Our Comment on PAYE Proposed Regulations: “Auto-PAYE”

On December 19, 2014, the Department published a notice in the Federal Register  announcing a “negotiated rulemaking committee to: (1) prepare proposed regulations to establish a new Pay as You Earn repayment plan for those not covered by the existing Pay as You Earn Repayment Plan in the Federal Direct Loan Program.” The Department accepted written comments regarding additional issues that should be considered for action by the negotiating committee.

Hold Fast to Dreams submitted the following public comment supporting “Auto-PAYE” where students are automatically enrolled/eligible for PAYE benefits (http://www.regulations.gov/#!documentDetail;D=ED-2014-OPE-0124-0052):

Dear Negotiating Committee:

Based on the experience of our student loan attorney and our non-profit organization dedicated to student loan help, we have seen many students in need of an easy to enter and easy to understand income-driven repayment plan.

Numerous students do not know of their options for lower monthly repayment through income-driven repayment plans (and of course, the majority does not qualify due to older loans (those who borrowed before October 2007 or who have not borrowed since October 2011)). When these students fail to enter the income-driven repayment plans such as Income-Based Repayment (IBR) or Pay As You Earn (PAYE), they lose out on starting the clock on the 20 or 25 year (respectively) cancellation of any unpaid balance. For example:

Student did not enter PAYE/IBR after Student graduated (year 1), at the earliest point in which Student could have entered PAYE/IBR repayment. One year later (year 2), Student is employed at a high-paying job, which disqualifies Student from PAYE/IBR because of the Partial Financial Hardship requirement. Then Student loses high-paying job and now Student finally qualifies for PAYE/IBR based on Partial Financial Hardship (year 3). The net effect is Student lost out on starting the clock to accumulate year 1 and year 2 for the particular PAYE/IBR benefit of cancellation of any unpaid balance after 20/25 years. Student is 2 years behind.

As seen in the example, students who face future hardship and need to rely upon the cancellation of any unpaid balance after 20/25 year will benefit most if they enter the PAYE/IBR repayment as soon as possible. The need will most likely arise after graduation, before finding a job.

If the student does find a high-paying job, students would receive an additional benefit of entering PAYE/IBR repayment as soon as possible. Since [a]s long as you remain on the IBR Plan (even if you no longer have a partial financial hardship) and you otherwise meet the requirements for loan forgiveness, you will qualify for forgiveness of any remaining loan balance at the end of the 25-year period (IBR Q&A, A16 from Department of Education), students effectively lock-in their clock starting point.

Students with a high-paying job will be required to pay the amount you would have been required to pay under a 10-year Standard Repayment Plan based on the amount of your eligible loans that were outstanding when you began repaying under IBR (IBR Q&A, A15 from Department of Education). Conversely, [i]f your income later decreases so that your calculated IBR payment amount is once again less than what you would be required to repay under a 10-year Standard Repayment Plan, you will return to making income-based payments (IBR Q&A, A17 from Department of Education). Yet, during the high and low-paying times, the student would be on the PAYE/IBR plan and eligible for cancellation of any unpaid balance after 20/25 years. Thus, once students start PAYE/IBR, students can stay on PAYE/IBR through any financial woes and reach cancellation of any unpaid balance after 20/25 years from that starting point.

Expansion of PAYE

We would like to offer an idea: Auto-PAYE. Under Auto-PAYE, students are automatically enrolled into PAYE as soon as graduation (or after any grace period). This solves the very common problem of students failing to enroll due to ignorance, while also starting the clock for cancellation of any unpaid balance after 20 years. The automatic enrollment would be the only major change from the current PAYE/IBR plans.

Additionally, Auto-PAYE could offer an application at the end of 20 years, similar to that of Public Service Loan Forgiveness (PSLF), where students can simply apply for cancellation of any unpaid balance after 20 years, regardless of what plan they were under for those 20 years. This resolves the issue of students who, in retrospect, made the wrong financial decision in selecting a Standard Repayment Plan or other plan, such that after 20 years, their balance is still unpaid. Auto-PAYE could essentially look back and provide the cancellation option: if students had eligible loans and satisfied the 20-year time period, then students would receive the benefit of cancellation of any unpaid balance after 20 years. This look back can also be applied for students with older qualifying student loans (those who borrowed before October 2007 or who have not borrowed since October 2011).

Essentially, Auto-PAYE would be no different from the current PAYE/IBR except absolutely all students (with certain federal loans) are eligible automatically, not just those students who affirmatively enrolled in PAYE/IBR.

Thank you for your attention and time.

-HFTD

The Department anticipates that “any committee established after the public hearings will begin negotiations in February 2015, with the committee meeting for up to three sessions of approximately three days each at roughly monthly intervals. The committee will meet in the Washington, DC area. The dates and locations of these meetings will be published in a subsequent document in the Federal Register, and will be posted on the Department’s Web site at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html.”