By Karen McCarthy, Policy & Federal Relations staff

A Notice of Proposed Rulemaking posted to the Federal Register yesterday introduces a new income-driven repayment plan and proposes several other regulatory changes, including a new Participation Rate Index challenge and appeals process for cohort default rates. This NPRM is the result of negotiated rulemaking sessions held from February to May 2015. Since the negotiators reached consensus agreement on the entire package of 6 issues, the Department of Education (ED) was obligated to adhere strictly to the regulatory wording agreed upon by all negotiators.

Establishment of New Income-Driven Repayment Plan
ED proposed creating a new income-driven repayment plan, Revised Pay As You Earn (REPAYE), to meet President Obama’s memorandum to extend the current PAYE 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.

You may review the terms of the REPAYE repayment plan in NASFAA’s Summary of Current and Proposed Income-Driven Repayment Plans.

Participation Rate Index Challenges and Appeals
The proposed rules would expand the circumstances under which an institution may challenge or appeal the potential consequences of a draft or official cohort default rate (CDR) based on the institution’s Participation Rate Index (PRI). The rules propose permitting an institution to bring a timely PRI challenge or appeal in any year that the institution’s CDR is less than or equal to 40 percent, but greater than or equal to 30 percent, for any of the three most recently calculated fiscal years.

Application of Department of Defense Lump Sum Payments for Public Service Loan Forgiveness
The proposed regulations would allow lump sum payments made on a borrower’s behalf through the student loan repayment programs administered by the Department of Defense (DOD) to count as multiple qualifying payments, rather than only one payment, for purposes of the Public Service Loan Forgiveness (PSLF) Program. This proposed treatment is the same as existing regulations for lump sum payments made by borrowers using Segal Education Awards after AmeriCorps service or Peace Corps transition payments after Peace Corps service.

Use of Department of Defense Database by FFEL Program Loan Holders
The proposed rules would reduce the burden on active duty servicemembers who may be entitled to an interest rate reduction under the Servicemembers Civil Relief Act (SCRA), by:

• Requiring FFEL Program loan holders to proactively use the Defense Manpower Data Center (DMDC) database maintained by the DOD to begin, extend, or end, as applicable, the SCRA interest rate limit of six percent 
• Permitting a borrower to use a form developed by ED to provide the loan holder with alternative evidence of active duty service to demonstrate eligibility when the borrower believes that the information contained in the DOD database may be inaccurate or incomplete. 

Direct Loan servicers already use the DMDC database to document active duty service.

Transition of Borrowers from Rehabilitation to Servicing
To assist with the transition to loan repayment for a borrower who rehabilitates a defaulted loan, the proposed rules would require a guaranty agency to:

• Provide each borrower with whom it has entered into a loan rehabilitation agreement with information on repayment plans available to the borrower after rehabilitating the defaulted loan
• Explain to the borrower how to select a repayment plan
• Provide financial and economic education materials to borrowers who successfully complete loan rehabilitation. 

Technical Corrections to the FFEL Program Loan Rehabilitation Regulations
To conform with changes made to the Higher Education Act of 1965, as amended (HEA) by the Bipartisan Budget Act of 2013, the proposed rules would amend §682.405 to:

• Cap collection costs following loan rehabilitation at 16%
• Direct loan holders to assign to ED rehabilitated loans that they have been unable to sell to an eligible lender at the end of the 9- or 10-month rehabilitation payment period. 

See NASFAA’s Negotiated Rulemaking webpage for more background on the negotiating team’s deliberations and their path to consensus.

The next step in the regulatory process is public comment on the NPRM, due no later than August 10, 2015. We encourage you to submit your questions, suggestions, and comments (positive or negative) through www.regulations.gov, as directed in the NPRM. Please copy NASFAA ([email protected]) on any comments you submit.

Publication Date: 7/10/2015

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