The College Cost Reduction and Access Act (CCRAA) (P.L. 110-84), signed into law on Sept. 27, made a number of key changes to the student aid programs. The law created an income-based repayment program. This article offers an overview of key elements of that program, as outlined in the new statute.
The statute authorizes the Secretary to create a new income-based repayment (IBR) program available to both FFEL and Direct Loan borrowers on all Stafford and graduate PLUS loans. Parent PLUS loans and consolidations loans that contain parent PLUS loans are ineligible for IBR.
The IBR program is similar to the current income contingent repayment (ICR) program but has several notable differences that make it more generous. These differences are highlighted below.
Discretionary Income Differences
The new IBR program defines discretionary income differently than the ICR program by expanding the percentage of non-discretionary income. IBR limits loan payments to 15 percent of the borrower's (and spouse's, if applicable) adjusted gross income that exceeds 150 percent of the poverty line applicable to the borrower's family size. ICR defines non-discretionary income as anything above 100 percent of the poverty line and then limits loan payments to 20 percent of discretionary income. The IBR program allows borrowers to make more money and pay a smaller portion of their discretionary income than ICR.
The Secretary is also required by the new law to establish procedures to determine borrowers' eligibility for the program on an annual basis. While not required by the law, the Secretary may use the same procedures under income sensitive repayment schedules that require verification of borrowers adjusted gross income on an annual basis.
Interest and Capitalization
Under IBR, a borrower's payments are first applied to interest due, then to any loan fees due, and finally toward the principal. The Secretary will pay any remaining interest on subsidized loans for up to 3 years. Interest is capitalized when the borrower stops participating in IBR or no longer has a partial financial hardship (when their loan payments no longer exceed 15 percent of their adjusted gross income beyond 150 percent of the poverty rate.
Under ICR, if the amount of the borrower's monthly payment is less than the accrued interest, the unpaid interest is capitalized until the outstanding principal amount is 10 percent greater than the original principal amount (i.e., the amount owed by the borrower when entering repayment). After the outstanding principal amount is 10 percent greater than the original amount, interest continues to accrue without capitalization.
Forgiveness
Under IBR - as with the ICR - the Secretary forgives any outstanding loan balance after 25 years of repayment. Borrowers in eligible public service jobs may have a portion of their loans forgiven through the new Public Service Loan Forgiveness program after 10 years.
Effective Dates
P.L 110-84 lists two effective dates for the provisions in this section. The authority for the Secretary to carry out the program for the borrowers in partial hardship (as described below) and the program provisions, including definitions, operational details, and eligibility determinations are effective July 1, 2009.
Certain conforming amendments related to the implementation of both the public service forgiveness program and the income-based repayment provisions for FFEL and Direct Loan consolidation borrowers are effective on July 1, 2008.
By Marty Guthrie, NASFAA Director of Governmental Affairs and Justin Draeger, NASFAA Assistant Director for Communications
Posted 10/22/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
