those who choose to sign up for one in the future.
This plan may also result in changes in students' decisions to
borrow and how much to borrow, which could have additional future
effects on the size of transfers to borrowers. This could result in
increased costs to taxpayers in the form of transfers to borrowers if
more students choose to borrow than before and/or if borrowers take out
greater amounts of loans than before, but then do not fully repay their
loans. Some of these transfers to borrowers may be offset if the
increased borrowing results in higher rates of postsecondary program
completion and higher subsequent earnings, which generates additional
federal income tax revenue.\64\
---------------------------------------------------------------------------
\64\ Some research has found evidence that reduced borrowing
results in worse academic outcomes and lower levels of retention and
completion, and that increased borrowing led to better performance
and higher rates of credit completion. See, for example, Barr,
Andrew, Kelli Bird, and Benjamin L. Castleman, The Effect of Reduced
Student Loan Borrowing on Academic Performance and Default: Evidence
from a Loan Counseling Experiment, EdWorkingPaper No. 19-89 (June
2019), https://www.edworkingpapers.com/sites/default/files/ai19-89.pdf; and Marx, Benjamin M. and Turner, Lesley, Student Loan
Nudges: Experimental Evidence on Borrowing and Educational
Attainment (May 2019). American Economic Journal: Economic Policy,
Volume 11, Issue 2, https://www.aeaweb.org/articles?id=10.1257/pol.20180279. Black et al 2020 https://www.nber.org/papers/w27658.
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The proposed regulations may also result in costs resulting from
reduced accountability for student loan outcomes at institutions of
higher education, which would show up as increased transfers to some
poor-performing schools. In particular, the provisions that result in
more borrowers having a $0 monthly payment and automatically enrolling
borrowers who are delinquent onto an IDR plan could significantly
reduce the rate at which students default. This could in turn lead to
fewer institutions losing access to Federal financial aid due to having
high cohort default rates. However, the existing cohort default rate
already was causing very few institutions to lose access to Federal
aid. In the years before the national pause on repayment, only about a
dozen institutions a year faced sanctions due to high cohort default
rates. Most of these institutions had small enrollment, and many still
maintained access to aid thanks to various appeal options. The most
recent rates released in fall 2022 showed just eight institutions
subject to potential loss of eligibility.\65\ The effect of the cohort
default rate will also remain small for several years into the future
because no Direct Loan borrowers have been able to default since the
pause on repayment began in March 2020.
---------------------------------------------------------------------------
\65\ https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html.
---------------------------------------------------------------------------
Whether this effect on accountability results in an increased
transfer to borrowers would depend on the likelihood that an aid
recipient would have enrolled elsewhere and whether their alternative
options would have resulted in higher or lower earnings that affected
what they would pay on an IDR plan. Of greater concern would be the
possibility that providing assistance for borrowers through the updated
REPAYE plan would result in more aggressive recruiting by institutions
that do not provide valuable returns on the premise that borrowers who
do not find a job do not have to pay. This is a concern that already
exists in current IDR plans but could increase with the more generous
proposed benefits. Relatedly, institutions may be more inclined to
raise tuition in order to shift costs to students when loans are more
affordable. This effect may be more pronounced at graduate-level
programs than at the undergraduate level because of differences in loan
limits. Increases in tuition would not solely affect borrowers and,
indirectly, taxpayers; students who do not borrow would face higher
education costs as well.
The proposed regulations would also result in modest administrative
costs to the Department to implement the changes to the plan, which
would require modifications to contracts with servicers. We estimate
that, based on comparable changes made in the past, those
administrative costs would total approximately $10 million in systems
and other changes. These are costs associated with activities, such as
change requests to servicers to make alterations to their systems and
servicing platforms. The Department is already in the process of
developing data-sharing agreements to support the provision of tax
information, pursuant to the FUTURE Act, and would seek to include the
IDR provisions in these proposed regulations in those agreements.
It is currently unclear whether the proposed regulations would
represent a net cost or benefit to servicers. On the one hand, the
provisions that keep more borrowers current and prevent borrowers from
defaulting would increase servicer compensation because they are
currently paid more each month when a borrower is current. Similarly,
any effect of this regulation to increase borrowing would raise
compensation for servicers. On the other hand, if the regulations
resulted in a decrease in student loan borrowers due to forgiveness
then servicers would receive less compensation. It is likely that the
factors that would increase compensation are greater than those that
decrease it, but determining the exact amounts is not currently
possible.
Benefits of the Regulatory Changes
The proposed IDR plan regulations would benefit multiple groups of
stakeholders, especially Federal student loan borrowers. The proposed
regulations would allow borrowers in default to make payments under the
current IBR plan. The Department believes that this would make it
easier for defaulted borrowers to access affordable payments by
enrolling in an
[[Page 1917]]
IDR plan, make progress toward forgiveness of their loans, and avoid
further consequences of default if they are not otherwise able to exit
default through rehabilitation or consolidation.
The proposed regulations would also automatically allow the
Department to enroll any borrowers who are at least 75 days delinquent
on their loan payments and who have previously provided approval for
the IRS to share their income information into the IDR plan that is
most affordable for them. The Department believes that this would
increase the likelihood that struggling borrowers will be enrolled in
an IDR plan and will be able to avoid late-stage delinquency or default
and the associated consequences. To ensure borrowers are enrolled in
the most affordable plan, the Department would not auto-enroll a
borrower whose current monthly payment would be less than their payment
on the IDR plan that has the lowest payment for them. For instance, it
is less likely that a very high-income borrower who is delinquent would
be automatically enrolled in IDR because the payment based upon their
earnings would be more than what they would pay on the standard 10-year
plan.
For many borrowers, enrolling in an IDR plan reduces monthly
payments and allows them to use such savings to address current needs.
A study found that borrowers who enrolled in an existing IDR plan saw
their monthly payments decrease by $355 compared with a standard non-
IDR plan.\66\ That study also found that those borrowers saw an
identical increase in consumer spending that was roughly equal to the
decrease in monthly student loan payments.\67\ Another study estimated
that the benefits--the ``welfare gains''--of moving from a loan system
without IDR plans to a system with IDR plans, if ideally implemented,
are ``significant,'' ranging from about 0.2 percent to 0.6 percent of
lifetime consumption.\68\
---------------------------------------------------------------------------
\66\ Mueller, H., & Yannelis, C. (2022). Increasing Enrollment
in Income-Driven Student Loan Repayment Plans: Evidence from the
Navient Field Experiment. The Journal of Finance, 77(1), 367-402.
https://doi.org/10.1111/jofi.13088.
\67\ Ibid.
\68\ Findeisen, S., & Sachs, D. (2016). Education and optimal
dynamic taxation: The role of income-contingent student loans.
Journal of Public Economics, 138, 1-21. https://doi.org/10.1016/j.jpubeco.2016.03.009.
---------------------------------------------------------------------------
The proposed regulations would increase the affordability of
monthly payments on the REPAYE plan by increasing the amount of income
exempt from payments, lowering the share of discretionary income put
toward monthly payments for borrowers, providing for a shorter
repayment period and earlier forgiveness for some borrowers, and
forgiving all monthly unpaid interest to ensure borrowers pay less over
their repayment terms. Each of these items provide benefits in
different ways. Increasing the amount of income protected to 225
percent of the Federal poverty guidelines would provide two major
benefits to borrowers. First, it would result in a larger share of
borrowers having a $0 monthly payment instead of owing relatively small
payments. For instance, using the 2022 Federal poverty guidelines, an
individual borrower with no dependents who makes $30,577 a year would
no longer make a payment, with the same true of a family of four that
earns $62,437 or less. Single individuals without dependents at 225
percent of the poverty line make around $15 an hour, assuming they work
full-time all year. By contrast, under the current REPAYE threshold of
150 percent of the Federal poverty guidelines, borrowers would have to
make a payment once their income exceeds $20,385 for a single
individual and $41,625 for a family of four. Those amounts correspond
to a wage of roughly $10 an hour for the single individual. This change
thus protects relatively low-wage borrowers from having to make a
monthly loan payment.
For borrowers who have incomes above 225 percent of the 2022
Federal poverty guidelines and pay 10 percent of their discretionary
incomes, the higher poverty threshold would provide a maximum
additional savings of $85 a month for a single individual and $173 a
month for a family of four compared to the existing REPAYE plan, by
providing for their payments to be calculated based on a smaller
portion of their incomes. By exempting a larger amount of discretionary
income from loan payments, more IDR borrowers on this plan would be
able to better afford their costs of living. All borrowers with income
above the proposed minimum threshold would receive the same benefit
from this aspect of the policy change. These payment reductions will
provide critical benefits for borrowers who do make enough money to
afford some degree of loan payment each month, but who cannot afford
the payment they would be required to make under other existing IDR
plans.
Table 4--Maximum Monthly Payment Savings at Different Levels of Income Protection, 2022 Federal Poverty
Guidelines (FPL)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Household size Single
Four
----------------------------------------------------------------------------------------------------------------
Payment as percent of discretionary income.......................... 5 10 5 10
150% FPL (Current REPAYE regulations)............................... $85 $170 $173 $347
225% FPL (Proposed REPAYE regulations).............................. 127 255 260 520
Proposed REPAYE minus Current REPAYE................................ 42 85 87 173
----------------------------------------------------------------------------------------------------------------
Note: The 2022 Federal Poverty Guideline is $13,590 for a single household and $27,750 for a house of four.
The Department's proposal would also reduce the percent of
discretionary income that borrowers owe on the REPAYE plan from 10
percent to 5 percent on the share of a borrower's total original loan
principal volume attributable to loans received as a student for an
undergraduate program. A borrower who only borrowed for a graduate
program would pay 10 percent of their discretionary income. So too
would a borrower who had undergraduate loans, fully paid them off, and
then took out graduate loans because they no longer have other
outstanding loans when entering the IDR plan. A borrower with any
outstanding undergraduate loans at the time of entering an IDR plan
with a graduate loan would pay an amount between 5 and 10 percent based
upon the weighted average of the original principal balances of the
loans attributed to the undergraduate and graduate programs. Reducing
the discretionary income share on undergraduate debt would particularly
benefit borrowers who only have outstanding loans from their
undergraduate education, as these
[[Page 1918]]
borrowers are far more likely to struggle with loan repayment than
those who also have graduate loans. As noted in the preamble to these
proposed regulations, Department data show that 90 percent of borrowers
who are in default on their Federal student loans had only borrowed for
their undergraduate education. By contrast, just 1 percent of borrowers
who are in default had loans only for graduate studies. Similarly, 5
percent of borrowers who only have graduate debt are in default on
their loans, compared with 19 percent of those who have debt from
undergraduate programs.\69\ By ensuring the reduction in borrowers'
payment rate is proportional to a borrowers' undergraduate borrowing,
the Department would target assistance to borrowers who are the most
likely to struggle with repayment, ensuring undergraduate borrowers are
able to afford their monthly loan payments while minimizing the
additional costs to taxpayers. The fact that undergraduate loans also
have lower loan limits than graduate loans helps to balance the goal of
providing assistance with ensuring taxpayers do not bear unwarranted
costs.
---------------------------------------------------------------------------
\69\ Department of Education analysis of loan data by academic
level for total borrower population and defaulted borrower
population, conducted in FSA's Enterprise Data Warehouse, with data
as of December 31, 2021.
---------------------------------------------------------------------------
Not charging unpaid monthly interest after applying a borrower's
payment would provide both financial and non-financial benefits for
borrowers. For some borrowers, particularly those who have low income
for the duration of their time in repayment, this interest benefit
results in not charging interest that would otherwise be forgiven after
20 or 25 years of qualifying monthly payments. While these borrowers do
not receive a direct financial benefit in this situation, this policy
provides a non-financial benefit because borrowers will not see their
balances otherwise grow.\70\ Qualitative research and borrower
complaints received by the Department have shown that interest growth
on IDR plans is a significant concern for borrowers.\71\ Research has
similarly shown that interest accumulation may discourage
repayment.\72\ The Department, thus, expects that this benefit may
encourage borrowers to keep repaying.
---------------------------------------------------------------------------
\70\ The Pew Charitable Trusts. Borrowers Discuss the Challenges
of Student Loan Repayment. (2020). https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment.
\71\ Ibid.; FDR Group. Taking Out and Repaying Student Loans: A
Report on Focus Groups with Struggling Student Loan Borrowers.
(2015). https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf. The
Department has also received many comments regarding IDR or student
loan interest during the rulemaking process and through the FSA
Ombudsman's office.https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf; https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf. The
Department has also received many comments regarding IDR or student
loan interest during the rulemaking process and through the FSA
Ombudsman's office.
\72\ Ibid.
---------------------------------------------------------------------------
A recent study found that, among borrowers who were at least 15
days late on their payments, switching to an IDR plan reduced the
likelihood of delinquency by 22 percentage points and decreased
borrowers' outstanding balances over the following 8 months.\73\ It is
reasonable to expect that more generous IDR plans would decrease the
delinquency rate more. Other elements of the proposed regulations would
provide benefits to borrowers by giving them more opportunities to earn
credit toward forgiveness and by providing for a shorter repayment
period before forgiveness for borrowers with smaller original loan
principal balances. By counting certain deferments and forbearances
toward forgiveness and allowing borrowers to maintain their progress
toward forgiveness after they consolidate, borrowers will face fewer
instances in which they inadvertently make choices that either give
them no credit toward forgiveness or reset all progress made to date.
Borrowers who benefit from these changes will receive forgiveness
faster than they would have without these regulations. These changes
would also reduce complexity in seeking IDR forgiveness, which could
help more borrowers successfully navigate repayment and reduce the
likelihood that a borrower is so overwhelmed by the process that they
choose not to pursue IDR. The shorter time to forgiveness would provide
small-dollar borrowers--often the borrowers who did not complete
college and who struggle most to afford their loans and avoid default--
with a greater incentive to enroll in the IDR plan, increasing the
likelihood they avoid delinquency and default.
---------------------------------------------------------------------------
\73\ Herbst, D. The Impact of Income-Driven Repayment on Student
Borrower Outcomes. American Economic Journal: Applied Economics.
https://www.aeaweb.org/articles?id=10.1257/app.20200362.
---------------------------------------------------------------------------
The proposed regulations would clarify borrowers' repayment plan
options and eliminate complexity in the student loan repayment system,
including by phasing out the existing IDR plans to the extent the
current law allows. Student borrowers seeking an IDR plan would only be
able to choose between the IBR Plan established by section 493C of the
HEA and the REPAYE plan. Borrowers already enrolled on the PAYE or ICR
plan would maintain their access to those plans. It is estimated that,
because of the significantly larger benefits available through the
REPAYE plan, most student borrowers would not be worse off by losing
access to PAYE or ICR, especially since these would be borrowers not
currently enrolled in one of those plans and not all borrowers are
eligible for PAYE. The possible exceptions would generally be
circumstances either involving graduate borrowers who would prefer
higher payments in exchange for forgiveness after 20 years or borrowers
who anticipate having payments based upon their income that would be
above what they would pay on the 10-year standard plan. Overall, the
Department thinks the benefits from simplification exceed the potential
higher costs for these borrowers. For the first group, they would still
have access to lower monthly payments than they would under either the
standard 10-year plan or other IDR plans. For the second group, they
would still have lower monthly payments until they reached an amount
equal to what they would owe on the 10-year standard plan. These
efforts to simplify the available IDR plans thus would help ensure
borrowers can easily identify plans that are affordable and appropriate
for their circumstances.
The Department believes that, despite the additional costs to
taxpayers of the proposed REPAYE plan, both borrowers and the
Department would greatly benefit from a plan that helps borrowers avoid
delinquency and default, which are loan statuses that create additional
challenges, costs, and administrative complexities for collection, as
well as carry additional consequences for borrowers. This includes the
possibility of having their wages garnished, their tax refunds or
Social Security seized, and declines in their credit scores.
In sum, borrowers would benefit from a more affordable plan that
limits their loan payments, reduces the amount of time over which they
need to repay, provides more protected income for borrowers to meet
their family's basic needs, and reduces the chances of default. The
Department would benefit from streamlining administration, and
taxpayers would benefit from the lower rates of delinquent/defaulted
loans.
Net Budget Impacts
These proposed regulations are estimated to have a net Federal
budget
[[Page 1919]]
impact in costs over the affected loan cohorts of $137.9 billion,
consisting of a modification of $76.8 billion for loan cohorts through
2022 and estimated costs of $61.1 billion for loan cohorts 2023 to
2032. A cohort reflects all loans originated in a given fiscal year.
Consistent with the requirements of the Credit Reform Act of 1990,
budget cost estimates for the student loan programs reflect the
estimated net present value of all future non-administrative Federal
costs associated with a cohort of loans.
IDR Plan Changes
The changes to the REPAYE plan would offer borrowers a more
generous IDR plan that would have a net budget impact of approximately
$137.9 billion, consisting of a modification of $76.8 billion for
cohorts through 2022 and $61.1 for cohorts 2023-2032. This estimate is
based on the President's Budget for 2023 baseline as modified to
account for the PSLF waiver, the IDR waiver, the payment pause
extension to December 2022, and the August 2022 announcement that the
Department will discharge up to $20,000 in Federal student loans for
borrowers who make under $125,000 as an individual or $250,000 as a
family.
The net budget estimate in this RIA was produced prior to the
announcement of a subsequent extension of the payment pause beyond
December 31, 2022. The effect of this payment pause extension on the
net budget impact will be reflected in the final rule. The net budget
impact also takes into account the regulatory changes in the Notices of
Final Rule for Affordability and Students that published on November 1,
2022, 87 FR 65904 and Final Regulations: Pell Grants for Prison
Education Programs; Determining the Amount of Federal Education
Assistance Funds Received by Institutions of Higher Education (90/10);
Change in Ownership and Change in Control that published on October 28,
2022, 87 FR 65426, that would make changes to several other areas
relating to Federal student loans including interest capitalization,
loan forgiveness programs, loan discharges, and the 90/10 rule.
The proposed regulations would result in costs for taxpayers in the
form of transfers to borrowers, as borrowers enrolled in the REPAYE
plan would generally make lower payments on the new plan as compared to
current IDR plans. Not charging remaining monthly interest after
applying a borrower's payment also increases costs for taxpayers in the
form of transfers, as borrowers may otherwise eventually repay some of
the accumulating interest prior to forgiveness on current IDR plans.
Costs to taxpayers would also increase if the availability of improved
repayment options increases the volume and quantity of loans for future
cohorts of students. The budget estimates assume that there will be no
change in volume or quantity of loans issued due to the improved terms.
Additional borrowing would likely increase costs of the regulations,
but the magnitude of the impact would depend on the characteristics of
those borrowing more and data limitations make it challenging to
anticipate who such borrowers would be. To estimate the effect of the
proposed changes, the Department revised the payment calculations in
the IDR sub-model used for cost estimates for the IDR plans. Changing
the percentage of income applied to a payment is a straightforward
change with a significant effect on the cashflows when compared to the
baseline. The element that is less clear is what decision about plan
choice existing borrowers will make when the revised REPAYE plan is
available in 2023 and beyond. As in the case of the current REPAYE
plan, the new REPAYE plan does not include a standard repayment cap
that limits borrowers' maximum monthly payment. In this case, the
Department has run the payment calculations twice for each borrower--
once under the revised REPAYE option and again under the borrower's
baseline plan--and assumed each borrower chooses the option with the
lowest net present value (NPV) of costs. Table 5 shows the result of
this plan assignment.
Table 5--Plan Assignment for Borrowers Entering Repayment in FY 2024
----------------------------------------------------------------------------------------------------------------
Percent Distribution of Borrowers in Baseline Plan When Revised REPAYE is Available
-----------------------------------------------------------------------------------------------------------------
IBR--15 IBR--10
Baseline plan ICR percent percent Revised REPAYE
----------------------------------------------------------------------------------------------------------------
ICR............................................. 0 .............. .............. 100
IBR--15 percent................................. .............. 20.94 .............. 79.06
IBR--10 percent................................. .............. .............. 8.41 91.59
REPAYE.......................................... .............. .............. .............. 100
---------------------------------------------------------------
Total....................................... 0 1.12 5.3 93.59
----------------------------------------------------------------------------------------------------------------
In categorizing plans, we include the 10-percent and 15-percent IBR
plans with PAYE borrowers included in the IBR-10 percent row, as
borrowers cannot choose PAYE in 2024 or later. Those remaining in 15-
percent IBR represent approximately 5 percent of borrowers who first
borrowed prior to 2008 and entered repayment for the last time in 2024.
This approach assumes borrowers know their income and family
profile trajectories over the life of their loans and choose the plan
that offers the lowest lifetime, present-discounted payments. The
payment comparison for plan assignment assumes borrowers do not
experience any events that disrupt their time to forgiveness or payoff,
such as prepayment, discharge, or default, under either the baseline or
proposed plan revisions. It does take into account the effect of broad-
based forgiveness when doing the comparison. Possible alternatives
include choosing the plan that has the most favorable monthly payments
in 2023 or another near-term year, assuming that a graduate borrower
whose estimated income in a given year or averaged across their
repayment period would result in payment at the standard repayment cap
would remain in their existing plan and setting a minimum amount of
payment reduction that would trigger borrowers to change plans. The
Department recognizes that borrowers may use different logic when
choosing a repayment plan, such as comparing near-term monthly
payments, and will not have information about their future incomes and
family patterns to match this type of analysis, but we believe any
decision logic would result in a high percentage of borrowers in the
new REPAYE plan. By assuming IDR borrowers take the plan with the
lowest long-run cost, this generates a higher-end estimate of the
[[Page 1920]]
net budget impact of the proposed changes for borrowers currently
enrolled in IDR plans, though the IDR overall estimate is potentially
understating total costs. While it is possible that more people may be
willing to take on student loan debt with the safety net of the more
generous IDR plan, we have not estimated the extent to which there
could be increases in loan volumes or Pell Grants from potential new
students. Absent evidence of the magnitude of increase, loan type
distribution, risk group profiles, and future income profiles of these
potential borrowers, whose postsecondary educational decisions likely
involve more than just concern about repayment of debt, the net budget
impact of this potential volume increase is unknown. The impact of
borrowers switching into IDR plans from non-IDR plans is also a
potential factor that we do not estimate here. We have limited
information on these borrowers' income and family profiles in repayment
and already have high rates of IDR participation in our model.
Administrative issues, lack of information, or simply sticking with the
default option may be the reason many of these borrowers are not in an
IDR plan already, but others may have made the choice that a non-IDR
plan is preferable for them. Depending on their anticipated income
profiles or comfort with their existing plan, the potential shift of
these borrowers is very uncertain and, without information on the
income profiles of potential shifters, we are not able to estimate the
potential budget impact of this change. As a result, we are concerned
that building in a sensitivity analysis that includes adjustments for
increased take up could present inaccurate estimates. We will, however,
continue to review this issue during the public comment period to see
if there are any possible additional refinements. Regardless, to the
extent such increases in volume and increases in IDR participation are
observed, they will be reflected in future loan program re-estimates.
With the significant budget impact from these proposed revisions,
the Department seeks to show the effects of the various changes
individually. Table 6 details the scores for the modification cohorts
through 2022 and the outyears through 2032 when the proposed changes
are run with one or more elements kept as in the baseline. This
provides an indication of the impact of the specific proposed changes.
The scores for each component will not sum to the total because of the
significant interaction between elements of the proposed changes. For
example, when the change to 5 percent of income and to 225 percent of
the Federal poverty level are combined, the estimated impact is $127.4
billion compared to $132.3 billion when adding the individual savings
together. These estimates are removing the proposed change from the
estimate of the total package, so a negative value represents a savings
from the total policy estimate. This negative value indicates that the
element has a cost when included, by reducing transfers from borrowers
to the government and taxpayers.
Table 6--IDR Component Estimates
[$ in billions]
----------------------------------------------------------------------------------------------------------------
Income
protection No 5% of No elimination No balance- Other
kept at 150% income payment of interest based early provisions
of FPL accrual forgiveness
----------------------------------------------------------------------------------------------------------------
Modification through cohort 2022 -$37.3 -$29.6 -$5.4 -$1.2 -$3.4
Outlays for cohorts 2023-2032... -36.4 -29.0 -9.6 -2.5 -4.5
-------------------------------------------------------------------------------
Total....................... -73.7 -58.6 -14.9 -3.7 -7.9
----------------------------------------------------------------------------------------------------------------
Note: Savings are relative to the scenario in which the proposed rule is implemented in full, so a negative
number reflects a smaller increase in costs.
As can be seen in Table 6, the increase in the income protection to
225 percent of the Federal poverty guidelines and the percentage of
income on which payments are based are the most significant factors in
the estimated impact of the proposed changes. Borrowers' projected
incomes are another important element for cost estimates for IDR plans,
so we have run two sensitivity analyses that shift borrower incomes.
The Department uses NSLDS income data to adjust the projected incomes
used in its IDR model for accuracy. For the alternate scenarios, we
increase the income adjustment factor by 5 percentage points and
decrease it by 10 percentage points to examine the impact of changes in
income. For example, the income adjustment factor used in the baseline
was .65, so the adjustment factor for the sensitivities are .70 and
.55, respectively. From past sensitivity runs, we know that increasing
and decreasing the incomes by the same factor results in similar
changes in costs, so the different variations here provide a sense of
two different shifts in incomes. When compared to the same baseline, we
estimate that regulations with a 5-point increase in incomes would cost
a total of $97.0 billion and the 10-point decrease would cost $209.4
billion. Recall that our central estimate of the proposed rule's net
budget impact is $137.9 billion above baseline. Incomes are likely the
factor in the IDR model with the greatest effect, but other aspects,
such as projected family size, events such as defaults, or discharges,
also affect the estimates.
We also wanted to consider the distributional effects of the
proposed changes to the extent we have information. One benefit we hope
to see from the regulations is reduced delinquency and default which
should particularly benefit lower-income borrowers, but these potential
benefits are not currently included in the model. The sample of
borrowers used to estimate costs in IDR plans have projected income
profiles of 31 years of AGIs for the borrower or household, depending
on tax filing status. Table 7 summarizes the change in payments between
the President's budget baseline for FY 2023 as modified for waivers,
broad-based debt relief, and recent regulatory packages and the
proposed regulation for a representative cohort of borrowers, those
entering repayment in FY 2024.
[[Page 1921]]
Table 7--Estimated Effects of IDR Proposals by Income Range and Graduate Student Status for Borrowers Entering
Repayment in FY 2024
----------------------------------------------------------------------------------------------------------------
$65,000 to
<$65,000 $100,000 Above $100,000
----------------------------------------------------------------------------------------------------------------
Only Undergraduate Borrowing:
% of Pop.................................................... 25.8% 24.1% 13.2%
% of Debt................................................... 9.9% 12.1% 7.6%
Mean Debt................................................... $27,452 $35,843 $40,722
Mean Payment Reduction...................................... $12,329 $19,807 $16,702
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
$65,000 to
<$65,000 $100,000 Above $100,000
----------------------------------------------------------------------------------------------------------------
Borrowed as Graduate Student:
% of Pop.................................................... 6.6% 12.2% 18.2%
% of Debt................................................... 10.7% 20.4% 39.3%
Mean Debt................................................... $128,467 $124,361 $145,093
Mean Payment Reduction...................................... $16,876 $17,277 $(2,803)
----------------------------------------------------------------------------------------------------------------
Note: Debt is measured as the outstanding balance when the borrower enters repayment, reductions in payments are
measured over the life of the loan, and income is the average income over the potential repayment period for
borrowers entering repayment in FY 2024.
As can be seen, all groups would see significant reductions in
average payments, except those who borrowed as graduate students and
have over $100,000 in average income. There are some limitations to the
savings for the borrowers with earnings at or below $65,000, because a
portion of these borrowers already have a $0 payment under the current
REPAYE plan. Once their payment hits $0 they cannot receive any greater
savings under the new plan. Moreover, borrowers in this category
generally have lower loan balances; thus, the amount of potential
savings is also smaller. Finally, the marginal benefit of a dollar
saved is greater for lower-income borrowers than higher-income
borrowers, suggesting that similar or lower savings in absolute dollar
terms could generate greater value for lower-income groups relative to
high-income groups.
Since graduate student borrowers have higher debt, on average, they
are less likely to benefit from the reduced time to forgiveness based
on a low balance, as shown in Table 8. The high-income, high-debt
graduate students may not benefit from the rate reduction and the
continued absence of the standard payment cap on REPAYE will likely
affect them more. Some may still choose revised REPAYE if their
payments are lower in the beginning and then get higher at the end of
the repayment period. Table 7 does not account for any timing effects,
as such effects are likely to be idiosyncratic and challenging to model
in a systemic manner. Payments on loans attributed to graduate programs
would remain at a 10 percent discretionary income level and these
borrowers have high balances so would not benefit from reduced time to
forgiveness. That means two of the major drivers of reductions in
borrower payments from the proposed regulations--early forgiveness and
the reduction to 5 percent for payments attributed to undergraduate
loans--are less likely to apply to that population. The number of
expected years to forgiveness in Table 8 is based on the borrower's
balance and does not take into account any deferments, forbearances, or
early payoffs.
Table 8--Years to Forgiveness and Distribution of Balances for Borrowers Entering Repayment in FY 2024 Under
Proposed Rule
----------------------------------------------------------------------------------------------------------------
Undergraduate- Any graduate
Expected years to forgiveness only borrowers borrowing Overall
----------------------------------------------------------------------------------------------------------------
10.............................................................. 12.89 0.31 8.05
11.............................................................. 1.35 0.04 0.85
12.............................................................. 1.53 0.05 0.96
13.............................................................. 1.67 0.07 1.05
14.............................................................. 1.9 0.11 1.21
15.............................................................. 2.0 0.1 1.27
16.............................................................. 2.29 0.08 1.44
17.............................................................. 2.21 0.08 1.39
18.............................................................. 2.44 0.1 1.54
19.............................................................. 2.41 0.09 1.52
20.............................................................. 69.32 0.13 42.7
21.............................................................. .............. 0.21 0.08
22.............................................................. .............. 0.1 0.04
23.............................................................. .............. 0.19 0.07
24.............................................................. .............. 0.21 0.08
25.............................................................. .............. 98.13 37.75
----------------------------------------------------------------------------------------------------------------
[[Page 1922]]
Accounting Statement
As required by OMB Circular A-4, we have prepared an accounting
statement showing the classification of the expenditures associated
with the provisions of these regulations. This table provides our best
estimate of the changes in annual monetized transfers as a result of
these proposed regulations. Expenditures are classified as transfers
from the Federal government to affected student loan borrowers.
Table 9--Accounting Statement: Classification of Estimated Expenditures
[In millions]
------------------------------------------------------------------------
Category Benefits
------------------------------------------------------------------------
Improved options for affordable loan Not quantified.
repayment.
Increased college enrollment, Not quantified.
attainment, and degree completion.
Reduced risk of delinquency and Not quantified.
default for borrowers.
Reduced administrative burden for Not quantified.
Department due to reduced default
and collection actions.
------------------------------------------------------------------------
------------------------------------------------------------------------
Costs
Category -------------------------------
7% 3%
------------------------------------------------------------------------
Costs of compliance with paperwork TBD TBD
requirements...........................
Increased administrative costs to $1.1 $1.3
Federal government to updates systems
and contracts to implement the proposed
regulations............................
------------------------------------------------------------------------
------------------------------------------------------------------------
Transfers
Category -------------------------------
7% 3%
------------------------------------------------------------------------
Reduced transfers from IDR borrowers due 16,285 14,832
to increased income protection, lower
income percentage for payment,
potential early forgiveness based on
balance, and other IDR program changes.
------------------------------------------------------------------------
Alternatives Considered
As part of the development of these proposed regulations, the
Department engaged in a negotiated rulemaking process in which we
received comments and proposals from non-Federal negotiators
representing numerous impacted constituencies. These included higher
education institutions, consumer advocates, students, borrowers,
financial aid administrators, accrediting agencies, and State attorneys
general. Non-Federal negotiators submitted a variety of proposals
relating to the issues under discussion. Information about these
proposals is available on our negotiated rulemaking website at https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
The Department considered creating a new repayment plan. However,
we determined that modifying the existing REPAYE plan, rather than
creating a new repayment plan, could reduce concerns of introducing new
complexity, a goal the negotiators primarily shared.
The Department also considered keeping payments set at 10 percent
of discretionary income for 20 years for all undergraduate borrowers
and 25 years for all graduate borrowers, the cost of which is shown in
Table 6 as -$58.6 billion less than the full package that includes the
reduction in payments. However, negotiators largely opposed that
proposal as insufficient to address the needs of some borrowers. The
Department has evaluated the needs of borrowers and determined that the
benefits of providing a more generous repayment plan, which will help
to encourage borrowers to enroll in a single plan and ultimately
contribute to a more streamlined set of repayment options, outweighed
the benefits of retaining the current plan. The Department also
believes that, for many borrowers, 10 percent of discretionary income
may be too high and 20 years may be too long, especially for borrowers
who accrued only small amounts of debt over a short period of time in
postsecondary education. We are concerned these factors may lead
borrowers not to enroll in IDR plans, even when it would make their
payments more affordable and help them to avoid delinquency and
default.
The Department also considered annual cancellation of some debt for
borrowers, a suggestion proposed by several negotiators, but determined
that doing so is not within our statutory authority under the HEA. The
Department felt that its proposal not to charge accrued-but-unpaid
interest, preventing negative amortization, effectively addressed the
substance of the problem while ensuring that borrowers who earn more
after leaving school repay more of their loans.
Regulatory Flexibility Act
The Secretary certifies, under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), that this proposed regulatory action would not
have a significant economic impact on a substantial number of ``small
entities.'' The Small Business Administration (SBA) defines ``small
institution'' using data on revenue, market dominance, tax filing
status, governing body, and population. The majority of entities to
which the Office of Postsecondary Education's (OPE) regulations apply
are postsecondary institutions, however, which do not report such data
to the Department. As a result, for purposes of this NPRM, the
Department proposes to continue defining ``small entities'' by
reference to enrollment, to allow meaningful comparison of regulatory
impact across all types of higher education institutions. The
enrollment standard for a small two-year institution is less than 500
full-time-equivalent (FTE) students and for a small four-year
institution, less than 1,000 FTE students.\74\
---------------------------------------------------------------------------
\74\ In previous regulations, the Department categorized small
businesses based on tax status. Those regulations defined ``non-
profit organizations'' as ``small organizations'' if they were
independently owned and operated and not dominant in their field of
operation, or as ``small entities'' if they were institutions
controlled by governmental entities with populations below 50,000.
Those definitions resulted in the categorization of all private
nonprofit organizations as small and no public institutions as
small. Under the previous definition, proprietary institutions were
considered small if they are independently owned and operated and
not dominant in their field of operation with total annual revenue
below $7,000,000. Using FY 2017 IPEDs finance data for proprietary
institutions, 50 percent of 4-year and 90 percent of 2-year or less
proprietary institutions would be considered small. By contrast, an
enrollment-based definition applies the same metric to all types of
institutions, allowing consistent comparison across all types.
[[Page 1923]]
Table 10--Small Institutions Under Enrollment-Based Definition
----------------------------------------------------------------------------------------------------------------
Level Type Small Total Percent
----------------------------------------------------------------------------------------------------------------
2-year........................ Public.......................... 328 1,182 27.75
2-year........................ Private......................... 182 199 91.46
2-year........................ Proprietary..................... 1,777 1,952 91.03
4-year........................ Public.......................... 56 747 7.50
4-year........................ Private......................... 789 1,602 49.25
4-year........................ Proprietary..................... 249 331 75.23
-----------------------------------------------
Total..................... 3,381 6,013 56.23
----------------------------------------------------------------------------------------------------------------
Source: 2018-19 data reported to the Department.
Table 11 summarizes the number of institutions affected by these
proposed regulations. The Department has determined that there would be
no economic impact on small entities affected by the regulations
because IDR plans are between borrowers and the Department. As seen in
Table 11, the average total revenue at small institutions ranges from
$2.3 million for proprietary institutions to $21.3 million at private
institutions.
Table 11--Total Revenues at Small Institutions
------------------------------------------------------------------------
Average total
revenues for Total revenues
Control small for all small
institutions institutions
------------------------------------------------------------------------
Private........................... 21,288,171 20,670,814,269
Proprietary....................... 2,343,565 4,748,063,617
Public............................ 15,398,329 5,912,958,512
------------------------------------------------------------------------
Note: Based on analysis of IPEDS enrollment and revenue data for 2018-
19.
The IDR proposed regulations will not have a significant impact to
a substantial number of small entities because IDR plans are between
the borrower and the Department. As noted in the Paperwork Reduction
Act section, burden related to the proposed regulations will be
assessed in a separate information collection process and that burden
is expected to involve individuals more than institutions of any size.
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
burden, the Department provides the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public
understands the Department's collection instructions, respondents can
provide the requested data in the desired format, reporting burden
(time and financial resources) is minimized, collection instruments are
clearly understood, and the Department can properly assess the impact
of collection requirements on respondents.
Proposed Sec. 685.209 contains information collection
requirements. Under the PRA, the Department would, at the required
time, submit a copy of these sections and an Information Collections
Request to OMB for its review. PRA approval would be sought via a
separate information collection process. The Department would publish
these information collections in the Federal Register and seek public
comment on those documents. A Federal agency may not conduct or sponsor
a collection of information unless OMB approves the collection under
the PRA and the corresponding information collection instrument
displays a currently valid OMB control number. Notwithstanding any
other provision of law, no person is required to comply with, or is
subject to penalty for failure to comply with, a collection of
information if the collection instrument does not display a currently
valid OMB control number. In the final regulations, we would display
the control numbers assigned by OMB to any information collection
requirements proposed in this NPRM and adopted in the final
regulations.
Section 685.209--Income-Driven Repayment Plans
Requirements: The Department proposes to amend Sec. 685.209 to
include regulations for all of the IDR plans, which are plans with
monthly payments based in whole or in part on income and family size.
These amendments include changes to the PAYE, REPAYE, IBR and ICR
plans. Specifically, Sec. 685.209 would be amended to modify the terms
of the REPAYE plan to reduce monthly payment amounts to 5 percent of
discretionary income for the percent of a borrower's total original
loan volume attributable to loans received as students for an
undergraduate program; under the modified REPAYE plan, increase the
amount of discretionary income exempted from the calculation of
payments to 225 percent; under the modified REPAYE plan, discontinue
the practice of charging unpaid accrued interest each month after
applying a borrower's payment; simplify the alternative repayment plan
that a borrower is placed on if they fail to recertify their income and
allow up to 12 payments on this plan to count toward forgiveness;
reduce the time to forgiveness under the REPAYE plan for borrowers with
low original loan balances; modify the IBR plan regulations to clarify
that borrowers in default are eligible to make payments under the plan;
modify the regulations for all IDR plans to allow for periods under
certain deferments and forbearances to count toward
[[Page 1924]]
forgiveness; modify the regulations applicable to all IDR plans to
allow borrowers an opportunity to make catch-up payments for all other
periods in deferment or forbearance; modify the regulations for all IDR
plans to clarify that a borrower's progress toward forgiveness does not
fully reset when a borrower consolidates loans on which a borrower had
previously made qualifying payments; modify the regulations for all IDR
plans to provide that any borrowers who are at least 75 days delinquent
on their loan payments will be automatically enrolled in the IDR plan
for which the borrower is eligible and that produces the lowest monthly
payments for them; and limit eligibility for the ICR plan to (1)
borrowers who began repaying under the ICR plan before the effective
date of the regulations, and (2) borrowers whose loans include a Direct
Consolidation Loan made on or after July 1, 2006, that repaid a parent
PLUS loan.
Burden Calculation: These changes would require an update to the
current IDR plan request form used by borrowers to sign up for IDR,
complete annual recertification, or have their payment amount
recalculated. The form update would be completed and made available for
comment through a full public clearance package before being made
available for use by the effective date of the regulations. The burden
changes would be assessed to OMB Control Number 1845-0102, Income
Driven Repayment Plan Request for the William D. Ford Federal Direct
Loans and Federal Family Education Loan Programs. Consistent with the
discussions above, Table 12 describes the sections of the proposed
regulations involving information collections, the information being
collected and the collections that the Department will submit to OMB
for approval and public comment under the PRA, and the estimated costs
associated with the information collections.
Table 12--PRA Information Collection
------------------------------------------------------------------------
OMB control Estimated cost
Regulatory section Information number and unless
collection estimated burden otherwise noted
------------------------------------------------------------------------
Sec. 685.209 IDR The proposed 1845-0102 Burden Costs will be
Plans. regulations at will be cleared cleared
Sec. 685.209 at a later date through
would be through a separate
amended to separate information
include information collection for
regulations for collection for the form.
all of the IDR the form..
plans. These
amendments
include changes
to the PAYE,
IBR, and ICR
plans, and
primarily to
the REPAYE
plan..
------------------------------------------------------------------------
We will prepare an Information Collection Request for the
information collection requirements following the finalization of this
NPRM. A notice will be published in the Federal Register at that time
providing a draft version of the form for public review and inviting
public comment. The proposed collection associated with this NPRM is
1845-0102.
Intergovernmental Review
This program is subject to Executive Order 12372 and the
regulations in 34 CFR part 79. One of the objectives of the Executive
Order is to foster an intergovernmental partnership and a strengthened
federalism. The Executive order relies on processes developed by State
and local governments for coordination and review of proposed Federal
financial assistance.
This document provides early notification of our specific plans and
actions for this program.
Assessment of Education Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether these proposed regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Federalism
Executive Order 13132 requires us to ensure meaningful and timely
input by State and local elected officials in the development of
regulatory policies that have federalism implications. ``Federalism
implications'' means substantial direct effects on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. The proposed regulations do not have federalism
implications.
Accessible Format: On request to the program contact person(s)
listed under FOR FURTHER INFORMATION CONTACT, individuals with
disabilities can obtain this document in an accessible format. The
Department will provide the requestor with an accessible format that
may include Rich Text Format (RTF) or text format (txt), a thumb drive,
an MP3 file, braille, large print, audiotape, or compact disc, or other
accessible format.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. You may
access the official edition of the Federal Register and the Code of
Federal Regulations at www.govinfo.gov. At this site you can view this
document, as well as all other documents of this Department published
in the Federal Register, in text or Adobe Portable Document Format
(PDF). To use PDF, you must have Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the Department published in the
Federal Register by using the article search feature at
www.federalregister.gov. Specifically, through the advanced search
feature at this site, you can limit your search to documents published
by the Department. List of Subjects in 34 CFR Part 685.
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Miguel A. Cardona,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend part 685 of title 34 of the Code of Federal Regulations as
follows:
0
1. The authority citation for part 685 continues to read as follows:
Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
0
2. In Sec. 685.102, in paragraph (b) amend the definition of
``satisfactory repayment arrangement'' by revising paragraph (2)(ii) to
read as follows:
Sec. 685.102 Definitions.
* * * * *
(b) * * *
[[Page 1925]]
Satisfactory repayment arrangement:
(2) * * *
(ii) Agreeing to repay the Direct Consolidation Loan under one of
the income-driven repayment plans described in Sec. 685.209.
* * * * *
0
3. Section 685.208 is amended by:
0
a. Revising the section heading.
0
b. Revising paragraphs (a) and (k).
0
c. Removing paragraphs (l) and (m).
The revisions read as follows:
Sec. 685.208 Fixed payment repayment plans.
(a) General. Under a fixed payment repayment plan, the borrower's
required monthly payment amount is determined based on the amount of
the borrower's Direct Loans, the interest rates on the loans, and the
repayment plan's maximum repayment period.
* * * * *
(k) The repayment period for any of the repayment plans described
in this section does not include periods of authorized deferment or
forbearance.
0
4. Section 685.209 is revised to read as follows:
Sec. 685.209 Income-driven repayment plans.
(a) General. Income-driven repayment (IDR) plans are repayment
plans that base the borrower's monthly payment amount on the borrower's
income and family size. The four IDR plans are--
(1) The Revised Pay As You Earn (REPAYE) plan;
(2) The Income-Based Repayment (IBR) plan;
(3) The Pay As You Earn (PAYE) Repayment plan; and
(4) The Income-Contingent Repayment (ICR) plan;
(b) Definitions. The following definitions apply to this section:
Discretionary income means the greater of $0 or the difference
between the borrower's income as determined under paragraph (e)(1)
and--
(i) For the REPAYE plan, 225 percent of the applicable Federal
poverty guideline;
(ii) For the IBR and PAYE plans, 150 percent of the applicable
Federal poverty guideline; and
(iii) For the ICR plan, 100 percent of the applicable Federal
poverty guideline.
Eligible loan, for purposes of determining partial financial
hardship status and for adjusting the monthly payment amount in
accordance with paragraph (g) of this section means--
(i) Any outstanding loan made to a borrower under the Direct Loan
Program, except for a Direct PLUS Loan made to a parent borrower, or a
Direct Consolidation Loan that repaid a Direct PLUS Loan or a Federal
PLUS Loan made to a parent borrower; and
(ii) Any outstanding loan made to a borrower under the FFEL
Program, except for a Federal PLUS Loan made to a parent borrower, or a
Federal Consolidation Loan that repaid a Federal PLUS Loan or a Direct
PLUS Loan made to a parent borrower.
Family size means, for all IDR plans, the number of individuals
that is determined by adding together--
(i) The borrower;
(ii) The borrower's spouse, for a married borrower filing jointly;
(iii) The borrower's children, including unborn children who will
be born during the year the borrower certifies family size, if the
children receive more than half their support from the borrower; and
(iv) Other individuals if, at the time the borrower certifies
family size, the other individuals live with the borrower and receive
more than half their support from the borrower and will continue to
receive this support from the borrower for the year for which the
borrower certifies family size.
Income means either--
(i) The borrower's and, if applicable, the spouse's, Adjusted Gross
Income (AGI) as reported to the Internal Revenue Service; or
(ii) The amount calculated based on alternative documentation of
all forms of taxable income received by the borrower and provided to
the Secretary.
Income-driven repayment plan means a repayment plan in which the
monthly payment amount is primarily determined by the borrower's
income.
Monthly payment or the equivalent means--
(i) A required monthly payment as determined in accordance with
paragraphs (k)(4)(i) through (iii) of this section;
(ii) A month in which a borrower receives a deferment or
forbearance of repayment under one of the deferment or forbearance
conditions listed in paragraphs (k)(4)(iv) of this section; or
(iii) A month in which a borrower makes a payment in accordance
with procedures in paragraph (k)(6) of this section.
New borrower means--
(i) For the purpose of the PAYE plan, an individual who--
(A) Has no outstanding balance on a Direct Loan Program loan or a
FFEL Program loan as of October 1, 2007, or who has no outstanding
balance on such a loan on the date the borrower receives a new loan
after October 1, 2007; and
(B) Receives a disbursement of a Direct Subsidized Loan, Direct
Unsubsidized Loan, a Direct PLUS Loan made to a graduate or
professional student, or a Direct Consolidation Loan on or after
October 1, 2011, except that a borrower is not considered a new
borrower if the Direct Consolidation Loan repaid a loan that would
otherwise make the borrower ineligible under paragraph (1) of this
definition.
(ii) For the purposes of the IBR plan, an individual who has no
outstanding balance on a Direct Loan or Federal Family Education Loan
(FFEL) loan on July 1, 2014, or who has no outstanding balance on such
a loan on the date the borrower obtains a loan after July 1, 2014.
Partial financial hardship means--
(i) For an unmarried borrower or for a married borrower whose
spouse's income and eligible loan debt are excluded for purposes of
determining a payment amount under the IBR or PAYE plans in accordance
with paragraph (e) of this section, a circumstance in which the
Secretary determines that the annual amount the borrower would be
required to pay on the borrower's eligible loans under the 10-year
standard repayment plan is more than what the borrower would pay under
the IBR or PAYE plan as determined in accordance with paragraph (f) of
this section. The Secretary determines the annual amount that would be
due under the 10-year Standard Repayment plan based on the greater of
the balances of the borrower's eligible loans that were outstanding at
the time the borrower entered repayment on the loans or the balances on
those loans that were outstanding at the time the borrower selected the
IBR or PAYE plan.
(ii) For a married borrower whose spouse's income and eligible loan
debt are included for purposes of determining a payment amount under
the IBR or PAYE plan in accordance with paragraph (e) of this section,
the Secretary's determination of partial financial hardship as
described in paragraph (1) of this definition is based on the income
and eligible loan debt of the borrower and the borrower's spouse.
Poverty guideline refers to the income categorized by State and
family size in the Federal poverty guidelines published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2). If a borrower is not a resident of a State identified
in the Federal poverty guidelines, the Federal poverty guideline to be
used for the borrower is the Federal poverty guideline (for the
relevant family size) used for the 48 contiguous States.
Support includes money, gifts, loans, housing, food, clothes, car,
medical and dental care, and payment of college costs.
[[Page 1926]]
(c) Borrower eligibility for IDR plans. (1) Except as provided in
paragraphs (d)(2) of this section, defaulted loans may not be repaid
under an IDR plan.
(2) Any Direct Loan borrower may repay under the REPAYE plan if the
borrower has loans eligible for repayment under the plan;
(3)(i) Except as provided in paragraph (c)(3)(ii) of this section,
any Direct Loan borrower may repay under the IBR plan if the borrower
has loans eligible for repayment under the plan, and has a partial
financial hardship when the borrower initially enters the plan.
(ii) A borrower who has made 120 or more qualifying repayments
under the REPAYE plan on or after July 1, 2023, may not enroll in the
IBR plan.
(4) A borrower may repay under the PAYE plan only if the borrower--
(i) Has loans eligible for repayment under the plan;
(ii) Is a new borrower;
(iii) Has a partial financial hardship when the borrower initially
enters the plan; and
(iv) Began repaying under the PAYE plan before the effective date
of these regulations and wishes to continue repaying under the PAYE
plan. A borrower who is repaying under the PAYE plan and changes to a
different repayment plan in accordance with Sec. 685.210(b) may not
re-enroll in the PAYE plan.
(5)(i) Except as provided in paragraph (c)(4)(ii) of this section,
a borrower may repay under the ICR plan only if the borrower--
(A) Has loans eligible for repayment under the plan; and
(B) Began repaying under the ICR plan before the effective date of
these regulations and wishes to continue repaying under the ICR plan. A
borrower who is repaying under the ICR plan and changes to a different
repayment plan in accordance with Sec. 685.210(b) may not re-enroll in
the ICR plan unless they meet the criteria in paragraph (c)(4)(ii) of
this section.
(ii) Any borrower may choose the ICR plan to repay a Direct
Consolidation Loan made on or after July 1, 2006, that repaid a parent
Direct PLUS Loan or a parent Federal PLUS Loan.
(d) Loans eligible to be repaid under an IDR plan. (1) The
following loans are eligible to be repaid under the REPAYE and PAYE
plans: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS
Loans made to graduate or professional students, and Direct
Consolidation Loans that did not repay a Direct parent PLUS Loan or a
Federal parent PLUS Loan;
(2) The following loans, including defaulted loans, are eligible to
be repaid under the IBR plan: Direct Subsidized Loans, Direct
Unsubsidized Loans, Direct PLUS Loans made to graduate or professional
students, and Direct Consolidation Loans that did not repay a Direct
parent PLUS Loan or a Federal parent PLUS Loan.
(3) The following loans are eligible to be repaid under the ICR
plan: Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS
Loans made to graduate or professional students, and all Direct
Consolidation Loans (including Direct Consolidation Loans that repaid
Direct parent PLUS Loans or Federal parent PLUS Loans), except for
Direct PLUS Consolidation Loans made before July 1, 2006.
(e) Treatment of income and loan debt. (1) Income.
(i) For purposes of calculating the borrower's monthly payment
amount under the REPAYE, IBR, and PAYE plans--
(A) For an unmarried borrower, a married borrower filing a separate
Federal income tax return, or a married borrower filing a joint Federal
tax return who certifies that the borrower is currently separated from
the borrower's spouse or is currently unable to reasonably access the
spouse's income, only the borrower's income is used in the calculation.
(B) For a married borrower filing a joint Federal income tax
return, except as provided in paragraph (e)(1)(i)(A) of this section,
the combined income of the borrower and spouse is used in the
calculation.
(ii) For purposes of calculating the monthly payment amount under
the ICR plan--
(A) For an unmarried borrower, a married borrower filing a separate
Federal income tax return, or a married borrower filing a joint Federal
tax return who certifies that the borrower is currently separated from
the borrower's spouse or is currently unable to reasonably access the
spouse's income, only the borrower's income is used in the calculation.
(B) For married borrowers (regardless of tax filing status) who
elect to repay their Direct Loans jointly under the ICR Plan or (except
as provided in paragraph (e)(1)(ii)(A) of this section) for a married
borrower filing a joint Federal income tax return, the combined income
of the borrower and spouse is used in the calculation.
(2) Loan debt. (i) For the REPAYE, IBR, and PAYE plans, the
spouse's eligible loan debt is included for the purposes of adjusting
the borrower's monthly payment amount as described in paragraph (g) of
this section if the spouse's income is included in the calculation of
the borrower's monthly payment amount in accordance with paragraph
(e)(1) of this section.
(ii) For the ICR plan, the spouse's loans that are eligible for
repayment under the ICR plan in accordance with paragraph (d)(3) of
this section are included in the calculation of the borrower's monthly
payment amount only if the borrower and the borrower's spouse elect to
repay their eligible Direct Loans jointly under the ICR plan.
(f) Monthly payment amounts. (1) For the REPAYE plan, the
borrower's monthly payments are--
(i) $0 for the portion of the borrower's income, as determined
under paragraph (e)(1) of this section, that is less than or equal to
225 percent of the applicable Federal poverty guideline; plus
(ii) 5 percent of the portion of income as determined under
paragraph (e)(1) of this section that is greater than 225 percent of
the applicable poverty guideline, prorated by the percentage that is
the result of dividing the borrower's original total loan balance
attributable to eligible loans received for undergraduate study by the
borrower's original total loan balance attributable to all eligible
loans, divided by 12; plus
(iii) 10 percent of the portion of income as determined under
paragraph (e)(1) of this section that is greater than 225 percent of
the applicable Federal poverty guidelines, prorated by the percentage
that is the result of dividing the borrower's original total loan
balance attributable to eligible loans received for graduate or
professional study by the borrower's original total loan balance
attributable to all eligible loans, divided by 12.
(2) For new borrowers under the IBR plan and for all borrowers on
the PAYE plan, the borrower's monthly payments are the lesser of:
(i) 10 percent of the borrower's discretionary income, divided by
12; or
(ii) What the borrower would have paid on a 10-year standard
repayment plan based on the eligible loan balances and interest rates
on the loans at the time the borrower entered the IBR or PAYE plans.
(3) For those who are not new borrowers under the IBR plan, the
borrower's monthly payments are the lesser of:
(i) 15 percent of the borrower's discretionary income, divided by
12; or
(ii) What the borrower would have paid on a 10-year standard
repayment plan based on the eligible loan balances and interest rates
on the loans at the time the borrower entered the IBR plan.
(4)(i) For the ICR plan, the borrower's monthly payments are the
lesser of:
[[Page 1927]]
(A) What the borrower would have paid under a repayment plan with
fixed monthly payments over a 12-year repayment period, based on the
amount that the borrower owed when the borrower entered the ICR plan,
multiplied by a percentage based on the borrower's income as
established by the Secretary in a Federal Register notice published
annually to account for inflation; or
(B) 20 percent of the borrower's discretionary income, divided by
12.
(ii)(A) Married borrowers may repay their loans jointly under the
ICR plan. The outstanding balances on the loans of each borrower are
added together to determine the borrowers' combined monthly payment
amount under paragraph (f)(4)(i) of this section;
(B) The amount of the payment applied to each borrower's debt is
the proportion of the payments that equals the same proportion as that
borrower's debt to the total outstanding balance, except that the
payment is credited toward outstanding interest on any loan before any
payment is credited toward principal.
(g) Adjustments to monthly payment amounts. Monthly payment amounts
calculated under paragraphs (f)(1) through (3) of this section will be
adjusted in the following circumstances:
(1) In cases where the spouse's loan debt is included in accordance
with paragraph (e)(2)(i) of this section, the borrower's payment is
adjusted by--
(i) Dividing the outstanding principal and interest balance of the
borrower's eligible loans by the couple's combined outstanding
principal and interest balance on eligible loans; and
(ii) Multiplying the borrower's payment amount as calculated in
accordance with paragraphs (f)(1) through (3) of this section by the
percentage determined under paragraph (g)(1)(i) of this section.
(2) In cases where the borrower has outstanding eligible loans made
under the FFEL Program, the borrower's calculated monthly payment
amount, as determined in accordance with paragraphs (f)(1) through (3)
of this section or, if applicable, the borrower's adjusted payment as
determined in accordance with paragraph (g)(1) of this section is
adjusted by--
(i) Dividing the outstanding principal and interest balance of the
borrower's eligible loans that are Direct Loans by the borrower's total
outstanding principal and interest balance on eligible loans; and
(ii) Multiplying the borrower's payment amount as calculated in
accordance with paragraphs (f)(1) through (3) of this section or the
borrower's adjusted payment amount as determined in accordance with
paragraph (g)(1) of this section by the percentage determined under
paragraph (g)(2)(i) of this section.
(h) Interest. If a borrower's calculated monthly payment under an
IDR plan is insufficient to pay the accrued interest on the borrower's
loans, the Secretary charges the remaining accrued interest to the
borrower in accordance with paragraphs (h)(1) through (3) of this
section.
(1) Under the REPAYE plan, during all periods of repayment on all
loans being repaid under the REPAYE plan, the Secretary does not charge
the borrower's account any accrued interest that is not covered by the
borrower's payment;
(2)(i) Under the IBR and PAYE plans, the Secretary does not charge
the borrower's account with an amount equal to the amount of accrued
interest on the borrower's Direct Subsidized Loans and Direct
Subsidized Consolidation Loans that is not covered by the borrower's
payment for the first three consecutive years of repayment under the
plan, except as provided for the IBR and PAYE plans in paragraph
(h)(2)(ii) of this section;
(ii) Under the IBR and PAYE plans, the 3-year period described in
paragraph (h)(2)(i) of this section excludes any period during which
the borrower receives an economic hardship deferment under Sec.
685.204(g); and
(3) Under the ICR plan, the Secretary charges all accrued interest
to the borrower.
(i) Changing repayment plans. A borrower who is repaying under an
IDR plan may change at any time to any other repayment plan for which
the borrower is eligible, except as otherwise provided in Sec.
685.210(b).
(j) Interest capitalization. (1) Under the REPAYE, PAYE, and ICR
plans, the Secretary capitalizes unpaid accrued interest in accordance
with Sec. 685.202(b).
(2) Under the IBR plan, the Secretary capitalizes unpaid accrued
interest--
(i) In accordance with Sec. 685.202(b);
(ii) When a borrower's payment is the amount described in
paragraphs (f)(2)(ii) and (f)(3)(ii) of this section; and
(iii) When a borrower leaves the IBR plan.
(k) Forgiveness timeline. (1) In the case of a borrower repaying
under the REPAYE plan who is repaying at least one loan received for
graduate or professional study, or a Direct Consolidation Loan that
repaid one or more loans received for graduate or professional study, a
borrower repaying under the IBR plan who is not a new borrower, or a
borrower repaying under the ICR plan, the borrower receives forgiveness
of the remaining balance of the borrower's loan after the borrower has
satisfied 300 monthly payments or the equivalent in accordance with
paragraph (k)(4) of this section over a period of at least 25 years;
(2) In the case of a borrower repaying under the REPAYE Plan who is
repaying only loans received for undergraduate study, or a Direct
Consolidation Loan that repaid only loans received for undergraduate
study, a borrower repaying under the IBR plan who is a new borrower, or
a borrower repaying under the PAYE plan, the borrower receives
forgiveness of the remaining balance of the borrower's loans after the
borrower has satisfied 240 monthly payments or the equivalent in
accordance with paragraph (k)(4) of this section over a period of at
least 20 years;
(3) Notwithstanding paragraphs (k)(1) and (k)(2) of this section, a
borrower receives forgiveness if the borrower's total original
principal balance on all loans that are being paid under the REPAYE
plan was less than or equal to $12,000, after the borrower has
satisfied 120 monthly payments, plus an additional 12 monthly payments
or the equivalent over a period of at least 1 year for every $1,000 if
the total original principal balance is above $12,000.
(4) For all IDR plans, a borrower receives a month of credit toward
forgiveness by--
(i) Making a payment under an IDR plan, including a payment of $0,
except that those periods of deferment or forbearance treated as a
payment under (k)(4)(iv) of this section do not apply for forgiveness
under paragraph (k)(3) of this section;
(ii) Making a payment under the 10-year standard repayment plan
under Sec. 685.208(b);
(iii) Making a payment under a repayment plan with payments that
are as least as much as they would have been under the 10-year standard
repayment plan under Sec. 685.208(b), except that no more than 12
payments made under paragraph (l)(10)(iii) of this section may count
toward forgiveness under the REPAYE plan;
(iv) Deferring or forbearing monthly payments under the following
provisions:
(A) A cancer treatment deferment under section 455(f)(3) of the
Act;
(B) A rehabilitation training program deferment under Sec.
685.204(e);
(C) An unemployment deferment under Sec. 685.204(f);
(D) An economic hardship deferment under Sec. 685.204(g), which
includes volunteer service in the Peace Corps as an economic hardship
condition;
[[Page 1928]]
(E) A military service deferment under Sec. 685.204(h);
(F) A post active-duty student deferment under Sec. 685.204(i);
(G) A national service forbearance under Sec. 685.205(a)(4);
(H) A national guard duty forbearance under Sec. 685.205(a)(7);
(I) A Department of Defense Student Loan Repayment forbearance
under Sec. 685.205(a)(9); or
(J) An administrative forbearance under Sec. 685.205(b)(8) or (9).
(v) (A) If a borrower consolidates one or more Direct Loans or FFEL
program loans into a Direct Consolidation Loan, the payments the
borrower made on the Direct Loans or FFEL program loans prior to
consolidating and that met the criteria in paragraph (4) of this
section, or in 34 CFR 682.209(a)(6)(vi) and which were based on a 10-
year repayment period, or 34 CFR 682.215 will count as qualifying
payments on the Direct Consolidation Loan.
(B) For borrowers whose Direct Consolidation Loan repaid loans with
more than one period of qualifying payments, the borrower will receive
credit for the number of months equal to the weighted average of
qualifying payments made rounded up to the nearest whole month.
(vi) Making payments under paragraph (k)(6) of this section.
(5) For the IBR plan only, a payment made pursuant to paragraph
(k)(4)(i) or (k)(4)(ii) of this section on a loan in default or amounts
collected through Administrative Wage Garnishment or Federal Offset
that are equivalent to the amount a borrower would owe under paragraph
(k)(4)(ii) of this section also satisfy a monthly repayment obligation
for the purposes of forgiveness under paragraph (k) of this section.
(6)(i) For any period in which a borrower was in a deferment or
forbearance not listed in paragraph (k)(4)(iv) of this section, the
borrower may obtain credit toward forgiveness as defined in paragraph
(k) of this section for any months in which the borrower makes a
payment equal to or greater than the amount the borrower would have
been required to pay during that period on any IDR plan under this
section, including a payment of $0.
(ii) Upon request, the Secretary informs the borrower of the months
for which the borrower can make payments if the borrower provides any
additional information the Secretary requests to calculate a payment
under an IDR plan under this section.
(l) Application and annual recertification procedures. (1) Unless a
borrower has provided approval for the disclosure of applicable tax
information to enter an IDR plan, a borrower must complete an
application for IDR on a form approved by the Secretary;
(2) As part of the process of completing a Direct Loan Master
Promissory Note or a Direct Consolidation Loan Application and
Promissory Note, the borrower may approve the disclosure of applicable
tax information in accordance with sections 455(e)(8) and 493C(c)(2) of
the Act;
(3) If a borrower does not provide approval for the disclosure of
applicable tax information under sections 455(e)(8) and 493C(c)(2) of
the Act when completing the application for an IDR plan, the borrower
must provide documentation of the borrower's income and family size to
the Secretary;
(4) If the Secretary has received approval for disclosure of
applicable tax information, but cannot obtain the borrower's AGI and
family size from the Internal Revenue Service, the borrower and, if
applicable, the borrower's spouse, must provide documentation of income
and family size to the Secretary;
(5) After the Secretary obtains sufficient information to calculate
the borrower's monthly payment amount, the Secretary calculates the
borrower's payment and establishes the 12-month period during which the
borrower will be obligated to make a payment in that amount;
(6) The Secretary then sends to the borrower a repayment disclosure
that--
(i) Specifies the borrower's calculated monthly payment amount;
(ii) Explains how the payment was calculated;
(iii) Informs the borrower of the terms and conditions of the
borrower's selected repayment plan; and
(iv) Tells the borrower how to contact the Secretary if the
calculated payment amount is not reflective of the borrower's current
income or family size;
(7) If the borrower believes that the payment amount is not
reflective of the borrower's current income or family size, the
borrower may request that the Secretary recalculate the payment amount.
The borrower must also submit alternative documentation of income or
family size not based on tax information to account for circumstances
such as a decrease in income since the borrower last filed a tax
return, the borrower's separation from a spouse with whom the borrower
had previously filed a joint tax return, the birth or impending birth
of a child, or other comparable circumstances;
(8) If the borrower provides alternative documentation under
paragraph (l)(7) of this section or if the Secretary obtains
documentation from the borrower or spouse under paragraph (l)(4) of
this section, the Secretary grants forbearance under Sec.
685.205(b)(9) to provide time for the Secretary to recalculate the
borrower's monthly payment amount based on the documentation obtained
from the borrower or spouse;
(9) Once the borrower has only three monthly payments remaining
under the 12-month period specified in paragraph (l)(5) of this
section, the Secretary follows the procedures in paragraphs (l)(4)
through (l)(8) of this section.
(10) If the Secretary requires information from the borrower under
paragraph (l)(4) of this section to recalculate the borrower's monthly
repayment amount under paragraph (l)(9) of this section, and the
borrower does not provide the necessary documentation to the Secretary
by the time the last payment is due under the 12-month period specified
under paragraph (l)(5) of this section--
(i) For the IBR and PAYE plans, the borrower's monthly payment
amount is the amount determined under paragraph (f)(2)(ii) or
(f)(3)(ii) of this section;
(ii) For the ICR plan, the borrower's monthly payment amount is the
amount the borrower would have paid under a 10-year standard repayment
plan based on the balances and interest on the loans being repaid under
the ICR Plan when the borrower initially entered the ICR Plan; and
(iii) For the REPAYE plan, the Secretary removes the borrower from
the REPAYE plan and places the borrower on an alternative repayment
plan under which the borrower's required monthly payment is the amount
the borrower would have paid on a 10-year standard repayment plan based
on the current loan balances and interest rates on the loans at the
time the borrower was removed from the REPAYE plan.
(11) At any point during the 12-month period specified under
paragraph (l)(5) of this section, the borrower may request that the
Secretary recalculate the borrower's payment earlier than would have
otherwise been the case to account for a change in the borrower's
circumstances, such as loss of income or employment or divorce. In such
cases, the 12-month period specified under paragraph (l)(5) of this
section is reset based on the borrower's new information.
(12) The Secretary tracks a borrower's progress toward eligibility
for forgiveness under paragraph (k) of this section and forgives loans
that meet the criteria under paragraph (k) of this section without the
need for an
[[Page 1929]]
application or documentation from the borrower.
(m) Automatic enrollment in an IDR plan. The Secretary places a
borrower on the IDR plan under this section that results in the lowest
monthly payment based on the borrower's income and family size if--
(1) The borrower is otherwise eligible for the plan;
(2) The borrower has approved the disclosure of tax information
under paragraph (l)(2) or (l)(3) of this section;
(3) The borrower is in repayment and has not made a scheduled
payment on the loan for at least 75 days; and
(4) The Secretary determines that the borrower's payment under the
IDR plan would be lower than the payment on the plan in which the
borrower is enrolled.
0
5. Section 685.210 is revised to read as follows:
Sec. 685.210 Choice of repayment plan.
(a) Initial selection of a repayment plan. (1) Before a Direct Loan
enters into repayment, the Secretary provides the borrower with a
description of the available repayment plans and requests that the
borrower select one. A borrower may select a repayment plan before the
loan enters repayment by notifying the Secretary of the borrower's
selection in writing.
(2) If a borrower does not select a repayment plan, the Secretary
designates the standard repayment plan described in Sec. 685.208(b) or
(c) for the borrower, as applicable.
(3) All Direct Loans obtained by one borrower must be repaid
together under the same repayment plan, except that--
(i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan
that is not eligible for repayment under an income-driven repayment
plan may repay the Direct PLUS Loan or Direct Consolidation Loan
separately from other Direct Loans obtained by the borrower; and
(ii) A borrower of a Direct PLUS Consolidation Loan that entered
repayment before July 1, 2006, may repay the Direct PLUS Consolidation
Loan separately from other Direct Loans obtained by that borrower.
(b) Changing repayment plans. (1) A borrower who has entered
repayment may change to any other repayment plan for which the borrower
is eligible at any time by notifying the Secretary. However, a borrower
who is repaying a defaulted loan under the income-based repayment plan
or who is repaying a Direct Consolidation Loan under an income-driven
repayment plan in accordance with Sec. 685.220(d)(1)(i)(A)(3) may not
change to another repayment plan unless--
(i) The borrower was required to and did make a payment under the
IBR plan or other income-driven repayment plan in each of the prior
three months; or
(ii) The borrower was not required to make payments but made three
reasonable and affordable payments in each of the prior three months;
and
(iii) The borrower makes and the Secretary approves a request to
change plans.
(2)(i) A borrower may not change to a repayment plan that would
cause the borrower to have a remaining repayment period that is less
than zero months, except that an eligible borrower may change to an
income-driven repayment plan under Sec. 685.209 at any time.
(ii) For the purposes of paragraph (b)(2)(i) of this section, the
remaining repayment period is--
(A) For a fixed repayment plan under Sec. 685.208 or an
alternative repayment plan under Sec. 685.221, the maximum repayment
period for the repayment plan the borrower is seeking to enter, less
the period of time since the loan has entered repayment, plus any
periods of deferment and forbearance; and
(B) For an income-driven repayment plan under Sec. 685.209, as
determined under Sec. 685.209(k).
0
6. Section 685.211 is amended by:
0
a. Revising the heading of paragraph (a).
0
b. Revising paragraph (a)(1).
0
c. Revising paragraph (f)(3)(ii).
The revisions read as follows:
Sec. 685.211 Miscellaneous repayment provisions.
(a) Payment application and prepayment. (1)(i) Except as provided
for the Income-Based Repayment plan in paragraph (a)(1)(ii) of this
section, the Secretary applies any payment in the following order:
(A) Accrued charges and collection costs.
(B) Outstanding interest.
(C) Outstanding principal.
(ii) The Secretary applies any payment made under the Income-Based
Repayment plan in the following order:
(A) Accrued interest.
(B) Collection costs.
(C) Late charges.
(D) Loan principal.
* * * * *
(f) * * *
(3) * * *
(ii) Family size as defined in Sec. 685.209; and
* * * * *
0
7. Section 685.219, as proposed to be amended November 1, 2022 at 87 FR
66063, and effective July 1, 2023, is further amended by:
0
a. Revising paragraph (b)(i) of the definition of ``Qualifying
repayment plan''.
0
b. Revising paragraph (c)(2)(iii).
0
c. Revising paragraph (g)(6)(ii).
The revisions read as follows:
Sec. 685.219 Public Service Loan Forgiveness Program (PSLF).
* * * * *
(b) * * *
(Qualifying repayment plan) * * *
(i) An income-driven repayment plan under Sec. 685.209;
* * * * *
(c) * * *
(2) * * *
(iii) For a borrower on an income-driven repayment plan under Sec.
685.209, paying a lump sum or monthly payment amount that is equal to
or greater than the full scheduled amount in advance of the borrower's
scheduled payment due date for a period of months not to exceed the
period from the Secretary's receipt of the payment until the borrower's
next annual repayment plan recertification date under the qualifying
repayment plan in which the borrower is enrolled;
* * * * *
* * * * *
(g) * * *
(6) * * *
(ii) Otherwise qualified for a $0 payment on an income-driven
repayment plans under Sec. 685.209.
Sec. 685.220 [Amended]
0
8. Section 685.220, in paragraph (h), is amended by adding ``Sec.
685.209, and Sec. 685.221,'' after ``Sec. 685.208,''.
0
9. Section 685.221 is revised to read as follows:
Sec. 685.221 Alternative repayment plan.
(a) The Secretary may provide an alternative repayment plan for a
borrower who demonstrates to the Secretary's satisfaction that the
terms and conditions of the repayment plans specified in Sec. Sec.
605.208 and 685.209 are not adequate to accommodate the borrower's
exceptional circumstances.
(b) The Secretary may require a borrower to provide evidence of the
borrower's exceptional circumstances before permitting the borrower to
repay a loan under an alternative repayment plan.
(c) If the Secretary agrees to permit a borrower to repay a loan
under an alternative repayment plan, the Secretary notifies the
borrower in writing of the terms of the plan. After the borrower
receives notification of the terms of the plan, the borrower may accept
the plan or choose another repayment plan.
[[Page 1930]]
(d) A borrower must repay a loan under an alternative repayment
plan within 30 years of the date the loan entered repayment, not
including periods of deferment and forbearance.
0
10. Section 685.222 is amended by revising paragraph (e)(2)(ii) to read
as follows:
Sec. 685.222 Borrower defenses and procedures for loans first
disbursed on or after July 1, 2017, and before July 1, 2020, and
procedures for loans first disbursed prior to July 1, 2017.
* * * * *
(e) * * *
(2) * * *
(ii) Provides the borrower with information about the availability
of the income-driven repayment plans under Sec. 685.209;
* * * * *
0
11. Section 685.403, as proposed to be amended November 1, 2022 at 87
FR 66063, and effective July 1, 2023, is further amended by revising
(d)(1) to read as follows:
Sec. 685.403 Individual process for borrower defense.
* * * * *
(d) * * *
(1) Provides the borrower with information about the availability
of the income-driven repayment plans under Sec. 685.209;
* * * * *
[FR Doc. 2022-28605 Filed 1-10-23; 8:45 am]
BILLING CODE 4000-01-P