The proposed regulations would amend the terms of the Office of Federal Student Aid’s (FSA) Revised Pay As You Earn (REPAYE) Plan by increasing the amount of borrowers’ income protected from repayment to 225 percent of the federal poverty guidelines, which is roughly the annual equivalent of a $15 hourly wage for a single borrower working full time in 2022. Following these guidelines, the DOE would offer $0 monthly payments for any individual borrower who makes less than approximately $30,600 annually and any borrower in a family of four who makes less than about $62,400 annually. The new rule would also provide relief for borrowers that do not qualify for the $0 payment plan: these borrowers would only be required to pay five percent of their discretionary income (income above 225 percent of the federal poverty guideline) on loans borrowed for their undergraduate studies, which is half the rate charged on the most generous of existing IDR plans.
Additional reforms proposed in the DOE’s Tuesday announcement include:
- Waiving any interest that a borrower owes after their monthly payment is applied.
- Reducing the timeline for loan forgiveness for borrowers who borrowed $12,000 or less from a minimum of 20 years to a minimum of 10 years.
- Giving borrowers credit toward loan forgiveness for new types of periods of deferment or forbearances.
- Providing borrowers with deferments and forbearances that do not qualify for credit with an opportunity to make catch-up payments.
- Automatically enrolling borrowers who are at least 75 days behind on their payments into the IDR plan that results in the lowest monthly payment.
While the DOE touts that the proposed changes to the REPAYE Plan will “substantially reduce monthly debt burdens and lifetime payments” for all borrowers, it notes that the changes will especially benefit vulnerable groups including low and middle-income borrowers, people of color (POC), community college borrowers and borrowers employed in the public service. For example, the DOE predicts that the bottom 30 percent of earners will see their lifetime payments per dollar borrowed drop by 83 percent as compared to the five percent reduction that the top 30 percent of earners will enjoy under the new rule.
The administration emphasizes that this change is just one of the many actions that it is taking to make college more affordable. In addition to an effort to provide up to $20,000 in one-time debt relief to over 40 million borrowers, the administration is also pursuing actions to regulate higher education programs that fail to yield sufficient financial value to students and provide more accurate counts of progress toward forgiveness to borrowers through a one-time account adjustment. Updates to the program reviewed in this article are expected to be published in the Federal Register shortly and available for comment until February 10, 2023.
