ED Advances New Loan Repayment Plan At Second Negotiated Rulemaking Session

By Katy Hopkins, Communications Staff, and Karen McCarthy, Policy & Federal Relations Staff 

Department of Education (ED) officials presented draft proposed regulations to negotiators when they reconvened Tuesday in Washington, D.C. for the second session of negotiated rulemaking on expanding Pay As You Earn (PAYE), among other issues.

Included in the draft regulations is text for a new, supplemental repayment plan for needy Direct Loan student borrowers regardless of when they received their loans, despite numerous arguments from non-federal negotiators last session that the addition would create confusion for borrowers. 

“The decision was to go forward with a new plan and we recognize this adds a level of complexity,” said federal negotiator Gail McLarnon. “The development of this plan, we’re hoping, will serve as the model for the one [income-driven repayment] plan we hope will emerge from the reauthorization of the Higher Education Act, so going forward [after reauthorization] this plan would be the only [income-driven] plan.”

The drafted plan, now dubbed Revised Pay As You Earn (REPAYE), uses PAYE’s framework as a starting point, with many changes added by ED for negotiators to debate. As drafted, REPAYE would charge borrowers with demonstrated partial financial hardship (PFH) a monthly payment based on adjusted gross income (AGI) and family size. Unlike the current PAYE repayment plan (which would continue to exist), it would not have a new borrower requirement or a 10-year standard repayment cap -- two adjustments for which non-federal negotiators voiced support. 

Many negotiators pushed back strongly on the PFH provision, arguing that it limits the program’s reach and creates barriers to entry for borrowers who could benefit from an income-driven plan. But McLarnon said borrowers who cannot prove PFH have other options, including graduated repayment, and stressed the initial intent of a new plan was to reach a certain subset of borrowers.

“The president’s actual proposal was always focused on borrowers that are struggling,” McLarnon said. “I don’t know if that fell out of people’s minds. The plan has always been, from the very get-go, focused on struggling borrowers.” 

Negotiators also opposed new draft changes to loan forgiveness, which allow for forgiveness after 20 years for borrowers whose total outstanding balance was $57,500 or less at the time of initial enrollment in REPAYE, and after 25 years for borrowers whose outstanding balance was more than $57,500. Objections were based on concerns about complexity, fairness, and “cliff effects,” whereby one more dollar of outstanding balance leads to five more years of repayment.

Negotiators also discussed various ideas surrounding more consistent treatment of married borrowers and incentives for borrowers to complete the annual income verification process.

McLarnon said ED will consider the negotiators’ feedback and will have a new draft on REPAYE in time for the next negotiated rulemaking session scheduled for April 28-30. 

Negotiators Tuesday also reviewed draft regulations requiring loan holders to use an existing database to verify servicemembers’ eligibility for lower interest rates on Federal Family Education Loans (FFEL) under the Servicemembers Civil Relief Act (SCRA). Many FFEL loan holders are currently using the database voluntarily, but the draft regulation would mandate  that loan holders check servicemembers’ eligibility for SCRA benefits at least monthly in the Department of Defense’s Manpower Data Center (DMDC) database. The requirement would go into effect on July 1, 2016 and would require loan holders to check servicemembers’ eligibility back to August 14, 2008, the date of enactment for the Higher Education Opportunity Act..

ED added to the agenda three additional issues previously proposed by negotiators: easing the transition period from loan rehabilitation to servicing, participation rate index appeals for cohort default rates (CDRs), and counting lump sum payments from the Department of Defense (DoD) as qualifying payments for loan forgiveness, which negotiators will begin to debate Wednesday. They will also make several technical changes to the regulations to conform to statutory changes on lowering rehabilitation collection fees from 18.5 percent to 16 percent, and a provision regarding the sale of defaulted loans before rehabilitation. 

Although during the first negotiating session ED had tentatively agreed to add an agenda item concerning the required renewal notification provided to borrowers, they ultimately chose not to include it on the negotiating agenda, deferring any regulatory changes in this area until after evaluation of a new Federal Student Aid pilot program experimenting with borrower notifications.

Stay tuned to Today’s News for continued coverage of this second round of negotiated rulemaking.


Publication Date: 4/1/2015

Heather Hall L | 4/1/2015 12:16:57 PM

I just went through applying for income-driven repayment for my loans and my husband's loans. It was a pain in the neck! And now I'm applying for PSLF which is also a pain. I was confused and I work in this industry so I have the benefit of some background knowledge. I also feel like trying to do this jointly with my spouse has been practically impossible. I still don't know how much our total monthly payment will be and won't know until his income-driven application is processed. It's no surprise to me that borrowers do not participate in these programs. I couldn't agree more with David S. Simplify, please!

Brittany P | 4/1/2015 10:18:01 AM

Borrowers are already overwhelmed and adding a fifth income-driven repayment option will not help the situation.
Please simplify rather than adding complexity... there only needs to be one income-driven repayment plan that will be available to all borrowers, regardless of what types of loans they have or when they borrowed.

David S | 4/1/2015 9:29:01 AM

So this proposal of adding yet another layer of complexity to a system universally decried as too complex and too confusing is based on the hope that when Congress reauthorizes the HEA, everything will be simplified. Have our colleagues at ED been observing a different Congress than the rest of us have been observing?

1. Standard payment, equal monthly payments until loan is paid off in 10 years. 2. Income-based repayment, available to everyone who wants it. 3. Keep PSLF. Case closed.

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