ED to Publish Proposed Rule on Income-Driven Repayment, Previews Gainful Employment Changes

By Hugh T. Ferguson, NASFAA Managing Editor

The Department of Education (ED) on Tuesday unveiled a forthcoming Notice of Proposed Rulemaking (NPRM) for an overhaul of income-driven repayment (IDR), with top department officials detailing additional accountability efforts being rolled out as a part of its regulatory agenda.

According to officials, the IDR regulations would focus on making repayment options more affordable for student loan borrowers.

“These proposed regulations will cut monthly payments for undergraduate borrowers in half and create faster pathways to forgiveness, so borrowers can better manage repayment, avoid delinquency and default, and focus on building brighter futures for themselves and their families," Cardona said.

Cardona also committed that Tuesday’s announcement would serve as a new promise to borrowers.

“Today we are making a new promise to today’s borrowers, and generations to come. Student loan payments will be affordable,” Cardona said. “You won't be saddled with a lifetime of debt.”

During the 2021-22 Affordability and Student Loans negotiated rulemaking sessions, consensus was not reached on the IDR issue paper, enabling ED to write these regulations as it deems fit, although ED typically does not make substantive changes to areas where the group was largely in agreement even if ultimate consensus was not reached.

Tuesday’s IDR proposed rules would amend the terms of the Revised Pay As You Earn (REPAYE) plan to offer $0 monthly payments for any individual borrower who makes less than roughly $30,600 annually, about the annual earnings of someone working for $15 per hour, and any borrower in a family of four who makes less than about $62,400.

Per ED, under this new plan borrowers would only be required to pay 5% of their discretionary income (calculated as income above 225% of the federal poverty guideline) on their undergraduate loans, which is half the rate on the most generous existing IDR plans, including the current REPAYE plan.

The changes, according to ED officials, would result in borrowers who do not have a $0 payment seeing their monthly payments cut in half for their undergraduate loans.

Borrowers who only have loans from graduate school would still pay 10% while borrowers who have loans for both types of programs would pay a weighted average between 5% and 10%, which would be calculated from the share of their original loan balances borrowed for undergraduate versus graduate study.

The proposed regulations would also prevent borrowers’ balances from growing due to the accumulation of unpaid interest after making their monthly payments.

In addition to the IDR announcement, ED also updated stakeholders on its gainful employment work, which has been delayed, that will seek to set up parameters to cut off federal aid from underperforming institutions.

The department is currently working on a proposed gainful employment regulation, which under master calendar rules would be effective no earlier than July 1, 2024, and is planning to publish a list of schools that fail to “provide sufficient financial value and require warnings for borrowers who attend any program that leaves graduates with excessive debts are leaving their students worse off.”

On Tuesday, ED published a draft request for information to seek formal public feedback on the best way to identify the programs that provide the least financial value for students and would thus be included on the department’s list.

As a part of the process, ED plans to allow institutions to submit an improvement plan in response to the findings. Proposed rules will also require institutions to warn students, who must acknowledge receipt of the warning, before they receive financial aid to attend a designated low-financial-value program. The warning requirement would apply to all low-financial-value programs, whether subject to gainful employment rules or not.

According to ED, the department is seeking to have its gainful employment regulations rule finalized “later this year.”

“If we are going to invest in affordability, we also need greater accountability for colleges that leave students with unaffordable debt,” said Under Secretary James Kvaal. “It’s time to name names about these programs and have a frank conversation about the root causes of unaffordable student debt.”

Both the NPRM and the request for information will have a 30-day comment period and are slated to be officially published in the Federal Register on January 11. Comments can be submitted through regulations.gov and/or to [email protected].

Stay tuned to Today’s News for a follow-up deep dive article on these topics.


Publication Date: 1/10/2023

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