REPAYE Neg-Reg Achieves Consensus

The federal regulatory negotiating panel assigned to review President Obama’s new income-driven repayment plan, referred to as REPAYE (Revised “Pay As You Earn”), came to a last-minute compromise on the loan-forgiveness proposal of the repayment plan that allowed the team to reach an agreement on proposed regulations.

During prior sessions, the Department of Education proposed a dramatic cliff in which students who borrow $57,500 or less would qualify for loan forgiveness after 20 years of repayment, while those who borrowed more than $57,500 would have to repay for 25 years before qualifying for forgiveness. (See April 9, 2015 Washington Update.) The compromise provides that loan forgiveness after 20 years for borrowers with only undergraduate loans, and after 25 years for borrowers with any graduate loans.

REPAYE was proposed by President Obama to expand the benefits of existing income-based student loan repayment options. It is open to all direct loan borrowers, who repay no more than 10 percent of their monthly discretionary income, adjusted annually. At the onset of the negotiations in February, many of the negotiators, which included representatives of student groups, consumer advocates, higher education associations, and servicers, were concerned about having yet another income-driven repayment plan. However, in the end, they felt their modifications expanded benefits and was easy to explain to borrowers. The consensus tightened repayment for married borrowers who file their taxes separately. Now both incomes will be considered in determining discretionary income.

The negotiators also reached agreement on several other issues, including modifications to the Servicemembers Civil Relief Act (SCRA) to ensure eligible servicemembers are aware of their benefits and receive the maximum for which they were eligible. The proposed regulations would also make cohort default rate appeals easier for schools with small numbers of borrowers, particularly community colleges.

The Department plans to publish a Notice of Proposed Rule-making in early July, and finalize the rule by November 1, 2015. Implementation may be as early as December.