On the first day of negotiated rulemaking, committee members began to discuss two proposed agenda items from the Department of Education (ED) and suggested more than a dozen additional topics for inclusion on the agenda.
As set forth by ED, over the next three months, negotiators will debate:
ED has proposed creating a new income-driven repayment plan, PAYE2, to meet President Obama’s memorandum request to extend the repayment option to an additional 5 million borrowers by December 2015. ED would continue to offer existing repayment plans, including the original Income-Contingent Repayment (ICR) plan, the current PAYE plan, and the Income-Based Repayment (IBR) plan.
PAYE2 is intended to patch up an eligibility gap for a cohort of borrowers who currently do not qualify for PAYE based on when they took out their loans. Though ED supports an eventual move to a single income-based repayment plan, that would require Congressional action, ED representative Gail McLarnon said. Adding PAYE2 would allow ED to open the flexible repayment option to more borrowers in the interim, she added.
Many negotiators expressed concern at adding another repayment plan to federal student loan borrowers’ current menu of options, stressing the need for simplicity. Since PAYE is regulatory in nature, NASFAA member Rachelle Feldman urged ED to consider whether they should instead simply alter the regulatory structure of the current PAYE plan, rather than retaining the current PAYE and then adding a new PAYE2 plan. NASFAA member Scott Cline suggested finding another name for PAYE2, if enacted, to avoid additional confusion for borrowers.
Depending on the negotiations, PAYE2, if enacted, could differ in structure from PAYE, as negotiators debate how to particularly target it to “the neediest borrowers,” as directed in the presidential memorandum, among other topics.
Changes negotiators are considering include whether PAYE’s partial financial hardship (PFH) eligibility criterion should be modified or eliminated, whether capitalized unpaid interest should be limited or nonexistent, and whether total payments should be capped at what a borrower would pay under a 10-year standard plan, as exists for PAYE borrowers.
Under SCRA, servicemembers who borrowed a Direct or FFEL loan before entering active duty status are entitled to interest rates no higher than six percent while those borrowers remain in active duty. Originally, servicemembers had to submit written requests and copies of their military orders to obtain those lower rates.
ED has since simplified the process for Direct and FFEL loans held by ED by using the DMDC, through which loan holders can verify servicemembers’ information and are able to apply SCRA benefits for eligible borrowers without written requests from them. ED also authorized and encouraged FFEL program lenders and servicers to utilize the DMDC.
“We’re using what we believe to be good data and streamlining a process for both the Department and the borrower,” McLarnon said. “It seems like a win-win to us.”
ED is unsure, however, of what regulatory path to take to further use of the database by FFEL lenders and servicers, McLarnon said. Negotiators will debate whether lenders and servicers should be required to periodically check the DMDC for eligible borrowers or if borrowers should be able to request their servicers verify their information in the database, rather than submitted their written requests and military orders.
Negotiators proposed 14 additional agenda items for negotiation. ED is considering the suggested topics for inclusion in the final negotiated rulemaking agenda, which it will release as early as Wednesday morning. Check back in with Today’s News tomorrow for an updated list of topics negotiators will tackle in the coming months. For more on this negotiated rulemaking, be sure to check out prior coverage.
Publication Date: 2/25/2015