Obama Issues Memorandum To Expand Pay As You Earn

By Joan Berkes, Policy and Federal Relations Staff 

President Obama yesterday announced several executive actions related to student borrowing. Primary among them is a planned extension of the Pay As You Earn (PAYE) repayment option to approximately 5 million additional borrowers who first took out loans between 2007 and 2011, and whose dates of borrowing exclude them currently. The PAYE option caps monthly payments at 10 percent of discretionary income, setting monthly payments on a sliding scale based upon income. Any remaining balance is forgiven after 20 years of payments, or 10 years for those in certain public service jobs. The Presidential Memorandum detailing the executive actions directs the Department of Education (ED) to amend current regulations to make the PAYE plan available to these additional borrowers by December 2015. Proposed rules, which would identify specific eligibility criteria, to achieve this goal must be issued within a year.

While specific eligibility requirements will be included in new regulations, the WH fact sheet indicates that PAYE will be expanded to borrowers who are currently ineligible. That includes students who borrowed before October 2007 or who have not borrowed since October 2011.

The Presidential Memorandum also outlines other actions intended to help vulnerable borrowers who may be at greater risk of defaulting on their loans. The Fact Sheet accompanying the President’s speech expands on one of those actions -- improving loan counseling -- and mentions NASFAA by name as a partner in that effort. 

The Memorandum directs the Secretary of Education, working with the Secretary of the Treasury where appropriate, to:

  • Develop, evaluate, and implement new targeted strategies to ensure struggling borrowers have the information needed to select the best repayment option and avoid future default. These efforts are to be geared towards borrowers who have fallen behind on their loan payments, left college without completing their education, missed their first loan payment, and defaulted borrowers.
  • Invite private-sector entities to enter into partnerships to better educate borrowers about income-based repayment plans during the tax filing season in 2015.
  • Develop a pilot project to test the effectiveness of loan counseling resources; convene higher education experts and student-debt researchers to identify ways to evaluate and strengthen loan counseling; collaborate with representative organizations to help borrowers learn more about available repayment options; and provide more comparative, customized resources to borrowers.

According to the Fact Sheet issued by the White House, ED will also, as part of this effort:

  • Renegotiate contracts with federal loan servicers to strengthen financial incentives to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume.
  • Improve the process by which active-duty military can obtain the benefits of the Servicemember Civil Relief Act, reducing interest rates as required by that law automatically without the need for additional paperwork.
  • Improve information for students and families—including ED’s Financial Awareness Counseling Tool—via an ED and Treasury Department pilot project to test the effectiveness of loan counseling resources. "The lessons learned will be considered for future actions by the Department and shared with outside partners like the National Association of Student Financial Aid Administrators to improve loan counseling activities at colleges and universities throughout the country," the administration states. 
  • Educate students, families, financial aid administrators, and tax preparers to ensure that all students and families understand what education tax benefits, such as the American Opportunity Tax Credit (AOTC), they are eligible for and receive the benefits for which they qualify. The Department of Treasury will release a fact sheet clarifying how Pell Grant recipients may claim the AOTC.

Related to these concerns, in his weekly address of June 7, Obama urged the Senate to pass legislation that will allow borrowers to refinance their federal student loans to a lower interest rate. The legislation, called the Bank on Students Emergency Loan Refinancing Act, was introduced by Sen. Elizabeth Warren (D-MA) and is scheduled for an initial vote in the Senate later this week.


Publication Date: 6/10/2014

Erin T | 6/18/2014 10:48:09 AM

Thanks for the question; we have reached out to the Department of Education for clarification, but as PAYE is not available for FFELP loans (unless the borrower has consolidated them into a Direct Consolidation Loan) and the White House Fact Sheet specifically alludes to Direct Loan borrowers, it is our belief that this will continue to be the case. While we expect that the expansion of PAYE will apply only to Direct Loan borrowers, the other proposed executive actions, such as more information about all repayment plans and tax credits being made available through IRS and private tax preparation companies, will be targeted to all borrowers. As we continue to get more details about the intent and implementation of these efforts we’ll share that information through additional articles in Today’s News, so stay tuned!

Theodore M | 6/11/2014 8:36:30 AM

Will this include FFELP?

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