There has been much debate on whether Obama’s 2015 Proposed Budget with the PSLF cap ($57,500) would apply to new, old or all borrowers. Now there is further clarification on the matter from the Department of Education’s Press Office.
Question: Will the Proposed PSLF cap ($57,500) only apply to New Borrowers after July 1, 2015 (and those who opt into the new program)? Or to all borrowers? Or all borrowers that use PAYE as a repayment plan?
Department of Education’s Press Office Answer: “For all new borrowers (with minor exceptions) starting with the 2015-2016 academic year the new expanded PAYE program will be the only income-based repayment plan available so the cap applies. For any other existing borrowers they retain the income-based repayment plan in their promissory note but if they choose to switch to the new expanded PAYE program, they have to accept all the conditions including the caps.”
Analysis: Current borrowers would be grandfathered-in for the life of their repayment. Thus, current borrowers will not be subject to the proposed PSLF $57,500 cap. This cap will only apply to new borrowers after July 1, 2015 (assuming proposal passes into legislation). Current borrowers will only be subject to the $57,500 cap if they choose to opt into the new PAYE program. If borrowers have loans disbursed prior to July 1, 2015, the old PAYE/IBR terms will apply for the new loans disbursed after July 1, 2015.
The married filing separately method for calculating PAYE/IBR monthly payments will also remain the same for current borrowers and any of their loans disbursed after July 1, 2015.
Borrowers currently eligible for Pay As You Earn could keep their current (old) PAYE plan or join the new (proposed) PAYE plan. If they keep their current (old) PAYE plan, they would get loan cancellation after 20 years, as opposed to 25 years under the new (proposed) PAYE plan.
In summary, the ED’s position is that Obama’s 2015 Budget Proposal will not impact current borrowers. The “old” repayment plan and terms will be “grandfathered” in for the remainder of your loan term, e.g., borrowers repaying under IBR/PAYE will be able to file “married filing separately” and/or no $57,500 cap for the lifetime of their loan.
Note: The 2015 Budget Proposals are not law and they may not actually become law; however, they are a clear indication of the direction and the policy positions of the Obama Administration and the Department of Education.
Read more: How to get started on your PSLF Application: http://www.holdfasttodreams.org/how-to-apply-for-pslf-from-application-to-approval/