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Reduce monthly payment amounts, expand interest benefit for borrowers, and shorten the time to forgiveness. However, for Borrower A, this is just $41 less than the $203 they would pay on the 10-year standard plan. Add the date to the sample with the Date option. (1) Unless a borrower has provided approval for the disclosure of applicable tax information to enter an IDR plan, a borrower must complete an application for IDR on a form approved by the Secretary; (2) As part of the process of completing a Direct Loan Master Promissory Note or a Direct Consolidation Loan Application and Promissory Note, the borrower may approve the disclosure of applicable tax information in accordance with sections 455(e)(8) and 493C(c)(2) of the Act; (3) If a borrower does not provide approval for the disclosure of applicable tax information under sections 455(e)(8) and 493C(c)(2) of the Act when completing the application for an IDR plan, the borrower must provide documentation of the borrower's income and family size to the Secretary; (4) If the Secretary has received approval for disclosure of applicable tax information, but cannot obtain the borrower's AGI and family size from the Internal Revenue Service, the borrower and, if applicable, the borrower's spouse, must provide documentation of income and family size to the Secretary; (5) After the Secretary obtains sufficient information to calculate the borrower's monthly payment amount, the Secretary calculates the borrower's payment and establishes the 12-month period during which the borrower will be obligated to make a payment in that amount; (6) The Secretary then sends to the borrower a repayment disclosure that. Start Printed Page 1924 Participating in the Federal Family Education Loan (FFEL) Program, William D. Ford Federal Direct Loan (Direct Loan) Program, and Federal Perkins Loan (Perkins) Program and giving us your SSN are voluntary, but you This concern is particularly germane to lower-income borrowers, who cannot afford to repay at all. The overall median for those with at least some college education (including those with less than a bachelor's degree and those with a bachelor's degree or higher) is $74,740. [41] of Defense Student Loan Repayment Program Forbearance Exp. (2) For new borrowers under the IBR plan and for all borrowers on the PAYE plan, the borrower's monthly payments are the lesser of: (i) 10 percent of the borrower's discretionary income, divided by 12; or. However, students may choose to make regular or interest-only payments while enrolled. (v) (A) If a borrower consolidates one or more Direct Loans or FFEL program loans into a Direct Consolidation Loan, the payments the borrower made on the Direct Loans or FFEL program loans prior to consolidating and that met the criteria in paragraph (4) of this section, or in 34 CFR 682.209(a)(6)(vi) and which were based on a 10-year repayment period, or 34 CFR 682.215 will count as qualifying payments on the Direct Consolidation Loan. OMB Control Number: The outstanding balances on the loans of each borrower are added together to determine the borrowers' combined monthly payment amount under paragraph (f)(4)(i) of this section; (B) The amount of the payment applied to each borrower's debt is the proportion of the payments that equals the same proportion as that borrower's debt to the total outstanding balance, except that the payment is credited toward outstanding interest on any loan before any payment is credited toward principal. Assuming an average of 2,000 hours worked in a year, an individual who makes 150 percent of the poverty guideline for a single-person household is earning $10.19 an hour. We also propose to make technical corrections to 685.219, 685.220, 685.222, and 685.403 for consistency with the changes related to interest capitalization in the Affordability and Student Loans Final Rule. p. 17. Register (ACFR) issues a regulation granting it official legal status. has no substantive legal effect. In some cases, borrowers have found it difficult to navigate those decisions. For borrowers who may have already experienced interest accumulation from being on an IDR plan, the Department notes that changes to the treatment of interest capitalization in the final rule published on November 1, 2022, 87 FR 65904, (Affordability and Student Loans Final Rule) will provide some assistance. [62] and Marx, Benjamin M. and Turner, Lesley, Student Loan Nudges: Experimental Evidence on Borrowing and Educational Attainment (May 2019). Those same focus groups found that interest accrual created psychological and financial barriers to repayment, as borrowers lost motivation to repay and felt that they were trapped in debt indefinitely. Borrowers eager to know where their FFEL loans are held can go to Studentaid.gov and sign in with your FSA ID. A Proposed Rule by the Education Department on 01/11/2023. (iii) For the ICR plan, 100 percent of the applicable Federal poverty guideline. Proposed 685.209 contains information collection requirements. The Secretary places a borrower on the IDR plan under this section that results in the lowest monthly payment based on the borrower's income and family size if. [19] Administrative issues, lack of information, or simply sticking with the default option may be the reason many of these borrowers are not in an IDR plan already, but others may have made the choice that a non-IDR plan is preferable for them. William D. Ford Federal Direct Loan Program To confirm that you have direct loans, call your loan servicer or log in to its online portal. At the same time, the Department hopes that the simpler rules around tracking payments for IDR would reduce the time a borrower spends in one of these mandatory administrative forbearances. In other situations, the Department proposes to provide credit toward forgiveness by counting deferments and forbearances as qualifying payments out of concern that borrowers should not have to face the tradeoff of using an opportunity to pause their payments for a specific situation versus continuing to make progress toward forgiveness. Minority-Serving Institutions: By definition, borrowers in poverty have family financial resources insufficient to meet the costs of basic necessities and should not be expected to afford any amount of loan payments. It does take into account the effect of broad-based forgiveness when doing the comparison. Expand access to affordable monthly payments on Direct Loans through changes to the REPAYE repayment plan. The PAYE plan also includes a PFH requirement identical to IBR, sets payments at 10 percent of discretionary income, and a loan forgiveness time frame equivalent to 20 years of qualifying monthly payments. The Secretary certifies, under the Regulatory Flexibility Act (5 U.S.C. This could result in increased costs to taxpayers in the form of transfers to borrowers if more students choose to borrow than before and/or if borrowers take out greater amounts of loans than before, but then do not fully repay their loans. (i) Making a payment under an IDR plan, including a payment of $0, except that those periods of deferment or forbearance treated as a payment under (k)(4)(iv) of this section do not apply for forgiveness under paragraph (k)(3) of this section; (ii) Making a payment under the 10-year standard repayment plan under 685.208(b); (iii) Making a payment under a repayment plan with payments that are as least as much as they would have been under the 10-year standard repayment plan under 685.208(b), except that no more than 12 payments made under paragraph (l)(10)(iii) of this section may count toward forgiveness under the REPAYE plan; (iv) Deferring or forbearing monthly payments under the following provisions: (A) A cancer treatment deferment under section 455(f)(3) of the Act; (B) A rehabilitation training program deferment under 685.204(e); (C) An unemployment deferment under 685.204(f); (D) An economic hardship deferment under 685.204(g), which includes volunteer service in the Peace Corps as an economic hardship condition; [FR Doc. Not charging unpaid monthly interest after applying a borrower's payment would provide both financial and non-financial benefits for borrowers. Section 685.220, in paragraph (h), is amended by adding 685.209, and 685.221, after 685.208,. Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school. Doing so would run counter to the goals for the REPAYE plan, which is to reduce payments for all borrowers but still require borrowers with graduate loans to pay longer before receiving forgiveness. Borrowers face a maze of repayment options that may lead some borrowers to make suboptimal decisions, struggle with annual income re-certification requirements, or never enroll in an IDR plan at all and instead fall into delinquency and default. In such cases, the 12-month period specified under paragraph (l)(5) of this section is reset based on the borrower's new information. Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program) A Rule by the Education Department on 10/12/2022 Document Details Student Loans The Department believes that this would increase the likelihood that struggling borrowers will be enrolled in an IDR plan and will be able to avoid late-stage delinquency or default and the associated consequences. Increments of $500 produced the counterintuitive effect of the maximum starting income for a borrower to benefit from the 10-year forgiveness on a $12,000 original balance exceeding the maximum starting income for a borrower who owed any of the higher amounts that would still be eligible for the shortened forgiveness timeframe ( Webfederal family education loan program/william d. ford federal direct loan program you may qualify for loan forgiveness only if you had no outstanding balance on a federal family 54. However, a borrower who is repaying a defaulted loan under the income-based repayment plan or who is repaying a Direct Consolidation Loan under an income-driven repayment plan in accordance with 685.220(d)(1)(i)(A)( The Department proposes in 685.209(m) to allow the Secretary to automatically enroll a borrower into the IDR plan that produces the lowest monthly payment for which the borrower is eligible if the borrower is 75 days or more past due on their loan payments. Optimal student loans and graduate tax under moral hazard and adverse selection. Table ID: kxmelz. WebFor the 2023-2024 academic year the Direct Stafford Loan Program has a fixed 5.50% interest rate on undergraduate subsidized and unsubsidized loans. 1503 & 1507. The proposed regulations would allow borrowers in default to make payments under the current IBR plan. [53], Section 455(d)(1)(D) of the HEA, as discussed elsewhere in this document, requires the Secretary to offer an income-contingent repayment plan with terms prescribed by the Secretary. You are receiving a Direct Subsidized Loan and/or Direct periods, and during Document page views are updated periodically throughout the day and are cumulative counts for this document. corresponding official PDF file on govinfo.gov. Start Printed Page 1900 For instance, for a borrower in a one-person household, raising the amount eligible for early forgiveness from $12,000 to $19,000 would increase the amount the borrower would need to earn to not receive early forgiveness from $59,300 to approximately $77,000. December 2019, only 17 percent of borrowers in repayment who originally borrowed $12,000 or less were using IDR, compared to 52 percent of those who originally borrowed over $50,000. WebPSLF PUBLIC SERVICE LOAN FORGIVENESS (PSLF) & TEMPORARY OMB No. [72] When that occurs, the IDR plans do not achieve their goals of establishing affordable payments for borrowers. The Department proposes to clarify that, for all IDR plans, income means the borrower's AGI and, if applicable, the spouse's income, as reported to the IRS. Section 685.219 - [Effective7/1/2023] Public Service Loan For instance, if for all IDR plans married borrowers are required to supply their spouses' incomes only if they file a joint tax return, borrowers would be able to complete their IDR applications more easily, and data-sharing to automate the transfer of income information from tax records would be more straightforward. List of Subjects in 34 CFR Part 685. Section 685.208 provides general repayment plan information and specifies which types of Direct Loans may be repaid under the various Direct Loan repayment plans. The Department proposes to treat loans attributed to undergraduate programs differently than graduate programs for several reasons. [22] These calculations show that a borrower in a one-person household would not benefit from the early forgiveness if their starting income exceeded $59,257. [30] In other words, if a borrower has a $600 tax refund credited against their loan debt through the Treasury Offset Program and their monthly payment on the 10-year standard plan would have been $50, then they would receive a year's worth of credit toward IBR forgiveness. consulted and served as a resource. For borrowers who might otherwise be averse to taking on debt and who would be willing to borrow Federal student loans under this more affordable IDR plan, the additional borrowing may help them to enroll, stay in school, and complete their degrees. The Department felt that its proposal not to charge accrued-but-unpaid interest, preventing negative amortization, effectively addressed the substance of the problem while ensuring that borrowers who earn more after leaving school repay more of their loans. Most borrowers enrolled in IDR plans experience increased loan balance growth when their payments are not large enough to cover the interest they accrue. Please do not submit the PDF in a scanned format. Reducing the discretionary income share on undergraduate debt would particularly benefit borrowers who only have outstanding loans from their undergraduate education, as these Administrative practice and procedure, Colleges and universities, Education, Loan programs-education, Reporting and recordkeeping requirements, Student aid, Vocational education. and the most common complaint received by the Department from borrowers on the structure of IDR plans is that their payments are still unaffordable on those plans. LOAN TYPE AVAILABLE TO. For example, the unemployment deferment is available to borrowers who do not have a job and are actively seeking employment and who, therefore, might qualify for a $0 IDR payment. net budget impact of the proposed changes for borrowers currently enrolled in IDR plans, though the IDR overall estimate is potentially understating total costs. For more on the SIPP, please see: Depending on their anticipated income profiles or comfort with their existing plan, the potential shift of these borrowers is very uncertain and, without information on the income profiles of potential shifters, we are not able to estimate the potential budget impact of this change. https://studentaid.gov/data-center/student/portfolio. (i) For the IBR and PAYE plans, the borrower's monthly payment amount is the amount determined under paragraph (f)(2)(ii) or (f)(3)(ii) of this section; (ii) For the ICR plan, the borrower's monthly payment amount is the amount the borrower would have paid under a 10-year standard repayment plan based on the balances and interest on the loans being repaid under the ICR Plan when the borrower initially entered the ICR Plan; and. We estimate that, based on comparable changes made in the past, those administrative costs would total approximately $10 million in systems and other changes. Web7701(b). Direct Unsubsidized Loan (iii) When a borrower leaves the IBR plan. A borrower who only has outstanding loans for an undergraduate program would pay 5 percent of their discretionary income, and a borrower who only has outstanding loans for a graduate program would pay 10 percent of their discretionary income. When the HEA was initially enacted, it contained only one repayment plan: the standard repayment plan. rendition of the daily Federal Register on FederalRegister.gov does not To do so, the Department used data from the College Scorecard and Integrated Postsecondary Education Data System (IPEDS) to create a synthetic cohort of borrowers that is representative of borrowers who entered repayment in 2017 in terms of institution attended, education attainment, race/ethnicity, and gender. Document Drafting Handbook ? Loan Forgiveness All borrowers with income above the proposed minimum threshold would receive the same benefit from this aspect of the policy change. For the REPAYE plan, 685.209(c)(1)(ii) defines an eligible loan for the purposes of adjusting a borrower's monthly payment amount as any outstanding loan made to a borrower under the Direct Loan Program or the FFEL Program except for a defaulted loan or any Direct PLUS Loan or Federal PLUS Loan made to a parent borrower or any Direct Consolidation Loan or Federal Consolidation Loan that repaid a PLUS loan made to a parent borrower. On request, we will provide an appropriate accommodation or auxiliary aid to an individual with a A borrower's required monthly payment amount is determined to be the lesser of (1) 20 percent of their discretionary income (AGI less 100 percent of the applicable poverty guideline), divided by 12, or (2) the amount the borrower would repay annually over 12 years when using standard amortization multiplied by an income percentage factor corresponding to the borrower's AGI, divided by 12. We propose to maintain the current practice in which all types of Direct Loans to students are eligible to be repaid on the REPAYE plan. https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html. Current regulations specify that a borrower who fails to recertify their income and family size for the REPAYE plan is placed in an alternative plan in which the borrower's monthly payment is the amount to either repay the loan within 10 years of starting on the alternative repayment plan or within 20 or 25 years of starting on the REPAYE plan. Ultimately, they argued, repayment of student loans is the responsibility of the borrower. A borrower who ended up on a deferment or forbearance when they should have had a $0 IDR payment would thus be able to receive credit for all those months without making additional payments. Total and Permanent On May 26, 2021, the Department published a notice in the Dependent Students: 110-84) establishes a new loan forgiveness provision for borrowers of loans made under the (vi) Making payments under paragraph (k)(6) of this section. (4) The Secretary determines that the borrower's payment under the IDR plan would be lower than the payment on the plan in which the borrower is enrolled. Notwithstanding any other provision of law, no person is required to comply with, or is subject to penalty for failure to comply with, a collection of information if the collection instrument does not display a currently valid OMB control number. Loans Policy Watch: Income-Contingent College Loans. Individuals With Disabilities or Groups Representing Them: Section 455(e)(2) provides that a repayment schedule for a Direct Loan that is repaid pursuant to income-contingent repayment is based on the AGI (as defined in section 62 of the Internal Revenue Code of 1986) of the borrower or, if the borrower is married and files a Federal income tax return jointly with the borrower's spouse, on the AGI of both the borrower and the borrower's spouse. An Urban Institute analysis using the 2016 Survey of Consumer Finances found that the share of Black borrowers using IDR was lower than the share of borrowers not making any payments. Would reduce monthly payment amounts to 5 percent of discretionary income for the share of a borrower's total original principal loan volume attributable to loans received as students for an undergraduate program (with a weighted average between 5 and 10 percent for borrowers with outstanding undergraduate and graduate loans, and a payment of 10 percent for borrowers with only outstanding graduate loans), increase the amount of discretionary income exempted from the calculation of payments to 225 percent of the Federal poverty guidelines, not charge any unpaid monthly interest after applying a borrower's payment, and reduce the time to forgiveness under the plan for borrowers with lower original balances. Start Printed Page 1901 those with projected lifetime earnings less than at least 60 percent of all borrowers in the cohort). We believe it is reasonable to require borrowers who borrow smaller amounts to repay for shorter periods of time than borrowers who borrow larger amounts. Would clarify that borrowers in default are eligible to make payments under the IBR plan. On average, borrowers with only undergraduate debt are projected to see expected payments per $10,000 borrowed drop from $11,844 under the standard 10-year plan and $10,956 under the current REPAYE plan to $6,121 under the proposed REPAYE plan. Table 4Maximum Monthly Payment Savings at Different Levels of Income Protection, 2022 Federal Poverty Guidelines (FPL). Further information on the negotiated rulemaking process can be found at: For those borrowers, not charging interest as it accumulates instead of forgiving it at the end of the IDR repayment term would have no additional cost to the government. https://doi.org/10.1257/jep.7.3.193. Start Printed Page 1898 The William D. Ford Federal Direct Loan (Direct Loan) Program includes the following types of loans, known collectively as Direct Loans: Federal Direct Stafford/Ford Loans (Direct Subsidized Loans) Federal Direct Unsubsidized Stafford/Ford Loans (Direct Unsubsidized Loans) 2. Federal Register At this level, the REPAYE plan would continue to protect the amount a single minimum-wage worker with no dependents would earn in every State in 2023. Using a print-to-PDF format allows the Department to electronically search and copy certain portions of your submissions to assist in the rulemaking process. These payment reductions will provide critical benefits for borrowers who do make enough money to afford some degree of loan payment each month, but who cannot afford the payment they would be required to make under other existing IDR plans. We also considered multiple options for how the time to forgiveness should change with the level of additional debt. Current regulations at 685.209(a)(1)(iv), 685.209(c)(1)(iii), and 685.221(a)(3) provide that a borrower's family size includes individuals other than a spouse or children if such individuals receive more than half of their support from the borrower. Summary of the Major Provisions of This Regulatory Action, Income-Driven Repayment (685.208 and 685.209), Borrower Eligibility for IDR Plans (685.209(c)), Income Protection Threshold (685.209(f)), Deferments and Forbearances (685.209(k)), Treatment of Income and Loan Debt (685.209(e)), Automatic Enrollment in an IDR Plan (685.209(m)), Application and Annual Recertification Procedures (685.209(l)), Consequences of Failing To Recertify (685.209(l)), Section 685.209Income-Driven Repayment Plans, https://www.federalregister.gov/d/2022-28605, MODS: Government Publishing Office metadata, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html, part 685 of title 34 of the Code of Federal Regulations, https://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-and-homeownership/http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-andhomeownership.html, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html?src=rn#loans, https://www.ecfr.gov/current/title-34/subtitle-B/chapter-VI/part-685/subpart-B/section-685.208, https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm, https://www.govinfo.gov/content/pkg/FR-2012-11-01/html/2012-26348.htm, https://obamawhitehouse.archives.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments, https://www.federalregister.gov/documents/2015/10/30/2015-27143/student-assistance-general-provisions-federal-family-education-loan-program-and-william-d-ford, https://www.pewtrusts.org/en/research-and-analysis/reports/2022/02/redesigned-income-driven-repayment-plans-could-help-struggling-student-loan-borrowers, https://www.urban.org/research/publication/income-driven-repayment-student-loans-options-reform, https://bfi.uchicago.edu/working-paper/2020-169/, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/nov4pm.pdf, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/107pm.pdf, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/108am.pdf, https://www.census.gov/programs-surveys/sipp.html, https://www.dol.gov/agencies/whd/mw-consolidated, https://data.census.gov/cedsci/table?q=education%20by%20state&tid=ACSST5Y2020.S1501&moe=false&tp=true, https://www.dol.gov/agencies/whd/minimum-wage/state, https://www.aeaweb.org/articles?id=10.1257/app.20200362, https://www.pewtrusts.org/en/research-and-analysis/articles/2021/07/15/many-student-loan-borrowers-will-need-help-when-federal-pause-ends-survey-shows, https://www.pewtrusts.org/-/media/assets/2020/05/studentloan_focusgroup_report.pdf, https://static.newamerica.org/attachments/2358-why-student-loans-are-different/FDR_Group_Updated.dc7218ab247a4650902f7afd52d6cae1.pdf, https://studentaid.gov/sites/default/files/FY_2019_Federal_Student_Aid_Annual_Report_Final_V2.pdf, https://studentaid.gov/sites/default/files/FSA-FY-2018-Annual-Report-Final.pdf, https://studentaid.gov/sites/default/files/fy2020-fsa-annual-report.pdf, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7pm.pdf, https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec9pm.pdf, https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/dec7am.pdf, https://www.sciencebdirect.com/science/article/pii/S0047272719301288, https://www.census.gov/content/dam/Census/library/visualizations/2021/demo/p60-273/figure1.pdf, https://studentaid.gov/data-center/student/portfolio, https://www.aeaweb.org/articles?id=10.1257/pol.20180279, https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls, https://studentaid.gov/sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls, https://www.congress.gov/bill/116th-congress/house-bill/5363/text/pl, https://doi.org/10.1111/1756-2171.12097, https://studentaid.gov/manage-loans/repayment/plans, https://www.jpmorganchase.com/institute/research/household-debt/student-loan-income-driven-repayment, https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment, https://files.consumerfinance.gov/f/documents/cfpb_data-point_borrower-experiences-on-IDR.pdf, https://www.edworkingpapers.com/sites/default/files/ai19-89.pdf, https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html, https://doi.org/10.1016/j.jpubeco.2016.03.009, https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/borrowers-discuss-the-challenges-of-student-loan-repayment, Rate of material hardship relative to families in poverty.