The U.S. Department of Education Notice of Proposed Rulemaking The NPRM proposes a new income-driven repayment plan that cuts some federal student loan monthly payments in half.
The US Department of Education estimates that the new REPAYE plan will cost $137.9 billion over 10 years, assuming that about one-third of borrowers choose the new REPAYE plan. President Biden just announced that this new repayment plan will be called SAVE (Savings for a Valuable Education).
Here’s what you need to know about the new REPAYE Student Loan Repayment Plan, including potential lower student loan payments and increased opportunities for loan forgiveness.
Public Comments on Proposed Rules
public comment Must be received by February 10, 2023. As of February 1, 2023, we have received over 8,000 comments. However, most of these comments are not substantive comments. It does not provide new information, offer reasonable alternatives to the proposed rules, or identify or correct errors in assumptions or analyses. Public comments are not votes for or against the proposed rule. Public comments stating that the commenter agrees or disagrees with the proposed rule will be ignored.
The U.S. Department of Education will respond to substantive comments in the preamble to the final rule for publication in the Federal Register.
If the final rules are published by November 1st, the new rules will take effect the following July 1st. In some circumstances, the U.S. Department of Education may implement new rules sooner.
Changes to existing income-driven repayment plans
The income-based repayment plan has three main purposes.
- Provide a safety net for borrowers
- Offer affordable payments based on income, not debt
- Integration with Public Service Loan Forgiveness
The changes proposed by the Biden administration are primarily focused on making student loan payments more affordable.
The new income-driven repayment plan will be introduced as a change to the Revised Pay as You Earn Repayment Plan (REPAYE) rather than creating an entirely new repayment plan.
Borrowers who have already made a REPAYE will be able to benefit from the REPAYE changes as soon as they become effective. Borrowers on other repayment plans can choose to switch to the “new” REPAYE.
This change also simplifies setting up repayment plans. Phase out enrollment in existing income-based repayment plans.
Specifically, the new regulation will extend Pay-As-You-Earn Repayment (PAYE) and Income-Contingent Repayment (ICR) eligibility to borrowers who were in PAE and ICR on the effective date of the new regulation, except for Parent PLUS loans. limit to borrowers. Borrowers of Parent PLUS loans are not covered by the new REPAYE plan, but federal direct consolidation loans repaying Parent PLUS loans will continue to be covered by the ICR.
New regulations cannot eliminate income-based repayment (IBR) because IBR is enshrined in law. A REPAYE borrower may choose to switch to IBR only until he has made 120 payments under the REPAYE. This primarily affects graduate students, who may choose to switch to IBR due to the shorter 20-year repayment period instead of the 25-year repayment period available to graduate students on REPAYE.
REDUCED STUDENT LOAN PAYMENTS UNDER THE NEW REPAYE PLAN
The new REPAYE plan reduces monthly student loan payments by changing the percentage of disposable income, changing the definition of disposable income, and changing the repayment period.
- Percentage of discretionary income. For undergraduate loans, the percentage of discretionary income will be reduced to 5%. It remains 10% for alumni loans, but combines them using a weighted average based on the original loan balance of outstanding loans.
- Definition of discretionary income. The definition of discretionary income is adjusted gross income (AGI) minus 225% of the poverty line instead of 150% of the poverty line.
- repayment period. The remaining debt will be forgiven after payment of 20 years (240 payments) for undergraduate debt and 25 years (300 payments) for postgraduate debt. Shorter repayment terms and early forgiveness are available for borrowers with lower original loan balances.
- loan forgiveness. If the original loan balance is $12,000 or a loss, the remaining debt will be forgiven after 10 years. If the original loan balance exceeds $12,000, plus he gets one year added for every $1,000 he makes. Annual use is intended to prevent cliff effects. If the student takes out more student loans later, the time to forgiveness will be adjusted. Up to $22,000 for undergraduate debt and $27,000 for graduate student debt are eligible for the reduced repayment period. Note that the maximum amount a dependent student can borrow for her first two years of undergraduate education, such as a community college, is her $12,000.
Compared to the old REPAYE plan, the monthly payment will be lower and progress towards full debt repayment will be slower, which may result in longer repayment terms for some borrowers.
estimated to be greater than or equal to Two-thirds (69%) of undergraduate borrowers reach the 20-year waiver period points or more 98% of graduate students reach a grace period of 25 years Points based on the new REPAYE plan.
Under the new REPAYE plan, you will no longer be charged any unpaid interest after you apply the borrower’s payment. Therefore, when the borrower makes the required payment, the loan balance will not increase even if the payment is less than the newly accrued interest. This will eliminate a significant source of stress for borrowers who have historically been negatively charged.
If a married borrower files a federal income tax return as a “spousal filing,” only that borrower’s income counts toward loan payments under REPAYE. The borrower’s spouse is excluded from the household size in calculating the poverty line.
Count More Payments Towards Forgiveness
Borrower consolidating loans no longer resets progress toward student loan forgiveness. Pre-consolidation payments are eligible for forgiveness based on a weighted average of loan balances for loans with and without qualifying payments.
In addition, more grace periods and grace periods count towards forgiveness. This includes cancer deferrals, rehabilitation training program deferrals, unemployment deferrals, economic hardship deferrals (including Peace Corps), military service deferrals, national service deferrals, National Guard duty deferrals, and Department of Defense student loans. Includes repayment program graces, and certain administrative graces.
New options for delinquency and default
If a borrower is 75 days past due on a federal student loan, they are automatically enrolled in an income-based repayment plan with minimum monthly payments. However, registration is not actually automatic, as the borrower must agree to disclose their income information in order to be able to calculate their monthly loan payments.
Borrowers who are behind on their federal student loans can make payments under their IBR and have them counted for forgiveness.