Income-Based Repayment Expansion Advances

Carrying out Obama directive to boost income-based repayment, Education Department panel endorses plan that will be available to all direct loan borrowers, regardless of when they incurred the debt. 

May 1, 2015

WASHINGTON -- A federal rule-making panel on Thursday approved a proposal that would allow many existing federal student loan borrowers to lower their monthly payments and qualify for loan forgiveness sooner.

Negotiators on the U.S. Department of Education’s rule-making committee reached consensus on a proposal to create a new income-based repayment program that is available to all federal direct loan borrowers regardless of when they took out their loans.

The new plan would largely mirror the terms of the government’s existing income-based repayment with the most generous benefits. It would allow borrowers to cap monthly payments at 10 percent of their discretionary income and have any remaining debt forgiven after 20 or 25 years.

The proposal, dubbed Revised Pay as You Earn, or REPAYE, carries out President Obama’s June 2014 directive for the Education Department to administratively expand the income-based repayment option available to some 5 million existing borrowers. The Obama administration has estimated that the expansion, which it previously asked Congress to make, will cost more than $9 billion.

Unlike the existing Pay as You Earn program -- which is available only to borrowers who first took out loans after September 2007, borrowed at least once more after September 2011 and can demonstrate a “financial hardship” -- the new REPAYE plan would be available to all federal direct loan borrowers.

Although it would not alter any existing program, the new repayment plan would include some new limitations to the benefits available to borrowers. Such limitations have been embraced in recent years by the Obama administration, congressional Republicans and policy organizations.

They respond to concerns that the Pay as You Earn program is a windfall for some students at expensive professional schools and encourages those graduate programs to raise tuition.

The department on Thursday backed away from its initial proposal requiring borrowers under the new plan that have more than $57,500 in loans to make payments for 25 years before qualifying for debt forgiveness instead of 20 years. Some consumer advocates said that such a plan would, among other things, create an unfair “cliff” under which borrowers with very similar debt loads end up paying drastically different amounts.

Instead, the panel agreed to set the loan forgiveness window based on the type of loan. Borrowers with only undergraduate student loans would qualify for loan forgiveness after 20 years. A borrower whose debt includes any graduate or professional school loans, however, would have to pay for 25 years before qualifying.

In addition, unlike the current income-based repayment programs, married borrowers who file taxes separately from their spouse would have their monthly payment amount calculated based on the couple’s combined income, rather than that of just the borrower.

The department plans to formally propose the new repayment program and seek public comment on the plan in “early July,” Brian Siegel, a department lawyer, told the rule-making panel Thursday. Officials will then finalize the rule by Nov. 1, he said.

The department will expedite the implementation of the new repayment program so that borrowers can apply starting in December.

Easier Default Rate Appeals for Community Colleges

The package of regulations advanced Thursday also included a proposal making it easier for colleges with high loan default rates but few students taking out loans to avoid losing federal funding.

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


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