Earlier this month the U.S. Department of Education published final rules that make changes to income-contingent and income-based repayment plans, establish a new income-driven repayment option, and make substantive changes in the processing of loan forgiveness for borrowers who are totally and permanently disabled.
Pay as You Earn
The newest income-based repayment option limits a borrower’s monthly payment to 10 percent — rather than 15 percent as under the current income-based repayment option — of the difference between the borrower’s adjusted gross income and 1.5 times the applicable poverty level for the borrower. The Pay as You Earn repayment option also reduces to 20 years, from 25 years as under the current income-based and income-contingent repayment plans, the amount of time that the borrower must make payments under the plan before the remaining loan balances are forgiven.
The following are some key highlights:
This newest repayment option will be available only to borrowers whose loans are held under the Federal Direct Loan Program, and then only as follows:
- The borrower must be a new borrower as defined on or after Oct. 1, 2007.
- The borrower also must have received loan disbursements on a Direct Loan on or after Oct. 1, 2011.
- The borrower may not repay under this new plan parent PLUS loans or consolidation loans that include a parent PLUS loan.
Consistent with the existing IBR, if the borrower’s payments for the first three years of the Pay as You Earn plan do not satisfy accruing interest, and the borrower is repaying a subsidized loan, the Department will not charge interest above the amount of the borrower’s payment on that loan.
Borrowers must provide documentation of current income as part of the process of applying for the new repayment plan, and must also provide annual income information to continue in the plan.
Regulations permit the early implementation the Pay as You Earn repayment plan. The Department has committed to publishing guidance as soon as possible, to expedite implementation.
New rules effective July 1, 2013, make some changes in the existing IBR option as well. A borrower who chooses the IBR option for any loan must repay all eligible loans under that plan. The new rules also will provide some latitude in documenting annual income.
New rules effective July 1, 2013, ease the income documentation requirements for borrowers applying for repayment under the ICR option, and clarify certain details of the plan.
Total and permanent disability
Beginning July 2013, all borrowers applying for total and permanent disability discharge under any Title IV loan program — Perkins Loan, Federal Family Education Loan Program or Direct Loans — will apply directly to the Department’s TPD servicer rather than to the school or lender/guarantor.
Borrowers also may apply using certain types of disability determinations from the Social Security Administration. Borrowers whose disability status is confirmed by SSA and who are subject to a status review in five-to-seven years may submit that documentation rather than undergoing the usual TPD loan discharge application under the Title IV loan programs.
Despite the sweeping administrative changes, key aspects of the TPD program remain the same from the borrower’s perspective:
- Borrowers still will be subject to a three-year post-discharge monitoring period.
- An increase in income or receipt of Title IV loan funds or a Teacher Education Assistance for College and Higher Education Grant may result in the reinstatement of the previously discharged loans.
- The Department still may request income documentation from the borrower, and the borrower must comply.
Watch USA Funds®
Higher Education Success News for information about a summary document about the new regulations, to be available soon from the USA Funds website. If you have questions about the new regulations — or any federal student aid issue — contact USA Funds Ask PolicySM using the online form.