On Oct. 27, 2015, the Department of Education issued a final regulation establishing a new income-driven repayment plan, the Revised Pay As You Earn (REPAYE) Plan. The REPAYE Plan will be available to borrowers starting in mid-December 2015. Let’s take a look at the changes.
REPAYE Plan: Summary of Final Regulations
- Eligibility (§ 685.209): Available to all Direct Loan student borrowers. The REPAYE Plan enables 5 million more Direct Loan borrowers to cap their monthly student loan payment amount at 10 percent of monthly discretionary income, without regard to when the borrower first obtained the loans.
- Repayment period (§ 685.209): For a borrower who has loans for undergraduate education only, the balance of the loans will be forgiven after 20 years of qualifying payments. For a borrower who has at least one loan for graduate study, the balance of the loans will be forgiven after 25 years of qualifying payments. Payments made under the alternative repayment plan would count towards forgiveness under income-driven plans if the borrower returns to such a plan, but not towards public service loan forgiveness.
- Treatment of married borrowers’ income for determining payment (§ 685.209): For married borrowers filing jointly, AGI includes the borrower’s and spouse’s income. For married borrowers filing separately, the spouse’s income would be included unless the borrower certifies that the borrower is separated from the spouse or is unable to reasonably access the spouse’s income information. In the case of separation or inability to access income information, the family size for the payment calculation would not include the spouse.
- Treatment of borrowers who do not provide income documentation annually (§ 685.209): Borrowers who do not supply income information can choose to leave the REPAYE plan and select another repayment plan for which they are eligible. Borrowers who do not supply income information within 10 days of the deadline are placed on the alternative repayment plan with the monthly payment equaling the amount necessary to repay the loan in full within 10 years or the end of the 20-year or 25-year period applicable to the borrower under the REPAYE plan, whichever is earlier. The borrower may return to the REPAYE plan if income documentation is provided for the time the borrower was on a different repayment plan. Borrowers whose income increased during that period would be required to make an adjusted monthly payment so the difference between what they paid under the other plan and would have paid under the REPAYE plan is paid in full by the end of the 20-year or 25-year period.
- Interest accrual in periods of negative amortization (§ 685.209): The REPAYE Plan also will provide a new interest subsidy benefit to prevent ballooning loan balances for those whose income-driven payments cannot keep up with accruing interest. For borrowers in negative amortization whose payments are not sufficient to pay the accrued interest in that period, the Department will:
• In the first three years of repayment, not charge the remaining interest on
Direct Subsidized Loans, with any periods of economic hardship deferment
not included in the three year period; and
• For Direct Unsubsidized Loans, Direct PLUS loans to graduate or professional
students, the unsubsidized portion of Direct Consolidation Loans, Direct
Subsidized and subsidized portions of Direct Consolidation Loans after
the three-year period, charge the borrower 50 percent of the remaining accrued
interest for the period.
- Interest Capitalization: Eliminates loss of PFH status as a basis for interest capitalization. Capitalization occurs when a borrower leaves the REPAYE plan or when the borrower leaves a forbearance or a deferment on unsubsidized or PLUS loans.
Interestingly, the Department of Education responded to our comment to the proposed REPAYE regulations:
Comment: One commenter believed that the REPAYE plan regulations will unduly penalize borrowers in public service jobs who miss the annual deadline for submitting income documentation and are placed on an alternative repayment plan, because any
payments made by borrowers under the alternative repayment plan are not counted as qualifying payments toward public service loan forgiveness. The commenter stated that the Department did not explain the reason for excluding these payments, and the commenter did not see any reason to exclude them, noting that payments made by
borrowers under the Pay As You Earn repayment plan after they have missed the annual income documentation deadline continue to count toward public service loan forgiveness. The commenter added that there is no requirement in the Public Service Loan Forgiveness Program for all 120 qualifying monthly payments to be made under an income-driven repayment plan. The commenter recommended that the Department allow payments made by a borrower under the alternative plan after being removed from the REPAYE plan to count toward public service loan forgiveness.
Discussion: In the preamble to the NPRM, we explained our view that, in the absence of a process that allows borrowers to provide consent to access their income information for multiple years, the regulations should provide an incentive for borrowers to comply with the annual income documentation requirement in a timely manner, and should also provide a disincentive for borrowers who might intentionally withhold updated income information when there is a significant increase in their income. Not allowing alternative
plan payments to count toward public service loan forgiveness serves these purposes. Moreover, the statutory provisions governing the Public Service Loan Forgiveness Program in section 455(m) of the HEA do not provide for counting payments made under an alternative repayment plan as qualifying payments.
In response to the commenter’s observation that payments made by borrowers under the Pay As You Earn repayment plan after they have missed the annual income documentation deadline continue to count toward public service loan forgiveness, we note
that under the Pay As You Earn repayment plan regulations, borrowers who do not submit their required income documentation by the annual deadline are not removed from the Pay As You Earn repayment plan. Rather, they remain on the Pay As You Earn
repayment plan with a recalculated payment amount that is no longer based
on their income. These recalculated payments are still made under the Pay As You Earn repayment plan and therefore count toward public service loan forgiveness. The commenter is correct in noting that there is no requirement in the Public Service Loan Forgiveness Program for all 120 qualifying payments to be made under an income-driven repayment plan. Payments made under the standard repayment plan with a 10-year repayment period count toward public service loan forgiveness, as do payments made under other repayment plans, if the payment amount is not less than what would have been paid under the 10-year standard repayment plan. However, as explained earlier, there is no statutory authority for counting payments made under an alternative
repayment plan toward public service loan forgiveness.
So REPAYE is specifically devised to punish borrowers who do not submit their annual documentation of income. The Department of Education isn’t seeing any way around it, since apparently, they have no authority under HEA to count payments under the new alternative repayment plan as PSLF-eligible payments. Le sigh.
Links to REPAYE Final Regulations:
http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/repay-finalrule-unofficial102615.doc (Informal version of the final regulations (220 pages))