NASFAA Analysis: ED Issues Draft Income-Driven Repayment Regulations
By Jill Desjean, Senior Policy Analyst
The Department of Education (ED) on Wednesday released draft income-driven repayment (IDR) regulations, the final remaining topic from its fall 2021 Affordability and Student Loans negotiated rulemaking committee. Other topics covered by the committee were released as final rules last fall, including loan discharges, borrower defense to repayment, interest capitalization, Public Service Loan Forgiveness (PSLF), and prison education programs.
While some aspects of a new IDR plan were shared earlier in 2021, Wednesday's Federal Register notice is ED's first official draft of regulatory language since negotiations concluded. Following a 30-day public comment period, ED will release final regulations which, if issued prior to Nov. 1, 2023, would become effective July 1, 2024, unless authorized for early implementation.
The new IDR plan seeks to remedy several issues identified by the Biden administration, including recognition that even reduced monthly payments under current IDR plans remain unaffordable for many borrowers and concerns that 20 years is too long for borrowers with low incomes and low loan balances to wait for forgiveness under current IDR plans.
The draft rule incorporates several reforms proposed by NASFAA, including increasing the amount of income protected as nondiscretionary from the monthly IDR payment calculation, reducing the percentage of discretionary income expected to go toward student loan payments, eliminating negative amortization, and allowing pre-consolidation payments to count as payments toward forgiveness. By sunsetting existing IDR plans, it also moves closer toward reducing the total number of repayment plans in the interest of reducing complexity for borrowers navigating repayment.
Changes From Negotiated Rulemaking Proposal
Negotiations failed to reach consensus on the proposed new IDR plan in 2021, in large part due to several negotiators' objections that ED's plan was not generous enough for struggling borrowers.
ED's draft regulations released Wednesday make several notable changes from the proposals introduced during negotiations. For instance, ED extends the elimination of negative amortization to all borrowers enrolled in the modified REPAYE plan, versus only those with $0 calculated monthly payments. It also raises the amount of protected income from 200% to 225%, provides forgiveness for low-balance borrowers at 10 years, and cuts monthly payments to 5% of discretionary income for undergraduate borrowers. ED also abandoned plans to create a fifth IDR plan, Expanded Income Contingent Repayment (EICR), and elected instead to modify the existing REPAYE plan, citing a desire to reduce complexity for borrowers.
Modified REPAYE Plan Details
ED plans to phase out new enrollment in the Pay As You Earn (PAYE) and income-contingent repayment (ICR) plans and limit borrowers' ability to switch into the Income-Based Repayment (IBR) plan, but stresses in the draft rule that no borrower would be required to switch to a different repayment plan.
Borrowers already enrolled in PAYE or ICR prior to the regulations' effective date could remain in their existing plan, and borrowers could continue to access ICR to repay a consolidation loan that repaid parent PLUS loans.
Borrowers enrolling in the modified REPAYE plan will have 225% of their income excluded in the determination of discretionary income. Borrowers with only undergraduate loans will see monthly payments equal to 5% of their discretionary income. Borrowers with only graduate debt will have monthly payments equal to 10% of their discretionary income, with the percent of discretionary income to be paid monthly by borrowers with a combination of undergraduate and graduate to be based on a weighted average of their undergraduate and graduate debt.
ED eliminates negative amortization for months in which the modified REPAYE payment amount does not cover accrued interest.
Borrowers whose original principal balances were $12,000 or less will qualify for forgiveness after 10 years and each additional $1,000 of borrowing will add an additional year until forgiveness, up to a maximum of 20 years for undergraduate borrowers and 25 years for graduate borrowers.
Changes Applicable to All IDR Plans
In addition to modifying the REPAYE plan, ED makes several technical changes in the proposed regulations to reorganize payment plans such that fixed payment plans are grouped in one place and “income-driven repayment plans ”— to be defined in regulations for the first time — in another.
Plans categorized under the new income-driven repayment plan definition (ICR, IBR, PAYE, REPAYE, Modified REPAYE) will all now permit payments made prior to consolidation to count toward forgiveness.
Certain periods of deferment and forbearance will now receive credit toward forgiveness for all income-driven repayment plans as well. Those include:
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Economic Hardship Deferment, including for Peace Corps,
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Cancer treatment deferment,
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Military service deferment,
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Post-active duty deferment,
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National service forbearance,
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National Guard forbearance,
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Department of Defense student loan repayment forbearance,
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Rehabilitation Training deferment,
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Unemployment deferment; and
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Administrative forbearances granted outside of the borrower's control such as when ED or a servicer puts loans into forbearance while processing paperwork.
These changes build upon one-time account adjustments ED announced in April 2022.
Borrowers who used deferments or forbearances not included in the above list could still opt to make payments and get credit toward forgiveness for the months spent in deferment or forbearance and have those payments count toward forgiveness.
ED would now automatically enroll borrowers in IDR plans who are more than 75 days delinquent in repayment into the IDR plan with the lowest monthly payment if ED already has authorization to obtain the borrower's income from the IRS in accordance with the FUTURE Act.
Finally, the proposed rule would permit borrowers in default to enroll in the IBR plan and have those payments count toward forgiveness.
IDR Plan Comparisons
| ICR | IBR | PAYE | REPAYE | Modified REPAYE | |
| % of Discretionary Income Used to Calculate Monthly Payment | Lesser of 20%, or amount borrower would pay on 12-year fixed plan | 10% | 10% | 10% |
5% for undergraduate debt; 10% for graduate debt; Weighted average if portfolio includes undergraduate and graduate debt |
| Discretionary Income Exclusion Percent of Federal Poverty Guideline | 100% | 150% | 150% | 150% | 225% |
| Negative Amortization Allowed? | Yes | Yes with limited subsidy | Yes with limited subsidy | Yes with limited subsidy | No |
| Time to Forgiveness | 25 Years | 20-25 Years | 20 Years | 20-25 Years | 10-25 years based on balance and credential level borrowed for |
Comments are due Feb. 10, 2023. Stay tuned to Today’s News for NASFAA’s comments, final rules once issued, and more.
Publication Date: 1/12/2023
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