Rule2023-13112
Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 10, 2023
Effective
July 1, 2024
Issuing agencies
Education Department
Abstract
The U.S. Department of Education issues final regulations governing income-contingent repayment plans by amending the Revised Pay as You Earn (REPAYE) repayment plan and restructuring and renaming the repayment plan regulations under the William D. Ford Federal Direct Loan (Direct Loan) Program, including combining the Income Contingent Repayment (ICR) and the Income-Based Repayment (IBR) plans under the umbrella term of "Income-Driven Repayment" (IDR) plans, and providing conforming edits to the FFEL Program.
Full Text
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[Federal Register Volume 88, Number 130 (Monday, July 10, 2023)]
[Rules and Regulations]
[Pages 43820-43905]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-13112]
[[Page 43819]]
Vol. 88
Monday,
No. 130
July 10, 2023
Part III
Department of Education
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34 CFR Parts 682 and 685
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Improving Income Driven Repayment for the William D. Ford Federal
Direct Loan Program and the Federal Family Education Loan (FFEL)
Program; Final Rule
Federal Register / Vol. 88, No. 130 / Monday, July 10, 2023 / Rules
and Regulations
[[Page 43820]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 682 and 685
RIN 1840-AD81
Improving Income Driven Repayment for the William D. Ford Federal
Direct Loan Program and the Federal Family Education Loan (FFEL)
Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The U.S. Department of Education issues final regulations
governing income-contingent repayment plans by amending the Revised Pay
as You Earn (REPAYE) repayment plan and restructuring and renaming the
repayment plan regulations under the William D. Ford Federal Direct
Loan (Direct Loan) Program, including combining the Income Contingent
Repayment (ICR) and the Income-Based Repayment (IBR) plans under the
umbrella term of ``Income-Driven Repayment'' (IDR) plans, and providing
conforming edits to the FFEL Program.
DATES: These regulations are effective July 1, 2024. For the
implementation dates of the regulatory provisions, see the
Implementation Date of These Regulations in SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Bruce Honer, U.S. Department of
Education, 400 Maryland Avenue SW, 5th Floor, Washington, DC 20202.
Telephone: (202) 987-0750. Email: <a href="/cdn-cgi/l/email-protection#490b3b3c2a2c670126272c3b092c2d672e263f"><span class="__cf_email__" data-cfemail="9edcecebfdfbb0d6f1f0fbecdefbfab0f9f1e8">[email protected]</span></a>.
If you are deaf, hard of hearing, or have a speech disability and
wish to access telecommunications relay services, please dial 7-1-1.
SUPPLEMENTARY INFORMATION:
Executive Summary
The Secretary amends the regulations governing the income
contingent repayment (ICR) and income-based repayment (IBR) plans and
renames the categories of repayment plans available in the Department's
Direct Loan Program. These regulations streamline and standardize the
Direct Loan Program repayment regulations by categorizing existing
repayment plans into three types: (1) fixed payment repayment plans,
which establish monthly payment amounts based on the scheduled
repayment period, loan debt, and interest rate; (2) income-driven
repayment (IDR) plans, which establish monthly payment amounts based in
whole or in part on the borrower's income and family size; and (3) the
alternative repayment plan, which we use on a case-by-case basis when a
borrower has exceptional circumstances or has failed to recertify the
information needed to calculate an IDR payment as outlined in Sec.
685.221. We also make conforming edits to the FFEL program in Sec.
682.215.
Purpose of This Regulatory Action
These regulations create a stronger safety net for Federal student
loan borrowers, helping more borrowers avert delinquency and default
and the significant negative consequences associated with those events.
They will also help low- and middle-income borrowers better afford
their Federal loan payments, while also increasing homeownership,
retirement savings, and small business formulation. Additionally, they
simplify the process of selecting a repayment plan.
Summary of the Major Provisions of This Regulatory Action
The final regulations--
<bullet> Expand access to affordable monthly Direct Loan payments
through changes to the Revised Pay-As-You-Earn (REPAYE) repayment plan,
which may also be referred to as the Saving on a Valuable Education
(SAVE) plan;
<bullet> Align the definition of ``family size'' in the FFEL
Program with the definition of ``family size'' in the Direct Loan
Program;
<bullet> Increase the amount of income exempted from the
calculation of the borrower's payment amount from 150 percent of the
Federal poverty guideline or level (FPL) to 225 percent of FPL for
borrowers on the REPAYE plan;
<bullet> Lower the share of discretionary income used to calculate
the borrower's monthly payment for outstanding loans under REPAYE to 5
percent of discretionary income for loans for the borrower's
undergraduate study and 10 percent of discretionary income for other
outstanding loans; and an amount between 5 and 10 percent of
discretionary income based upon the weighted average of the original
principal balances for those with outstanding loans in both categories;
<bullet> Provide a shorter maximum repayment period for borrowers
with low original loan principal balances;
<bullet> Eliminate burdensome and confusing regulations for
borrowers using IDR plans;
<bullet> Provide that the borrower will not be charged any
remaining accrued interest each month after the borrower's payment is
applied under the REPAYE plan;
<bullet> Credit certain periods of deferment or forbearance toward
time needed to receive loan forgiveness;
<bullet> Permit borrowers to receive credit toward forgiveness for
payments made prior to consolidating their loans; and
<bullet> Reduce complexity by prohibiting or restricting new
enrollment in certain existing IDR plans starting on July 1, 2024, to
the extent that the law allows.
Costs and Benefits: As further detailed in the Regulatory Impact
Analysis (RIA), these final regulations will significantly impact
borrowers, taxpayers, and the Department.
Benefits for borrowers include more affordable and streamlined IDR
plans, as well as a path to avoid delinquency and default. The
streamlined repayment plans also benefit the Department due to
simplified administration of the repayment plans and decreases in rates
of delinquency and default.
This rule will reduce negative amortization, which will be a
benefit to student loan borrowers, making it easier for individuals to
successfully manage their debt. As a result, borrowers will be able to
devote more resources to cover necessary expenses such as food and
housing, provide for their families, invest in a home, or save for
retirement.
Costs associated with the changes to the IDR plans include paying
contracted student loan servicers to update their computer systems and
their borrower communications. Taxpayers will incur additional costs in
the form of transfers from borrowers who will pay less on their loans
than under currently available repayment plans. As detailed in the RIA,
the changes are estimated to have a net budget impact of $156.0 billion
over 10 years across all loan cohorts through 2033.
Implementation Date of These Regulations
Section 482(c)(1) \1\ of the Higher Education Act of 1965, as
amended (HEA), requires that regulations affecting programs under title
IV of the HEA be published in final form by November 1 prior to the
start of the award year (July 1) to which they apply. HEA section
482(c)(2) \2\ also permits the Secretary to designate any regulation as
one that an entity subject to the regulations may choose to implement
earlier and outline the conditions for early implementation.
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\1\ 20 U.S.C. 1089(c)(1).
\2\ 20 U.S.C. 1089(c)(2).
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The Secretary is exercising his authority under HEA section 482(c)
to designate certain regulatory changes to part 685 in this document
for early implementation beginning on July 30, 2023. The Secretary has
designated the following provisions under REPAYE for early
implementation:
[[Page 43821]]
<bullet> Adjusting the treatment of spousal income in the REPAYE
plan for married borrowers who file separately as described in Sec.
685.209(e)(1)(i)(A) and (B);
<bullet> Increasing the income exemption to 225 percent of the
applicable poverty guideline in the REPAYE plan as described in Sec.
685.209(f);
<bullet> Not charging accrued interest to the borrower after the
borrower's payment on REPAYE is applied as described in Sec.
685.209(h); and
<bullet> Designating in Sec. 685.209(a)(1) that REPAYE may also be
referred to as the Saving on a Valuable Education (SAVE) plan.
The Secretary also designates the changes to the definition of
family size for Direct Loan borrowers in IBR, ICR, PAYE, and REPAYE in
Sec. 685.209(a) to exclude the spouse when a borrower is married and
files a separate tax return for early implementation on July 30, 2023.
The Secretary also designates the provision awarding credit toward
forgiveness for certain periods of loan deferment prior to the
effective date of July 1, 2024, as described in Sec. 685.209(k)(4) for
early implementation. The Department will implement this regulation as
soon as possible after the publication date and will publish a separate
notice announcing the timing of the implementation.
With the exception noted below and except for those regulations
designated as available for early implementation, the final regulations
in this notice are effective July 1, 2024.
Section 685.209(c)(5)(iii), which relates to eligibility for IDR
plans by borrowers with Consolidation loans, will be effective for
Direct Consolidation loans disbursed on or after July 1, 2025.
Public Comment: In response to our invitation in the Notice of
Proposed Rulemaking on Improving IDR for the Direct Loan Program,
published on January 11, 2023 (IDR NPRM), the Department received
13,621 comments on the proposed regulations. In this preamble, we
respond to those comments.
Analysis of Comments and Changes
We developed these regulations through negotiated rulemaking.
Section 492 of the HEA \3\ requires that, before publishing any
proposed regulations to implement programs under title IV of the HEA,
the Secretary must obtain public involvement in the development of the
proposed regulations. After obtaining advice and recommendations, the
Secretary must conduct a negotiated rulemaking process to develop the
proposed regulations. The Department negotiated in good faith with all
parties with the goal of reaching consensus. The Committee did not
reach consensus on the issue of IDR.
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\3\ 20 U.S.C. 1098a.
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We group issues according to subject, with appropriate sections of
the regulations referenced in parentheses. We discuss other substantive
issues under the sections of the regulations to which they pertain.
Generally, we do not address minor, non-substantive changes (such as
renumbering paragraphs, adding a word, or typographical errors).
Additionally, we generally do not address changes recommended by
commenters that the statute does not authorize the Secretary to make or
comments pertaining to operational processes. We generally do not
address comments pertaining to issues that were not within the scope of
the IDR NPRM. In particular, we note that we received many comments
supporting or opposing one-time debt relief. As this topic is outside
the scope of this rule, we do not discuss those comments further in
this document.
An analysis of the public comments received and the changes to the
regulations since publication of the IDR NPRM follows.
Public Comment Period
Comment: Several commenters requested that we extend the comment
period on the IDR NPRM. Some of these commenters asserted that under
the principles of Executive Orders 12866 and 13563, the Department must
adhere to at least a 60-day comment period.
Discussion: The Department believes the comment period provided
sufficient time for the public to submit feedback. As noted above, we
received over 13,600 written comments and considered each one that
addressed the issues in the IDR NPRM. Moreover, the negotiated
rulemaking process provided significantly more opportunity for public
engagement and feedback than notice-and-comment rulemaking without
multiple negotiation sessions. The Department began the rulemaking
process by inviting public input through a series of public hearings in
June 2021. We received more than 5,300 public comments as part of the
public hearing process. After the hearings, the Department sought non-
Federal negotiators for the negotiated rulemaking committee who
represented constituencies that would be affected by our rules.\4\ As
part of these non-Federal negotiators' work on the rulemaking
committee, the Department asked that they reach out to the broader
constituencies for feedback during the negotiation process. During each
of the three negotiated rulemaking sessions, we provided opportunities
for the public to comment, including after seeing draft regulatory
text, which was available prior to the second and third sessions. The
Department and the non-Federal negotiators considered those comments to
inform further discussion at the negotiating sessions, and we used the
information to create our proposed rule. The Department also first
announced elements of the proposed plan in August 2022, giving
stakeholders additional time to consider the merits of major elements
of the regulation. Given these efforts, the Department believes that
the 30-day public comment period provided sufficient time for
interested parties to submit comments. The 30-day comment period on the
IDR NPRM is not unique; we have used this amount of time for numerous
other rules. The Department has fully complied with the appropriate
Executive Orders regarding public comments. While the Executive Orders
cited by the commenters direct each agency to afford the public a
meaningful opportunity to comment, those Executive Orders do not
require a 60-day comment period.
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\4\ See 86 FR 43609.
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Changes: None.
General Support for Regulations
Comments: Many commenters supported the Department's proposed rule
to modify the IDR plans. These commenters supported the proposed
revisions to Sec. 685.209(f), which would result in lower monthly
payments for borrowers on the REPAYE plan. One commenter noted that
lower monthly payments are often a primary factor when borrowers select
a repayment plan. Another commenter mentioned that while current IDR
plans offer lower payments than the standard 10-year plan, payments
under an IDR plan may still be unaffordable for some borrowers. They
expressed strong support for this updated plan in hopes that it will
provide much needed relief to many borrowers and would allow borrowers
the flexibility to buy homes or start families. Several commenters
pointed out that the new IDR plans would allow borrowers to pay down
their student loans without being trapped under exorbitant monthly
payments. Several commenters felt it was important that the Department
commit to fully implementing this process as soon as possible to allow
borrowers to benefit from the proposed regulations.
[[Page 43822]]
One commenter stated that efforts to model the effects of
increasing the discretionary income threshold have demonstrated that
changing the threshold of protected income had the most pronounced
effect on the monthly payment amounts of low- and moderate-income
borrowers over the course of their repayment term. This commenter
believed that making all monthly payments under REPAYE more affordable
will enable more low-income borrowers to qualify for $0 payments, help
prevent defaults, protect vulnerable borrowers from the severe economic
consequences of default, and alleviate the stress that student loans
place on fragile budgets.
Discussion: We agree with the commenters' assertions that this rule
will allow borrowers to pay down their student loans without being
trapped under exorbitant monthly payments and that it will help many
borrowers avoid delinquency, default, and their associated
consequences. We understand the urgency expressed by commenters related
to our implementation plans. The Department has outlined the
implementation schedule in the Implementation Date of These Regulations
section of this document.
Changes: None.
Comments: Many commenters thanked the Department for proposing to
modify the REPAYE plan rather than creating another IDR plan.
Commenters cited borrower confusion about the features of the different
repayment plans. Commenters urged us to revise the terms and conditions
of REPAYE to make them easier to understand.
Discussion: The Department initially contemplated creating another
repayment plan. After considering concerns about the complexity of the
student loan repayment system and the challenges of navigating multiple
IDR plans, we instead decided to reform the current REPAYE plan to
provide greater benefits to borrowers. However, given the extensive
improvements being made to REPAYE, we have decided to rename REPAYE as
the Saving on a Valuable Education (SAVE) plan. This new name will
reduce confusion for borrowers as we transition from the existing terms
of the REPAYE plan. Borrowers currently enrolled on the REPAYE plan
will not have to do anything to receive the benefits of the SAVE plan,
and the new name will be reflected on written and electronic forms and
records over time.
The Department will work to implement this naming update and
borrowers may see the plan still referred to as REPAYE until the
updates are complete. To reduce confusion for readers and to recognize
that all the public comments would have been discussing the REPAYE
plan, the Department will refer to the SAVE plan as REPAYE throughout
this final rule.
These regulations are intended to address the challenges borrowers
have in navigating the complexity of the student loan repayment system
by ensuring access to a more generous, streamlined IDR plan, as well as
to revise the terms and conditions of the REPAYE plan to make it easier
to understand.
Changes: We have updated Sec. 685.209(a)(1) to note that the
REPAYE plan will also now be known as the Saving on a Valuable
Education (SAVE) plan.
General Opposition to Regulations
Comments: Several commenters suggested that the Department delay
implementation of the rule and work with Congress to develop a final
rule that would be cost neutral. Relatedly, other commenters requested
that we delay implementation and wait for Congress to review our
proposals as part of a broader reform or reauthorization of the HEA.
Several commenters asserted that the Administration has not discussed
these repayment plan proposals with Congress.
Discussion: We disagree with the commenters and choose not to delay
the implementation of this rule. The Department is promulgating this
rule under the legal authority granted to it by the HEA, and we believe
these steps are necessary to achieve the goals of making the student
loan repayment system work better for borrowers, including by helping
to prevent borrowers from falling into delinquency or default.
Furthermore, the Department took the proper steps to develop these
rules to help make the repayment plans more affordable. As prescribed
in section 492 of the HEA, the Department requested public involvement
in the development of the proposed regulations. We followed the
appropriate process and obtained and considered extensive input and
recommendations from those representing affected groups. The Department
also participated in three negotiated rulemaking sessions with
committee members that consisted of a variety of stakeholders
representing public and private institutions, financial aid
administrators, veterans, borrowers, students, and other affected
constituencies. Following careful consideration of the feedback
received during three week-long negotiation sessions, we published
proposed regulations in the Federal Register. We explain the rulemaking
process in more detail at <a href="http://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html">www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html</a>.
Regarding the suggestion that the rule be cost neutral, we believe
the overall benefits outweigh the costs as discussed in the Costs and
Benefits section within the RIA section of this document. There is no
requirement that regulations such as this one be cost neutral.
The Department respects its relationship with Congress and has
worked and will continue to work with the legislative branch on
improvements to the Federal student aid programs, including making
improvements to repayment plans.
Changes: None.
Comments: Many commenters disagreed with the Department's proposed
modifications to the IDR plans, particularly the amendments to REPAYE.
These commenters believed that borrowers knowingly entered into an
agreement to fully repay their loans and should pay the full amount
due. One commenter suggested that advising borrowers that they need
only repay a fraction of what they borrowed undercuts the purpose of
the signed promissory note. Many of these commenters expressed concern
that the REPAYE changes were unfair to those who opted not to obtain a
postsecondary education due to the cost, as well as to those who
obtained a postsecondary education and repaid their loans in full.
Discussion: The IDR plans assist borrowers who are in situations in
which their post-school earnings do not put them in a situation to
afford their monthly student loan payments. In some cases, this might
mean helping borrowers manage their loans while entering the workforce
at their initial salary. It could also mean helping borrowers through
periods of unanticipated financial struggle. And in some cases, there
are borrowers who experience prolonged periods of low earnings. We
reference the IDR plans on the master promissory note (MPN) that
borrowers sign to obtain a student loan and describe them in detail on
the Borrower's Rights and Responsibilities Statement that accompanies
the MPN. The changes in this final rule do not remove the obligation to
make required payments. They simply set those required payments at a
level the Department believes is reasonable to avoid large numbers of
delinquencies and defaults, as well as to help low- and middle-income
borrowers manage their payments.
We disagree with the claim that the IDR plan changes do not benefit
individuals who have not attended a postsecondary institution. The new
REPAYE plan will be available to both
[[Page 43823]]
current and future borrowers. That means an individual who has not
attended a postsecondary institution in the past but now chooses to do
so, could avail themselves of the benefits of this plan. Moreover,
allowing borrowers to choose a repayment plan based on their income and
family size will result in more affordable payments and allow those
individuals to avoid default which imposes additional costs on
taxpayers as well as borrowers.
Changes: None.
Comments: A few commenters argued that REPAYE is intended to be a
plan for borrowers who have trouble repaying the full amount of their
debt; and that REPAYE should not be what a majority of borrowers
choose, but rather, an alternate plan that borrowers may choose. These
commenters further argued that Congress designed the IDR plans to be
for exceptional circumstances where borrowers have a partial financial
hardship \5\ and that it is clear that a very large proportion of
borrowers who could otherwise afford their full payments would instead
choose REPAYE to reduce their payments.
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\5\ See 88 FR 1896 and 20 U.S.C. 1098e.
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Discussion: We believe that the new REPAYE plan will provide an
affordable path to repayment for most borrowers. There is nothing in
the HEA that specifies or limits how many borrowers should be using a
given type of student loan repayment plan. And in fact, as discussed in
the RIA, a majority of recent graduate borrowers are already using IDR
plans. The Department is concerned that far too many student loan
borrowers are at risk of delinquency and default because they cannot
afford their payments on non-IDR plans. We are concerned that returning
to a situation in which more than 1 million borrowers default on loans
each year is not in the best interests of borrowers or taxpayers.
Defaults have negative consequences for borrowers, including
reductions in their credit scores and resulting negative effects on
access to housing and employment.\6\ They may also lose significant
portions of key anti-poverty benefits, such as the Earned Income Tax
Credit (EITC), to annual offsets. Additionally, many of these borrowers
never finished postsecondary education and are unlikely to re-enroll
while in default. As a result, they likely will not receive the earning
gains one would expect from completing a postsecondary credential.
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\6\ Kiviat, B. (2019). The art of deciding with data: evidence
from how employers translate credit reports into hiring decisions.
Socio-Economic Review, 17(2), 283-309. So, W. (2022). Which
Information Matters? Measuring Landlord Assessment of Tenant
Screening Reports. Housing Policy Debate, 1-27.
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We believe the changes in this final rule will create a strong
safety net for student borrowers and help more borrowers successfully
manage their loans. At the same time, the taxpayers and Federal
Government will also receive significant benefits. For example,
avoiding default could spur some borrowers to continue their
postsecondary journeys and complete their programs, which will help
boost wages, tax receipts, and lower dependency on the broader safety
net. Overall, we think these benefits of the final rule far outweigh
the costs to taxpayers.
We also do not share the commenters' concerns about borrowers who
could otherwise repay their loans on an existing plan, such as the
standard 10-year plan, choosing to use this plan instead. If a
borrower's income is particularly high compared to their debt, their
payments under REPAYE will be higher than their payments on the
standard 10-year plan, which would result in them paying their loan off
faster. This has an effect similar to what occurs when borrowers
voluntarily choose to prepay their loans--the government receives
payments sooner than expected. Prepayments without penalty have been a
longstanding feature of the Federal student loan programs. On the other
hand, many high-income, high-balance borrowers may not want to choose
an IDR plan because it could result in a longer period of repayment.
While the monthly payment amount may be lower than the standard
repayment plan for some high-income, high-balance borrowers, the term
for an IDR plan spans 20 to 25 years as opposed to the standard 10-year
term that is the default option for borrowers. Using this plan could
result in high-income, high-balance borrowers paying back for a longer
period and paying back a larger total amount, given that the borrower
may be making interest-only payments for some time.
Changes: None.
Comments: A few commenters raised concerns that the proposed rules
would recklessly expand the qualifications for IDR plans without
providing sufficient accountability measures. These commenters argued
that the regulations would undermine accountability in higher
education. More specifically, these commenters believed that the IDR
proposals must be coupled with an aggressive accountability measure
that roots out programs where borrowers do not earn an adequate return
on investment. Until such accountability measure is in effect, these
commenters called on the Department to delay the IDR proposals.
Discussion: We discuss considerations regarding accountability in
greater detail in the RIA section of this regulation. This rule is part
of a larger Department effort that focuses on improving the student
loan system and includes creating a robust accountability
infrastructure through regulation and enforcement. Those enforcement
efforts are ongoing; the regulations on borrower defense to repayment,
closed school loan discharges, false certification loan discharges, and
others will go into effect on July 1, 2023; and the Department has
other regulatory efforts in progress. The new IDR regulations benefit
borrowers and do not interfere with those accountability measures.
Therefore, a delay in the implementation date is unnecessary.
Changes: None.
Comment: One commenter suggested that borrowers have difficulty
repaying their debts because underprepared students enter schools with
poor graduation rates.
Discussion: The Department works together with States and
accrediting agencies as part of the regulatory triad to provide for
student success upon entry into postsecondary education. The issue
raised by the commenter is best addressed through the combined efforts
of the triad to improve educational results for students, as well as
overall improvements to the K-12 education system before entry into a
postsecondary institution.
Changes: None.
Comment: One commenter argued that the Department created an overly
complex ICR plan that is not contingent on income; but instead focuses
on factors such as educational attainment, marital status, and tax
filing method, as well as past delinquency or default.
Discussion: We disagree with the commenter's claim that the REPAYE
plan is overly complex and not contingent on income. As with the ICR or
PAYE repayment plans, repayment is based on income and family size,
which affects how much discretionary income a person has available.
Other changes will streamline processes for easier access,
recertification, and a path to forgiveness. Because of these benefits,
REPAYE will be the best plan for most borrowers. Having one plan that
is clearly the best option for most borrowers will address the most
concerning sources of complexity during repayment, which is that
borrowers are unsure whether to use an IDR plan or which one to choose.
The most complicated elements of the
[[Page 43824]]
REPAYE plan will be carried out by the Department, including provisions
to calculate the share of discretionary income a borrower must pay on
their loans based upon the relative balances of loans they took out for
their undergraduate education versus other loans. We believe this plan
adequately and appropriately addresses borrowers' individual and unique
circumstances.
Changes: None.
Comments: Several commenters argued that the proposed regulations
could challenge the primacy of the Federal Pell Grant as the Federal
government's primary strategy for college affordability and lead to the
increased federalization of our higher education system. They further
suggested that a heavily subsidized loan repayment plan could
incentivize increased borrowing, which would increase the Federal role
in the governance of higher education, particularly on issues of
institutional accountability, which are historically and currently a
matter of State policy. Commenters asserted that the proposed rule
could correspondingly discourage State spending on higher education.
Discussion: The Department does not agree that the new IDR rules
will challenge the Federal Pell Grant as the primary Federal student
aid program for college affordability. The Pell Grant continues to
serve its critical purpose of reducing the cost of, and expanding
access to, higher education for students from low- and moderate-income
backgrounds. The Department's long-standing guidance has been that Pell
Grants are the first source of aid to students and packaging Title IV
funds begins with Pell Grant eligibility.\7\ However, many students
still rely upon student loans and so we seek to make them more
affordable for borrowers to repay.
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\7\ See Federal Student Aid Handbook, Volume 3, Chapter 7:
Packaging Aid.
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We also disagree that these regulations will incentivize increased
borrowing or discourage State spending on higher education. One central
goal of the final rule is to make student loans more affordable for
undergraduates. However, as discussed in the RIA, the rule does not
change the total amount of Federal aid available to undergraduate
students. Undergraduate borrowers, who receive the greatest benefit
from the rule, have strict loan limits as laid out in Section 455 of
the HEA. This rule does not and cannot amend those limits. Currently,
undergraduate programs are subsidized most heavily by States, and
States will continue to be incentivized to support public higher
education to meet unmet need.
The rule also does not amend the underlying structure of loans for
graduate students. As set by Congress in the HEA, graduate borrowers
have higher loan limits than undergraduate borrowers, including the
ability to take on Grad PLUS loans up to the cost of attendance. As
discussed in the RIA of this final rule, about half of recent graduate
borrowers are already using IDR plans. The increased amount of income
protected from payments will provide a benefit to someone who borrowed
only for graduate school, however borrowers with only graduate debt
will not see a reduction in their payment rate as a percentage of
discretionary income relative to existing plans. Someone with
undergraduate and graduate debt will receive a lower payment rate only
in proportion to the share of their loans that were borrowed to attend
an undergraduate program. We note the existing structure of the IDR
plans and the terms of the graduate loan programs set by Congress
already provide incentives for graduate borrowers to repay using an IDR
plan, as evidenced by existing data on IDR plan usage. We think the
added incentive effects provided by this rule for graduate borrowers
are incremental and smaller than the current policies established by
statute.
Finally, we note that the Department is engaged in separate efforts
aimed at addressing debt at programs that do not provide sufficient
financial value. In particular, an NPRM issued in May 2023 (88 FR
32300) proposes to terminate aid eligibility for career training
programs whose debt outcomes show they do not prepare students for
gainful employment in a recognized occupation. That same regulation
also proposes to enhance the transparency of debt outcomes across all
programs and to require students to acknowledge key program-level
information, including debt outcomes, before receiving Federal student
aid for programs with high ratios of annual debt payments to earnings.
Separately, the Department is also working to produce a list of the
least financially valuable programs nationwide and to ask the
institutions that operate those programs to generate a proposal for
improving their debt outcomes.
Overall, we believe these regulations will improve the
affordability of monthly payments by increasing the amount of income
exempt from payments, lowering the share of discretionary income
factored into the monthly payment amount for most borrowers, providing
for a shorter maximum repayment period and earlier forgiveness for some
borrowers, and eliminating the imposition of unpaid monthly interest,
allowing borrowers to pay less over their repayment terms.
We also disagree with the commenters that the rule increases the
Federal role in the governance of higher education. We believe that we
found the right balance of improving affordability and holding
institutions accountable as part of our role in the triad.
Changes: None.
Comments: Several commenters suggested that the overall generosity
of the program is likely to drive many non-borrowers to take out
student debt, as well as encourage current borrowers to increase their
marginal borrowing and elicit unscrupulous institutions to raise their
tuition.
One commenter believed that our proposal to forgive loan debt
creates a moral hazard for borrowers, institutions of higher learning,
and taxpayers. Another commenter suggested that since IDR is paid on a
debt-to-income ratio, schools that generate the worst outcomes are the
most rewarded in this system. The commenter believed this was
problematic even for the borrowers who ultimately receive generous
forgiveness, since it will lead many to use their limited Federal Pell
Grant and Direct Loan dollars to attend a school that does little to
improve their earning potential.
Discussion: The Department believes that borrowers are seeking
relief from unaffordable payments, not to increase their debt-load. As
with any new regulations, we employed a cost-benefit analysis and
determined that the benefits greatly outweigh the costs. Borrowers will
benefit from a more affordable REPAYE plan, and the changes we are
making will help borrowers avoid delinquency and default.
The Department disagrees that this plan is likely to result in
significant increases in borrowing among non-borrowers or additional
borrowing by those already taking on debt. For one, this plan
emphasizes the benefits for undergraduate borrowers and those
individuals will still be subject to the strict loan limits that are
established in Sec. 455 of the HEA \8\ and have not been changed since
2008. For instance, a first-year dependent student cannot borrow more
than $5,500, while a first-year independent student's loan is capped at
$9,500. Especially for dependent students, these amounts are far below
the listed tuition price for most institutions of higher education
[[Page 43825]]
outside of community colleges. Data from the 2017-18 National
Postsecondary Student Aid Study (NPSAS) show that a majority of
dependent undergraduate borrowers already borrow at the maximum.\9\ So,
too, do most student loan borrowers at public and private nonprofit
four-year institutions. Community college borrowers are the least
likely to take out the maximum amount of loan debt, which likely
reflects the lower prices charged. Community colleges generally offer
tuition and fee prices that can be covered entirely by the maximum Pell
Grant and enroll many students that exhibit signs of being averse to
debt.\10\
---------------------------------------------------------------------------
\8\ 20 U.S.C. 1087e.
\9\ Analysis from NPSAS 2017-18 via PowerStats, table reference
wrfzjv.
\10\ Boatman, A., Evans, B.J., & Soliz, A. (2017). Understanding
Loan Aversion in Education: Evidence from High School Seniors,
Community College Students, and Adults. AERA Open, 3(1). <a href="https://doi.org/10.1177/2332858416683649">https://doi.org/10.1177/2332858416683649</a>.
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We note that the shortened repayment period before forgiveness for
borrowers with lower balances will also provide incentives for
borrowers to keep their debt levels lower to qualify for earlier
forgiveness. This may be particularly important at community colleges,
where lower prices make it more feasible to complete a credential with
lesser amounts of debt. We also disagree with the commenters'
suggestion that this rule rewards institutions with the worst outcomes
and encourages institutions to raise their prices. There is no
indication that institutions increased tuition prices as a direct
result of the creation of the original REPAYE plan, and we do not have
evidence that institutions will increase prices as a result of the
changes in this rule. However, the revised REPAYE plan will allow
students who need to borrow to enroll in postsecondary education, earn
a degree or credential, and increase their lifetime earnings while
repaying their loan without being burdened by unaffordable payments.
Another reason to doubt these commenters' assertions that this rule
will result in additional borrowing is that evidence shows that
borrowers generally have low knowledge or awareness of the IDR plans,
suggesting that borrowers are not considering these options when making
decisions about whether to borrow and how much.\11\ For example, an
analysis of the 2015-16 NPSAS data showed that only 32 percent of
students reported having heard on any income-driven repayment
plans.\12\ Additionally, many students are debt averse and may still
not wish to borrow even under more generous IDR terms established by
this rule.\13\
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\11\ For example, some estimates suggest that more than 40
percent of low-income borrowers did not know about IDR, and other
research demonstrates confusion or lack of awareness about borrowing
more generally (e.g., Akers & Chingos (2014). Are College Students
Borrowing Blindly? Washington, DC: Brookings Institution; Darolia &
Harper (2018). Information Use and Attention Deferment in College
Student Loan Decisions: Evidence From a Debt Letter Experiment.
Educational Evaluation and Policy Analysis, 40(1); Sattelmeyer,
Caldwell & Nguyen (2023). Best Laid (Repayment) Plans. Washington,
DC: New America).
\12\ Anderson, Drew M., Johnathan G. Conzelmann, and T. Austin
Lacy, The state of financial knowledge in college: New evidence from
a national survey. Santa Monica, CA: RAND Corporation, 2018. <a href="https://www.rand.org/pubs/working_papers/WR1256.html">https://www.rand.org/pubs/working_papers/WR1256.html</a>.
\13\ Boatman, A., Evans, B.J., & Soliz, A. (2017). Understanding
Loan Aversion in Education: Evidence from High School Seniors,
Community College Students, and Adults.
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Though we believe it is unlikely, in the RIA of this final rule we
discuss alternative budget scenarios as well as the costs and benefits
associated with additional borrowing were it to occur. This analysis
shows that increases in borrowing will increase costs but additional
borrowing and those associated costs are not always inherently
problematic. While scholarships would be even more helpful to students,
some evidence suggests that loans can help more borrowers pay for their
tuition and living expenses, reduce their hours at work, and complete
their college programs. Additional borrowing is problematic when it
does not provide a return on investment, for example, when it does not
help borrowers complete a high-quality program, but our goal with this
regulation is to make certain that borrowers have affordable debts that
they are able to successfully repay, not to minimize borrowing at all
costs.
We also note that the Department is engaged in separate efforts
related to accountability, which are already described above. This
includes the gainful employment rule NPRM released on May 19, 2023.\14\
---------------------------------------------------------------------------
\14\ 88 FR 32300.
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Changes: None.
Comment: One commenter observed that our proposals lacked a
discussion of monthly payments versus total payments. The commenter
believed that, while there is the potential for borrowers to make lower
monthly payments, the extended period of payments could result in
higher total payments. In contrast, the commenter noted that a higher
monthly payment in a shorter time frame could result in lower total
payments. This commenter believed that we must consider the impact on
both monthly and total payments--and that any meaningful discussion
must include this analysis.
Discussion: Varied amounts of payments due and time to satisfy the
loan obligation have been part of the Direct Loan program since its
inception. The possibility of a higher total amount repaid over the
life of the loan may be a reasonable trade-off for borrowers who
struggle to repay their loans. In developing this rule, we conducted
analyses both in terms of monthly and total payments. Discussions of
monthly payments help the public understand the most immediate effects
on what a borrower will owe in a given period. The total payments were
thoroughly assessed in the RIA of the IDR NPRM and that discussion
considered broad questions about which types of borrowers were most
likely to receive the greatest benefits. The Department modeled the
change in lifetime payments under the new plan relative to the current
REPAYE plan for future cohorts of borrowers, assuming full
participation and considering projected earnings, nonemployment,
marriage, and childbearing. These analyses suggest that on average,
borrowers' lifetime total payments would fall under the new REPAYE
plan. The RIA presents this analysis. It shows projected total payments
for future repayment cohorts, discounted back to their present value if
future borrowers were to choose the new REPAYE plan. These are broken
down by quintile of lifetime income and include separate breakdowns of
estimates for whether a borrower has graduate loans. Reductions in
lifetime payments are largest for low- and middle-lifetime income
borrowers but, on average, all quintiles see reductions in lifetime
payments.
We continue to enhance the tools on the <a href="http://StudentAid.gov">StudentAid.gov</a> website that
allow borrowers to compare the different repayment plans available to
them. These tools show the monthly and total payment amounts over the
life of the loan as this commenter requested, as well as the date on
which the borrower would satisfy their loan obligation under each
different plan and any amount of the borrower's loan balance that may
be forgiven at the end of the repayment period. As an example,
borrowers can use the ``Loan Simulator'' on the site to assist them in
selecting a repayment plan tailored to their needs. To use the
simulator, borrowers enter their anticipated or actual salary, the
amount of their estimated or actual loan debt, and other data to
perform the calculation needed to achieve goals listed. These goals
include paying off their loans as quickly as possible, having a low
monthly payment, paying the lowest amount over time, and
[[Page 43826]]
paying off their loans by a certain date. We believe that the tools on
the <a href="http://StudentAid.gov">StudentAid.gov</a> website are user-friendly and readily available to
borrowers for customized calculations that we could not provide in this
rule.
Changes: None.
Comments: Several commenters raised concerns about the interaction
between REPAYE payments and the SECURE 2.0 Act of 2022.\15\ According
to one commenter, the SECURE 2.0 Act incentivizes retirement
contributions related to student loan payments. This provision allows
companies to provide employees with a match on their retirement
contributions for making student loan payments. This commenter was
concerned that borrowers may make costly mistakes by not taking
advantage of matching funds.
---------------------------------------------------------------------------
\15\ Public Law 117-328, Division T of the Consolidated
Appropriations Act of 2023.
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Discussion: Under section 110 of the SECURE 2.0 Act, Congress
permits--but does not require--employers to treat a borrower's student
loan payments as elective deferrals for purposes of matching
contributions toward that borrower's retirement plan. Although
commenters hypothesize that borrowers could potentially miss out on
retirement matching if a borrower is on a $0 IDR monthly payment, this
specific provision of the SECURE 2.0 Act will take effect for
contributions for plan years beginning on or after December 31,
2023.\16\ We see no basis for holding our regulations for a provision
that employers have not yet--and may not--use. Even if an employer were
to adopt the Sec. 110(h) provision of the SECURE 2.0 Act to treat a
borrower's student loan payments as elective deferrals for purposes of
retirement matching contributions, borrowers always have the
opportunity to prepay or make additional payments on their loans
without penalty. Such additional payments could receive the matched
contribution from their employer. Finally, as we stated in the IDR
NPRM, student loan debt has become a major obstacle to meeting
financial goals, and we believe saving for retirement is one of those
goals for many. Contrary to the commenters' belief that these
regulations could result in borrowers potentially missing out on
matching funds, or make other costly mistakes, we believe that these
repayment plans will facilitate and result in more borrowers achieving
broad financial goals such as saving for a home or, in this case,
retirement.
---------------------------------------------------------------------------
\16\ See section 110(h) of Public Law 117-328, Division T of the
Consolidated Appropriations Act of 2023.
---------------------------------------------------------------------------
Changes: None.
Comment: One commenter believed that our proposed changes to the
IDR plan give undergraduate borrowers a grant instead of a loan. This
commenter asserted that it would be better to provide the funds upfront
as grants, which may positively impact access, affordability, and
success. This commenter further believed that providing grants upfront
could reduce the amount of overall loan debt. The commenter further
cites researchers who had similar conclusions.
Discussion: For almost 30 years, the Department has allowed
borrowers to repay their loans as a share of their earnings under IDR
plans, but it has never considered these programs to be grant or
scholarship programs. These student loan repayment plans are different
in important respects from grants or scholarships. Many borrowers will
repay their debt in full under the new plan. Only borrowers who
experience persistently low incomes, relative to their debt burdens,
over years will not repay their debt. Moreover, because borrowers
cannot predict their future earnings, they will face significant
uncertainty over what their payments will be over the full length of
the repayment period. While some borrowers will receive forgiveness,
many borrowers will repay their balances with interest. The IDR plans
are repayment plans for Federal student loans that will provide student
loan borrowers greater access to affordable repayment terms based upon
their income, reduce negative amortization, and result in lower monthly
payments, as well as help borrowers to avoid delinquency and defaults.
Changes: None.
Comments: Many commenters expressed the view that it is
unacceptable that people who never attended a postsecondary institution
or who paid their own way to attend should be expected to pay for
others who took out loans to attend a postsecondary institution.
Discussion: We disagree with the commenters' position that the IDR
plan changes do not benefit individuals who have not attended a
postsecondary institution. This plan will be available to current and
future borrowers, including individuals who have not yet attended a
postsecondary institution but may in the future.
As outlined in the RIA, just because someone has not yet pursued
postsecondary education also does not mean they never will. There are
many students who first borrow for postsecondary education as older
adults well past the age of those who go to college straight from high
school. Similarly, there are many borrowers who re-enroll in
postsecondary education after having already repaid their past loans.
In both cases these borrowers may take on this debt because they are
looking to make a career switch, gain new skills to compete in the
labor force, or for other reasons. This plan would be available for
both these current and future borrowers.
We also note that investments in postsecondary education provide
broader societal benefits. Increases in postsecondary attainment have
spillover benefits to a broader population, including individuals who
have not attended college. For instance, there is evidence that
increases in college attainment increases productivity for both
college-educated and non-college educated workers.\17\ Increases in
education levels have also been shown to increase civic participation
and improve health and well-being for the next generation.\18\
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\17\ Public Law 117-328, Division T of the Consolidated
Appropriations Act of 2023.
\18\ See section 110(h) of Public Law 117-328, Division T of the
Consolidation Appropriations Act of 2023.
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Changes: None.
Legal Authority
General
Comment: A group of commenters argued that the proposed rule would
violate statute and exceed the Department's authority which could
result in additional confusion to borrowers, increase delinquencies, or
increase defaults.
Discussion: Congress has granted the Department clear authority to
create income-contingent repayment plans under the HEA. Specifically,
Sec. 455(e)(4) \19\ of the HEA provides that the Secretary shall issue
regulations to establish income-contingent repayment schedules that
require payments that vary in relation to the borrowers' annual income.
The statute further states that loans on an ICR plan shall be ``paid
over an extended period of time prescribed by the Secretary,'' and that
``[t]he Secretary shall establish procedures for determining the
borrower's repayment obligation on that loan for such year, and such
other procedures as are necessary to effectively implement income
contingent repayment.'' These provisions intentionally grant discretion
to the Secretary around how to construct the specific parameters of ICR
plans. This includes discretion as to how long a borrower must pay
(except that it cannot exceed 25 years). In other words, the statute
sets an explicit upper
[[Page 43827]]
limit, but no lower limit for the ``extended period'' time that a
borrower must spend in repayment. The statute also gives the Secretary
discretion as to how much a borrower must pay, specifying only that
payments must be set based upon the borrower's annual adjusted gross
income and that the payment calculation must account for the spouse's
income if the borrower is married and files a joint tax return.
---------------------------------------------------------------------------
\19\ 20 U.S.C. 1087e(e)(4).
---------------------------------------------------------------------------
This statutory language clearly grants the Secretary authority to
make the changes in this rule related to the amount of income protected
from payments, the amount of income above the income protection
threshold that goes toward loan payments, and the amount of time
borrowers must pay before repayment ends. Each of those parameters has
been determined independently through the rulemaking process and
related analyses and will be established in regulation through this
final rule, as authorized by the HEA.
The same authority governs many of the more technical elements of
this rule as well. For instance, the treatment of awarding a weighted
average of pre-consolidation payments and the catch-up period are the
Department's implementation of requirements in Sec. 455(e)(7) of the
HEA, which lays out the periods that may count toward the maximum
repayment period established by the Secretary. We have crafted the
regulatory language to comply with the statutory requirements while
recognizing the myriad ways a borrower progresses through the range of
repayment options available to them.
ED has used its authority under Sec. 455 of the HEA three times in
the past: to create the first ICR plan in 1995 (59 FR 61664) (FR Doc
No: 94-29260), to create PAYE in 2012 (77 FR 66087), and to create
REPAYE in 2015 (80 FR 67203).\20\ In each instance, the Department
provided a reasoned basis for the parameters it chose, just as we have
in this final rule. Congress has made minimal changes to the
Department's authority relating to ICR in the intervening years, even
as it has acted to create and then amend the IBR plan, first in 2007 in
the College Cost Reduction and Access Act (CCRAA) (Pub. L. 110-84) and
then in 2010 in the Health Care and Education Reconciliation Act of
2010 (Pub. L. 111-152). The 2007 CCRAA that created IBR also expanded
the types of time periods that can count toward the maximum repayment
period on ICR. Congress also left the underlying terms of ICR plans in
place when it improved access to automatic sharing of Federal tax
information for the purposes of calculating payments on IDR in 2019.
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\20\ <a href="https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm">https://www.govinfo.gov/content/pkg/FR-1994-12-01/html/94-29260.htm</a>
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Sec. 455(d)(1) through (4) of the HEA also provide authority for
other elements of this rule. These provisions grant the Secretary the
authority to choose which plans are offered to borrowers, which we are
leveraging to sunset future enrollments in the PAYE and ICR plan for
student borrowers. Similarly, Sec. 455(d)(4) of the HEA provides the
Secretary with discretion to craft ``an alternative repayment plan,''
under certain circumstances. Through this rule, the Secretary is using
that discretion to establish a structure for a repayment option for
borrowers who fail to recertify their income information on REPAYE. For
most borrowers, the alternative plan payments will be based upon how
much that borrower would have to pay each month to pay off the debt
with 10 years of equally sized monthly payments. This amount will be
specific to each borrower, as balances and interest rates vary for each
individual. This approach is necessary to design a functioning
alternative repayment plan for borrowers.
The treatment of interest in this plan is authorized by a
combination of authorities. Congress has granted the Secretary broad
authority to promulgate regulations to administer the Direct Loan
Program and to carry out his duties under Title IV. See, e.g.,
including 20 U.S.C. 1221e-3, 1082, 3441, 3474, 3471. See, e.g., 20
U.S.C. 1221e-3 (``The Secretary . . . is authorized to make,
promulgate, issue, rescind, and amend rules and regulations governing
the manner of operation of, and governing the applicable programs
administered by, the Department''). The Secretary has determined that
the regulations addressing interest will improve the Direct Loan
Program and make it more equitable for borrowers. More specifically,
Sec. 455(e)(5) of the HEA specifies how to calculate the amounts due on
monthly payments; but allows the Secretary discretion in calculating
the borrower's balance, which is exercised here to manage the accrual
of interest above and beyond the interest that the borrower pays each
month.
The interest benefit in this final rule is a modification of the
existing interest benefit provided on the REPAYE plan. That provision
has been in place since the plan's creation in 2015. It includes the
statutory requirement that the Department does not charge any interest
that is not covered by a borrower's monthly payment during the first
three years of repayment on a subsidized loan and the Department does
not charge half of all remaining interest that is not covered by the
borrower's monthly payment for all other periods in REPAYE. For
unsubsidized loans, the Department does not charge half of all
remaining interest that is not covered by the borrower's monthly
payment as long as the loan is in REPAYE. That benefit has been part of
the program for more than 7 years and the Department's authority for
providing that protection has not been challenged, nor has Congress
passed any legislation to change or eliminate that benefit. Though the
size of the benefit in this final rule is different, the underlying
rationale and authority are the same. The REPAYE plan was originally
created in response to a June 2014 Presidential Memorandum directing
the Department to take steps to give more borrowers access to
affordable loan payments, with a focus on borrowers who would otherwise
struggle to repay their loans. At that time, the Department thought the
changes in REPAYE would be sufficient to accomplish this goal. However,
the concerns described in that memorandum persist today, as the number
of borrowers who default on their Federal loans has not appreciably
declined since the REPAYE plan was created in 2015. In fact, the number
of defaults in the 2019 Federal fiscal year were higher than in 2015,
even as the number of annual borrowers declined over that period.\21\
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\21\ <a href="https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls">https://studentaid.gov/sites/default/files/DLEnteringDefaults.xls</a>
---------------------------------------------------------------------------
Part of the Department's responsibilities in operating the Federal
financial aid programs is to make certain that borrowers have available
clear information on how to navigate repayment. In some cases, that
means addressing tensions and ambiguity that exist in the law. For
instance, under Sec. 428(c)(3) of the HEA (20 U.S.C. 1078(c)(3)) we
exercised our authority to promulgate regulations to allow borrowers
participating in AmeriCorps to receive a forbearance on repayment of
their loans during the period they are serving in those positions.\22\
At the same time, Congress has established that borrowers may pursue
Public Service Loan Forgiveness if they meet certain requirements
related to employment and their loan repayment plan. That confuses
borrowers who must choose between pausing their payments entirely
versus making progress toward forgiveness with a monthly payment that
could be far less than what they owe on the standard 10-year plan,
potentially as low as $0. Similarly, a borrower who is unemployed may
have
[[Page 43828]]
a $0 payment on their IDR plan but may also be able to obtain an
unemployment deferment. The Department is using its broad authority
under section 410 of the General Education Provisions Act (GEPA), (20
U.S.C 1221e-3), HEA section 432,\23\ and sections 301, 411, and 414 of
the Department of Education Authorization Act \24\ to promulgate
regulations to govern the student loan programs and address such areas
of inconsistency and to award credit in situations where a borrower
uses certain types of deferments and forbearances that indicate a high
risk of confusion or tension when choosing from among the potential for
a $0 payment on an IDR plan, repayment statuses that provide credit for
PSLF, and the ability to pause payments.
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\22\ See 34 CFR 685.205(a)(4).
\23\ 20 U.S.C. 1082.
\24\ 20 U.S.C. 3441, 3471, and 3474.
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Some provisions in this rule derive from changes made by the 2019
Fostering Undergraduate Talent by Unlocking Resources for Education
(FUTURE) Act (Pub. L. 116-91). That legislation amended Sec. 6103 of
the Internal Revenue Code (IRC) \25\ to allow the Department to obtain
Federal tax information from the Internal Revenue Service (IRS) if the
borrower provided approval for the disclosure of such information. That
authority is being used to automatically calculate a borrower's IDR
payment if they have gone 75 days without making a payment or are in
default and they have provided the necessary approvals to us.
---------------------------------------------------------------------------
\25\ 26 U.S.C. 6103, et. seq.
---------------------------------------------------------------------------
Within all these authorities are implicit and explicit limiting
principles. The Secretary must issue regulations that follow the
requirements in the HEA. When the language grants specific discretion
to the Secretary or is otherwise allows for more than one
interpretation, the Department must provide a reasoned basis for the
choices it makes, as we have done in this rule. For instance, the
amount of income protected from payments is the greatest amount that we
believe can be justified on a reasoned basis at this time. Similarly,
the amount of discretionary income paid on loans for a borrower's
undergraduate study reflects our analysis of the comparative benefits
accrued by undergraduate and graduate borrowers under different payment
calculations. We have developed this rule with the goal of getting more
undergraduate borrowers, particularly those at risk of delinquency and
default, to enroll in IDR plans at rates closer to the higher levels of
existing graduate borrower enrollment.
As explained, the Department has the authority to promulgate this
final rule. The changes made in this rule will ultimately reduce
confusion and make it easier for borrowers to navigate repayment,
choose whether to use an IDR plan, and avoid delinquency and default.
Changes: None.
Comments: Commenters raised a series of individual concerns about
the legality of every significant proposed change in the IDR NPRM,
especially increasing the income protection threshold to 225 percent of
FPL, reducing payments to 5 percent of discretionary income on
undergraduate loans, the treatment of unpaid monthly interest, counting
periods of deferment and forbearance toward forgiveness, and providing
a faster path to forgiveness for borrowers with lower original
principal balances.
Discussion: The response to the prior comment summary discusses the
overarching legal authority for the final rule. We also discuss the
legality of specific provisions for individual components throughout
this section. However, the Department highlights the independent nature
of each of these components. This regulation is composed of a series of
distinct and significant improvements to the REPAYE plan that
individually provide borrowers with critical benefits. Here we identify
the ones that received the greatest public attention through comments;
but the same would be true for items that did not generate the highest
amount of public interest, such as the treatment of pre-consolidation
payments, access to IBR in default, automatic enrollment, and other
parameters. Increasing the amount of income protected from 150 percent
to 225 percent of the FPL will help more low-income borrowers receive a
$0 payment and reduced payment amounts for borrowers above that income
level that will also help middle-income borrowers. Those steps will
help reduce rates of default and delinquency and help make loans more
manageable for borrowers. Reducing to 5 percent the share of
discretionary income put toward payments on undergraduate loans will
also target reductions for borrowers with a non-zero-dollar payment. As
noted in the IDR NPRM and again in this final rule, undergraduate
borrowers represent the overwhelming majority of borrowers in default.
These changes target the reduction in payments to undergraduate
borrowers to make their payments more affordable and help them avoid
delinquency and default. Ceasing the charging of interest that is not
covered by a borrower's monthly payment addresses concerns commonly
raised by borrowers that quickly accruing interest can leave borrowers
feeling like IDR is not working for them as their loan balances grow
and they become discouraged about the possibility of repaying their
loan. Providing borrowers with lower loan balances a path to
forgiveness after as few as 120 monthly payments will help make IDR a
more attractive option for borrowers who traditionally are at a high
risk of delinquency and default. It will also provide incentives to
keep borrowing low.
Each of these new provisions standing independently is clearly
superior to the current terms of REPAYE or any other IDR plan. That is
critical because one of the Department's goals in issuing this final
rule is to create a plan that is clearly the best option for the vast
majority of borrowers, which will help simplify and streamline the
process for borrowers to choose whether to go onto an IDR plan as well
as which plan to pick. That simplicity will help all borrowers but can
particularly matter for at-risk borrowers trying to navigate the
system. Each of these provisions, standing on its own, contributes
significantly to that goal.
The result is that each of the components of this final rule can
operate in a manner that is independent and severable of each other.
The analyses used to justify their inclusion are all different. And
while they help accomplish similar goals, they can contribute to those
goals on their own.
Examples highlight how this is the case. Were the Department to
only maintain the interest benefit in the existing REPAYE plan while
still increasing the income protection, borrowers would still see
significant benefits by more borrowers having a $0 payment and those
above that 225 percent of FPL threshold seeing payment reductions.
Their total payments over the life of the loan would change, but the
most immediate concern about borrowers being unable to afford monthly
obligations and slipping into default and delinquency would be
preserved. Or consider the reduction in payments without the increased
income protection. That would still assist borrowers with undergraduate
loans and incomes between 150 and 225 percent of FPL to drive their
payments down, which could help them avoid default. Similarly, the
increased income protection by itself would help keep many borrowers
out of default by giving more low-income borrowers a $0 payment, even
if there was not additional help for borrowers above that
[[Page 43829]]
225 percent FPL threshold through a reduction in the share of
discretionary income that goes toward payments.
Providing forgiveness after as few as 120 payments for the lowest
balance borrowers can also operate independently of other provisions.
As discussed, both in the IDR NPRM and this final rule, although
borrowers with lower balances have among the highest default rates,
they are generally not enrolling in IDR in large numbers. A shortened
period until forgiveness, even without other reductions in payments,
would still make this plan more attractive for these borrowers, as a
repayment term of up to 20 years provides a disincentive to enrolling
in REPAYE even if that plan otherwise provides significant benefits to
the borrower.
The same type of separate analysis applies to the awarding of
credit toward forgiveness for periods spent in different types of
deferments and forbearances. The Department considered each of the
deferments and forbearances separately. For each one, we considered
whether a borrower was likely to have a $0 payment, whether the
borrower would be put in a situation where there would be a conflict
that would be hard to understand for the borrower (such as engaging in
military service and choosing between time in IDR and pausing
payments), and whether that pause on payments was under the borrower's
control or not (such as when they are placed in certain mandatory
administrative forbearances). Moreover, a loan cannot be in two
different statuses in any given month. That means it is impossible for
a borrower to have two different deferments or forbearances on the same
loan. Therefore, the awarding of credit toward forgiveness for any
given deferment or forbearance is separate and independent of the
awarding for any other. These deferments and forbearances also operate
separately from the other payment benefits. A month in a deferment or
forbearance is not affected by a month at any of the other provisions
that affect payment amounts, including the higher FPL, reduction in
discretionary income, or treatment of interest.
Changes: None.
Comments: Several commenters asserted that through this regulation
the Department is advising student loan borrowers that they can expect
to repay only a fraction of what they owe, which, they argue, undercuts
the legislative intent of the Direct Loan program as well as the basic
social contract of borrowing. Additionally, these commenters alleged
that having current borrowers fail to repay their student loans
jeopardizes the entire Federal loan program.
Discussion: The Department has not and will not advise borrowers
that they can expect to repay a fraction of what they owe. The purpose
of these regulations, which implement a statutory directive to provide
for repayment based on income, is to make it easier for borrowers to
repay their loans while ensuring that borrowers who do not have the
financial resources to repay do not suffer the lasting and harmful
consequences of delinquency and default. We also note that forgiveness
of remaining loan balances has long been a possibility for borrowers
under different circumstances (such as Public Service Loan Forgiveness
and disability discharges) \26\ and under other IDR repayment
plans.\27\
---------------------------------------------------------------------------
\26\ See <a href="http://www.studentaid.gov/manage-loans/forgiveness-cancellation">www.studentaid.gov/manage-loans/forgiveness-cancellation</a>.
\27\ Secs. 455(d)(1)(D) and (E) and 493C of the HEA.
---------------------------------------------------------------------------
Changes: None.
Historical Authority
Comments: Several commenters argued that the underlying statutory
authority in sections 455(d) and (e) of the HEA cited by the Department
did not establish the authority for the Department to make the proposed
changes to the REPAYE plan.
Commenters argued this position in several ways. Commenters cited
comments by a former Deputy Secretary of Education during debates over
the passage of the 1993 HEA amendments that there would not be a long-
term cost of these plans because of the interest borrowers would pay.
Commenters cited that same former official as noting that any
forgiveness at the end would be for some limited amounts remaining
after a long period. As further support for this argument, the
commenters argued that Congress did not explicitly authorize the
forgiveness of loans in the statute, nor did it appropriate any funds
for loan forgiveness when it created this authority.
Using this historical analysis, commenters argued that Congress
never intended for the Department to create changes to REPAYE that
would result in at least partial forgiveness for most student loan
borrowers. Many commenters referred to this situation as turning the
loan into a grant. Several commenters argued that Congress established
the ICR program as revenue-neutral without authorizing cancellation of
borrowers' debt.
Discussion: Nothing in the HEA requires ICR plans or Department
regulations to be cost neutral. Congress included the authority for ICR
plans when it enacted the Direct Loan Program and left it to the
Department to establish the specific provisions of the plans through
regulations. Forgiveness of the remaining loan balance after an
established time has been a part of the IDR plans since the creation of
the Direct Loan Program in 1993-1994.\28\ Over the past 30 years,
Congress has not reduced opportunities for loan forgiveness, but
instead has expanded them, including through IBR and Public Service
Loan Forgiveness. We also note that in 1993, Congress appropriated
funds to cover all cost elements of the Direct Loan Program, including
the ICR authority. Therefore, there was no need to have a separate
appropriation.\29\ However, the Department has always thoughtfully
considered the costs and benefits of our rules as reflected in the RIA.
---------------------------------------------------------------------------
\28\ See HEA section 455(e).
\29\ Hearing of the Committee on Labor and Human Resources to
Amend the Higher Education Act of 1965, 103rd Cong. (1993), 48,
available at: <a href="http://www.files.eric.ed.gov/fulltext/ED363187.pdf">www.files.eric.ed.gov/fulltext/ED363187.pdf</a>.
---------------------------------------------------------------------------
Changes: None.
History of Subsequent Congressional Action
Comments: Several commenters argued that the history of
Congressional action with respect to IDR plans in the years since the
ICR authority was created show that the proposed changes are contrary
to Congressional intent. Commenters noted that since the 1993 HEA
reauthorization, Congress has only made three amendments to the ICR
language: (1) to allow Graduate PLUS borrowers to participate and
prevent parent PLUS borrowers from doing so; (2) to allow more loan
statuses to count toward the maximum repayment period; and (3) to give
the Department the ability to obtain approval from a borrower to assist
in the sharing of Federal tax information from the IRS. These
commenters argued that if Congress had wanted the Department to make
changes of the sort proposed in the IDR NPRM it would have done so
during those reauthorizations.
Other commenters argued along similar lines by pointing to other
statutory changes to student loan repayment options since 1993. They
cited the creation of the IBR plan and Public Service Loan Forgiveness
in the 2007 CCRAA, as well as subsequent amendments to the IBR plan in
2010, as proof that Congress had considered the parameters of Federal
student loan repayment and forgiveness programs and created a strong
presumption that Congress did not delegate that authority to the
Department. In recounting this
[[Page 43830]]
history, commenters also argued that changes made in 2012 to create
PAYE and in 2014 to create REPAYE were unlawful.
Other commenters cited unsuccessful attempts by Congress to pass
legislation to change the repayment plans as further proof that the
Department does not have the legal authority to take these actions.
They mentioned attempts to pass legislation that would adjust the terms
of IDR plans, forgive a set amount of outstanding debt right away, and
other similar legislative efforts that did not become law as proof that
had Congress wanted to act in this space it would have done so.
Discussion: The commenters have mischaracterized the legislative
and regulatory history of the Direct Loan Program. As previously
discussed, the Secretary has broad authority to develop and promulgate
regulations for programs he administers, including the Direct Loan
Program under section 410 of GEPA.\30\ Section 455(d)(1)(D) of the HEA
gives the Secretary the authority to determine the repayment period
under an ICR plan with a maximum of 25 years. Congress did not specify
a minimum repayment period and did not limit the Secretary's authority
to do so. We also note that, over the past decades in which these plans
have been available, Congress has not taken any action to eliminate the
PAYE and REPAYE plans or to change their terms. ED has used this
authority three times in the past: to create the first ICR plan in
1995, to create PAYE in 2012, and to create REPAYE in 2015. The only
time Congress acted to constrain or adjust the Department's authority
relating to ICR was in 2007 legislation when it provided more
specificity over the periods that can be counted toward the maximum
repayment period. Even then, it did not adjust language related to how
much borrowers would pay each month. Congress also did not address
these provisions when it improved access to automatic sharing of
Federal tax information for the purposes of calculating payments on ICR
in 2019.
---------------------------------------------------------------------------
\30\ 20 U.S.C. 1221e-3.
---------------------------------------------------------------------------
Congress has also not included any language related to these plans
in annual appropriations bills even as it has opined extensively on a
number of other issues related to student loan servicing. For instance,
appropriations bills for multiple years in a row have consistently laid
out expectations for the construction of new contracts for the
companies hired by the Department to service student loans.
Appropriations language also created the Temporary Expanded Public
Service Loan Forgiveness Program.
Changes: None.
Major Questions and Separation of Powers
Comments: Several commenters argued that the changes to REPAYE
violate the major questions doctrine and would violate the
constitutional principal of separation of powers. They pointed to the
ruling in West Virginia v. EPA to argue that courts need not defer to
agency interpretations of vague statutory language and there must be
``clear Congressional authorization'' for the contemplated action. They
argued that the cost of the proposed rule showed that the regulation
was a matter of economic significance without Congressional
authorization. They also noted that the higher education economy
affects a significant share of the U.S. economy.
Commenters also argued that the changes had political significance
since they were mentioned during the Presidential campaign and as part
of a larger plan laid out in August 2022 that included the announcement
of one-time student debt relief. To further that argument, they pointed
to additional legislative efforts by Congress to make a range of
changes to the loan programs over the last several years. These include
changes to make IDR more generous, cancel loan debt, create new
accountability systems, make programs more targeted, make programs more
flexible for workforce education, and others. Some commenters took
arguments related to one-time debt relief even further, saying that
because some parameters of the proposed changes to REPAYE and one-time
debt relief were announced at the same time that they are inextricably
linked.
The commenters then argued that neither of the two cited sources of
general statutory authority--Sections 410 and 414 of GEPA--provides
sufficient statutory basis for the proposed changes.
A different set of commenters said the ``colorable textual basis''
in the vague statutory language was not enough to authorize changes of
the magnitude proposed in the IDR NPRM.
Given these considerations, commenters said that the Department
must explain how the underlying statute could possibly allow changes of
the magnitude contemplated in the proposed rule.
Discussion: The rule falls comfortably within Congress's clear and
explicit statutory grant of authority to the Department to design a
repayment plan based on income. See HEA section 455(d)-(e).\31\ This is
discussed in greater detail in response to the first comment summary in
this subsection of the preamble.
---------------------------------------------------------------------------
\31\ 20 U.S.C. 1087e(d)-(e).
---------------------------------------------------------------------------
The Department disagrees that the Supreme Court's West Virginia
decision undermines the Department's authority to promulgate the
improvements to IDR. That decision described ``extraordinary cases'' in
which an agency asserts authority of an ``unprecedented nature'' to
take ``remarkable measures'' for which it ``had never relied on its
authority to take,'' with only a ``vague'' statutory basis that goes
``beyond what Congress could reasonably be understood to have
granted.'' \32\ The rule here does not resemble the rare circumstances
described in West Virginia. There is nothing unprecedented or novel
about the Department relying on section 455 of the HEA as statutory
authority for designing and administering repayment plans based on
income. In addition, under Section 493C(b) of the HEA,\33\ the
Secretary is authorized to carry out the income-based repayment program
plan. Indeed, as previously discussed, the Code of Federal Regulations
has included multiple versions of regulations governing income-driven
repayment for decades.\34\ Yet Congress has taken no action to limit
the Secretary's discretion to develop ICR plans that protect taxpayers
and best serve borrowers and their families.
---------------------------------------------------------------------------
\32\ 142 S. Ct. at 2609.
\33\ 20 U.S.C. 1098e(b).
\34\ See, e.g., 60 FR 61820 (Dec. 1, 1995); 73 FR 63258 (Oct.
23, 2008).
---------------------------------------------------------------------------
As such, the rule is consistent with the Secretary's clear
statutory authority to design and administer repayment plans based on
income.
Changes: None.
Administrative Procedure Act
Comments: Commenters argued that the extent of the changes proposed
in the IDR NPRM exceed the Department's statutory authority and violate
the Administrative Procedure Act (APA). They argued that converting
loans into grants was not statutorily authorized and this proposal is
instead providing what they considered to be ``free college.''
Discussion: The Department does not agree with the claim that the
REPAYE plan turns a loan into a grant. Borrowers who have incomes that
are above 225 percent of FPL and are high relative to their debt will
repay their debt in full under the new plan. Borrowers with incomes
consistently below 225 percent of FPL or with incomes that are low
[[Page 43831]]
relative to their debt will receive some loan cancellation. In many
cases, loan cancellation will come after borrowers have made interest
and principal payments on the loan and, as a result, the amount
cancelled will be smaller than the original loan. Many borrowers
default under the current system because they cannot afford to repay
their loans, and even the more aggressive collection efforts available
to the Department once a borrower defaults frequently do not result in
full repayment. The IDR plans are repayment plans for Federal student
loans that will provide student loan borrowers greater access to
affordable repayment terms based upon their income, reduce negative
amortization, and result in lower monthly payments, as well help
borrowers to avoid delinquency and default.
Changes: None.
Comments: Commenters argued that the rule violates the APA, because
it was promulgated on a contrived reason. In making this argument, they
cited Department of Commerce v. New York, in which the Supreme Court
overruled attempts to add a question related to citizenship on the 2020
census because the actual reason for the change did not match the goals
stated in the administrative record. The commenters argued that if the
Department's goals for this rule were truly to address delinquency and
default, or to make effective and affordable loan plans, we would have
tailored the parameters more clearly. The commenters pointed to the
fact that borrowers with incomes at what they calculated to be the 98th
percentile would be the point at which it does not make sense to choose
this plan, as well as protecting an amount of income at the 78th
percentile for a single person between the ages of 22 to 25 as proof
that it is not targeted.
The commenters argued that this lack of targeting shows that the
actual goal of the plan is unstated. The commenters theorized that an
unstated goal must be to create a ``free college'' plan by another
name. They argued that the Department must more explicitly state that
its goal is to replace some loans with grants or explain why it is
providing such extensive untargeted subsidies.
Discussion: In the IDR NPRM and in this preamble, the Department
provides a full explanation of the rationale for and purpose of these
final rules. These final rules are consistent with, and, in fact,
effectuate, Congress' intent to provide income-driven repayment plans
that provide borrowers with terms that put them in a position to repay
their loans without undue burden. Contrary to the claims made by these
commenters, these rules do not turn loans into grants and have no
connection to legislative proposals made for free community college.
Changes: None.
Vesting Clause
Comments: Commenters argued that the changes to REPAYE would
violate the vesting clause by creating an unconstitutional delegation
of legislative power to the Department. They claimed that the
Department's reading of the authority granted by the 1993 HEA provision
is overly broad and lacks any sort of limiting principle to what the
commenters described as unfettered and unilateral discretion of the
Secretary. They argued that such an expansive view of this authority
was untenable.
Discussion: In this rule, the Department is exercising the
authority given to it by Congress in Section 455(d) and (e) of the HEA
(20 U.S.C. 1087e(d) and (e)) to establish regulations for income
contingent repayment plans, as it has done several times previously.
The Department is further exercising its rulemaking authority under
Sec. 414 of the Department of Education Organization Act (20 U.S.C.
3474) to prescribe rules and regulations as the Secretary determines
necessary or appropriate to administer and manage the functions of the
Department. Finally, under Sec. 410 of GEPA (20 U.S.C. 1221e-3), the
Secretary is authorized to make, promulgate, issue, rescind, and amend
rules and regulations governing the manner of operation of, and
governing the applicable programs administered by, the Department.
These rules further improve the IDR plans and are consistent with the
Secretary's authority to administer the Direct Loan program.
Contrary to the claims by the commenters, these regulations reflect
and are consistent with statutory limits on the Secretary's authority
to establish rules for ICR plans under Sec. 455 of the HEA. For
instance, the HEA provides that a borrower's payments must be based
upon their adjusted gross income, that it must include the spouse's
income if the borrower is married and files a joint tax return, and
that repayment cannot last beyond 25 years. Similarly, the statutory
language does not provide for partial forgiveness over a period of
years as it does in other parts of the HEA. For example, under the
Teacher Loan Forgiveness Program, borrowers may be eligible for
forgiveness of up to $17,500 on their Federal student loans if they
teach full time for 5 complete and consecutive academic years in a low-
income school or educational service agency, and meet other
qualifications. See, HEA section 460 (20 U.S.C. 1087j).
Other limitations arise from the interaction between the HEA and
the Administrative Procedure Act. When crafting a regulation, the
Department must have a reasoned basis for the changes it pursues and
they must be allowable under the statute. For instance, we do not
believe there is a reasonable basis at this time for a regulation that
protects 400 percent of FPL. We have reviewed available research,
looked into signs of material distress from borrowers, and see nothing
that gives us a reasoned basis to protect that level of income.
The final rule is therefore operating within the Secretary's
statutory authority. We developed these regulations based upon a
reasoned basis for action.
Changes: None.
Appropriations Clause
Comments: Commenters argued that because Congress did not
specifically authorize the spending of funds for the proposed changes
to REPAYE, the proposed rules would violate the appropriations clause.
They argued, in particular, that cancellation of debt requires specific
Congressional appropriation, and that the Department has not identified
such a Congressional authorization. They argued that the treatment of
unpaid monthly interest, the protection of more income, the reductions
of the share of discretionary income put toward payments, and
forgiveness sooner on small balances are all forms of cancellation that
are not paid for. Along similar lines, other commenters argued that the
proposed changes would turn the loan program into a grant and such a
grant is not paid for under the HEA. These commenters pointed to
language used by the Department about creating a safety net for
borrowers as proof that these changes would make loans into grants.
They argued that such grants would result in spending that is neither
reasonable nor accountable since there is no clear expectation that
amounts would be repaid.
Discussion: These commenters mischaracterize the Department's
rules. These rules modify the REPAYE payment plan to better serve
borrowers and make it easier for them to satisfy their repayment
obligation. They do not change the loan to a grant. In section 455 of
the HEA, Congress provided that borrowers who could not repay their
loans over a period of time established by the Secretary would have the
[[Page 43832]]
remaining balance on the loans forgiven. That has been a part of the
Direct Loan Program since its original implementation in 1994. The new
rules are a modification of the prior rules to reflect changing
economic conditions regarding the cost of higher education and the
burden of student loan repayment on lower income borrowers. Over the
years, Congress has provided for loan forgiveness or discharge in
several different circumstances and, in the great majority of
situations, including loan forgiveness resulting from an IDR repayment
plan, the costs are paid through mandatory expenditures. The new rules
simply modify the terms of an existing loan repayment plan, established
under Congressional authority, and will be paid for through the same
process.
The commenters similarly misunderstand the goal in highlighting
this plan as a safety net for borrowers. The idea of a safety net is
not to provide an upfront grant, it is to provide a protection for
borrowers who are unable to repay their debt because they do not make
enough money.
Changes: None.
225 Percent Income Protection Threshold
Comments: Commenters argued that nothing in the 1993 HEA amendments
authorized the Department to protect as much as 225 percent of FPL.
Along those lines, other commenters argued that Congress took action to
set the income protection threshold at 100 percent of FPL in 1993, then
raised it to 150 percent in 2007, and Congress did not intend to raise
it higher.
Discussion: Section 455(e)(4) of the HEA authorizes the Secretary
to establish ICR plan procedures and repayment schedules through
regulations based on the appropriate portion of annual income of the
borrower and the borrower's spouse, if applicable. Contrary to the
assertion of the commenter, the HEA did not establish the threshold of
100 percent of FPL for ICR.
The Student Loan Reform Act of 1993 provided that loans paid under
an income contingent repayment plan would have required payments
measured as a percentage of the appropriate portion of the annual
income of the borrower as determined by the Secretary. The decision to
set that portion of income at a borrower's income minus the FPL was a
choice made by the Department when it promulgated regulations for the
Direct Loan Program in 1994.
In 2007, Congress passed the CCRAA, which created the IBR plan and
set the income protection threshold at 150 percent of the FPL for
purposes of IBR. However, Congress did not apply the same threshold to
ICR. The HEA prescribes no income protection threshold for ICR.
Instead, Congress retained the language in Sec. 455(e)(4) of the HEA
(20 U.S.C. 1087e(e)(4)) that gives the Secretary the discretion to
establish the rules for ICR repayment schedules. The Secretary is
exercising that discretion here. In 2012, when we created PAYE, we
raised the income protection threshold, among other provisions, to 150
percent to align with IBR.
For this rule, the Department has recognized that the economy, as
well as student borrowers' debt loads and the extent to which they are
able to repay have changed substantially and the Department has
conducted a new analysis to establish the appropriate amount of
protected income. This analysis is based upon more recent data and
reflects the current situation of the student loan portfolio and the
circumstances for individual student borrowers, which is unquestionably
different than it was three decades ago and has even shifted in the 11
years since the Department increased the income protection threshold
for an ICR plan when we created PAYE. Since 2012, the total amount of
outstanding Federal student loan debt and the number of borrowers has
grown by over 70 percent and 14 percent, respectively.\35\ This
increase in outstanding loan debt has left borrowers with fewer
resources for their other expenses and impacts their ability to buy a
house, save for retirement, and more. We reconsidered the threshold to
provide more affordable loan payments to student borrowers. The
Department chose the 225 percent threshold based on an analysis of data
from the U.S. Census Bureau's Survey of Income and Program
Participation (SIPP) for individuals aged 18-65 who attended
postsecondary institutions and who have outstanding student loan debt.
The Department looked for the point at which the share of those who
report material hardship--either being food insecure or behind on their
utility bills--is statistically different from those whose family
incomes are at or below the FPL.
---------------------------------------------------------------------------
\35\ Federal Student Aid Portfolio Summary, available at:
<a href="http://studentaid.gov/data-center/student/portfolio">studentaid.gov/data-center/student/portfolio</a>.
---------------------------------------------------------------------------
Changes: None.
Interest Benefits
Comments: Commenters argued that the underlying statutory authority
does not allow for the Department's proposal to not charge unpaid
monthly interest to borrowers. They argued that the ICR statutory
language requires the Secretary to charge the borrower the balance due,
which includes accrued interest. Similarly, they argue that the statute
requires the Secretary to establish plans for repaying principal and
interest of Federal loans. They also noted that the statutory text
discusses how the Department may choose when to not capitalize
interest, which shows that Congress considered what flexibilities to
provide to the Secretary and that does not include the treatment of
interest accrual. They also pointed to changes made to the HEA in the
CCRAA that changed the treatment of interest accrual on subsidized
loans as proof that Congress considered whether to give the Secretary
more flexibility on the treatment of interest and chose not to do so.
Some commenters also pointed to the fact that the previous most
generous interpretation of this authority for interest benefits--the
current REPAYE plan--did not go as far on not charging unpaid monthly
interest as the proposed rule.
Discussion: Sec. 455(e)(5) of the HEA (20 U.S.C. 1087e(e)(5))
defines how to calculate the balance due on a loan repaid under an ICR
plan. However, it does not restrict the Secretary's discretion to
define or limit the amounts used in calculating that balance. Beyond
that, section 410 of GEPA,\36\ provides that ``The Secretary . . . is
authorized to make, promulgate, issue, rescind, and amend rules and
regulations governing the manner of operation of, and governing the
applicable programs administered by, the Department,'' which includes
the Direct Loan program. Similarly, section 414 of the Department of
Education Organization Act \37\ authorizes the Secretary to ``prescribe
such rules and regulations as the Secretary determines are necessary or
appropriate to administer and manage the functions of the Secretary or
the Department.'' We also note that while section 455(e)(5) of the HEA
defines how to calculate the balance due on a loan repaid under an ICR
plan, it does not restrict the Secretary's discretion to define or
limit the amounts used in calculating that balance. These regulations
reflect the Secretary's judgment as to how that balance should be
calculated.
---------------------------------------------------------------------------
\36\ 20 U.S.C. 1221e-3.
\37\ 20 U.S.C. 3474.
---------------------------------------------------------------------------
The interest benefit provided in these regulations is one aspect of
the many distinct, independent, and severable changes to the REPAYE
plan included
[[Page 43833]]
in these rules that will allow borrowers to be in a better position to
repay more of their loan debt, which is in the best interests of the
taxpayers. Defaults do not benefit taxpayers or borrowers.
Changes: None.
Comment: Commenters argued that since Congress has passed laws
setting the interest rate on student loans that the Department lacks
the authority to not charge unpaid monthly interest because doing so is
akin to setting a zero percent interest rate for some borrowers.
Discussion: The HEA has numerous provisions establishing different
interest rates and different interest rate formulas on Federal student
loans during different periods as well as limiting the amount of unpaid
monthly interest that may be capitalized. See, for example, HEA
sections 427A \38\ and 455(e)(5).\39\ Those provisions do not require
that the maximum interest rate be charged to borrowers at all times
during the life of the loan. The HEA and the Department's regulations
\40\ have long included different provisions providing that interest
will not be charged in a variety of circumstances, including under
income-driven repayment plans. See, for example, Sec. 428(b)(1)(M) of
the HEA \41\ and 34 CFR 685.204(a) (interest not charged during periods
of deferment on subsidized loans); 34 CFR 685.209(a)(2)(iii) (unpaid
interest not charged for first three years under PAYE); Sec. 455(a)(8)
of the HEA \42\ and 34 CFR 685.211(b) (interest rate can be reduced as
repayment incentive); and 34 CFR 685.213(b)(7)(ii)(C) (if borrower's
loan is reinstated after initial disability discharge, interest not
charged during period in which payments not required). Congress has
never taken action to reverse those provisions. Therefore, there is no
support for the commenters' suggestion that the statutory provisions
regarding the maximum interest rate are determinative of when that rate
must be charged.
---------------------------------------------------------------------------
\38\ 20 U.S.C. 1077a.
\39\ 20 U.S.C. 1087(e)(5).
\40\ See, for example, Sec. Sec. 685.202(a),
685.209(a)(2)(iii), 685.209(c)(2)(iii)(A) and 685.221(b)(3).
\41\ 20 U.S.C. 1078(b)(1)(M).
\42\ 20 U.S.C. 1087e(a)(8).
---------------------------------------------------------------------------
Changes: None.
Comments: Commenters argued that the Department did not specify
whether interest that is not charged will be treated as a canceled debt
or as revenue that the Secretary decided to forego. In the latter
situation, the commenters argued that the Department has not
established how unilaterally forgoing interest is not an abrogation of
amounts owed to the U.S. Treasury, as established in the Master
Promissory Note.
Discussion: The determination of the accounting treatment of
interest that is not charged as cancelled debt or foregone interest is
not determinative of the Secretary's authority to set the terms of IDR
plans.
Changes: None.
Deferment and Forbearance
Comments: Commenters argued that the Department lacked the
statutory authority to award credit toward forgiveness for a month
spent in a deferment or forbearance beyond the economic hardship
deferment already identified in section 455(e)(7) of the HEA. They
argued that the 2007 changes to include economic hardship deferments in
ICR showed that Congress did not intend to include other statuses. They
also pointed to the underlying statutory language that provides that
the only periods that can count toward forgiveness are times when a
borrower is not in default, is in an economic hardship deferment
period, or made payments under certain repayment plans. They asserted
that the Department cannot otherwise count a month toward forgiveness
when a monetary payment is not made. Commenters also noted that this
approach toward deferments and forbearances is inconsistent with how
the Department has viewed similar language under sections 428(b)(1)(M)
\43\ and 493C(b)(7) \44\ of the HEA.
---------------------------------------------------------------------------
\43\ 20 U.S.C. 1078(b)(1)(M).
\44\ 20 U.S.C. 1098e(b)(7).
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Discussion: The provisions in Sec. 455(e)(7) of the HEA are not
exclusive and do not restrict the Secretary's authority to establish
the terms of ICR plans. That section of the HEA prescribes the rules
for calculating the maximum repayment period for which an ICR plan may
be in effect for the borrower and the time periods and circumstances
that are used to calculate that maximum repayment period. It is not
intended to define the periods under which a borrower may receive
credit toward forgiveness. The commenters did not specify what they
meant in terms of inconsistent treatment, but the Department is not
proposing to make underlying changes to the terms and conditions
related to borrower eligibility for a given deferment or forbearance or
how the borrower's loans are treated during those periods in terms of
the amount of interest that accumulates. Rather, we are concerned that,
despite the existence of the IDR plans, borrowers are ending up in
deferments or forbearances when they would have had a $0 payment on IDR
and would be gaining credit toward ultimate loan forgiveness. This
concern has become more pronounced over time as the Department has
taken a closer look at how payment counts toward IDR are being tracked
and how successful borrowers are at navigating forgiveness programs as
the first cohorts of borrowers are reaching the point when they would
be eligible for relief. These problems would not have been as
immediately pressing in past instances of rulemaking since borrowers
would not yet have been eligible for forgiveness so the effect on
borrowers getting relief would not have been readily observable. This
change reflects updated information available to the Department about
how to make repayment work better. Finally, we note that these changes
would not be applied to FFEL loans held by lenders.
Changes: None.
10-Year Cancellation
Comments: Commenters argued that the creation of PSLF in 2007
showed that Congress did not intend for the Department to authorize
forgiveness as soon as 10 years for borrowers not eligible for that
benefit.
Other commenters argued that HEA section 455(e)(5), which states
that payments must be made for ``an extended period of time'' implies
that the time to forgiveness must be longer than 10 years' worth of
monthly payments but less than 25 years.
Discussion: HEA section 455(d)(1)(D) requires the Secretary to
offer borrowers an ICR plan that varies annual repayment amounts based
upon the borrower's income and that is paid over an extended period of
time, not to exceed 25 years.
For the lowest balance borrowers, we believe that 10 years of
monthly payments represents an extended period of time. Borrowers with
low balances are most commonly those who enrolled in postsecondary
education for one academic year or less. This provision, therefore,
requires that a borrower repay their loan for a period that can be 10
times longer than the duration of their enrollment in postsecondary
education. The Department agrees that as balances increase, the amount
of time to repay should be extended. We, therefore, used a slope that
increases the amount of time to repay as balances grow, up to the
maximum of 25 years' worth of monthly payments as provided in the HEA.
In response to the commenters who asserted that the proposed rule
violated Congressional intent because of the varying payment caps for
PSLF and
[[Page 43834]]
non-PSLF borrowers, we disagree. PSLF is a separate program created by
Congress. For most borrowers, PSLF will offer them forgiveness over a
much shorter period than what they would otherwise have, even under the
more generous terms created by this rule.
Changes: None.
Federal Claims Collections Standards
Comments: A few commenters argued that the proposed rule violated
the Federal Claims Collection Standards (FCCS). They pointed to 31
U.S.C. 3711(a), which requires the heads of Federal agencies to try to
collect debts owed to the United States and cited regulations stemming
from that provision that also require agencies to ``aggressively''
collect debts owed to agencies. They argued that since the statute does
not grant the Department the authority to waive, modify, or cancel
these debts, that it must abide by these financial management duties.
In particular, they argued that choosing not to charge unpaid monthly
interest would violate those obligations.
Several commenters also argued that granting forgiveness after as
few as 10 years' worth of payments violated the FCCS because those
borrowers would be the ones most likely able to repay their debts due
to their small loan balances. Shortened time to forgiveness would mean
the Department is failing to aggressively collect debt due.
Discussion: The Department disagrees with these commenters. The
FCCS requires agencies to try to collect money owed to them and
provides guidance to agencies that functions alongside the agencies'
own regulations addressing when an agency should compromise claims. The
Department has broad authority to settle and compromise claims under
the FCCS and as reflected in 34 CFR 30.70. The HEA also grants the
Secretary authority to settle and compromise claims in Section
432(a)(6) \45\ of the HEA. This IDR plan, however, is not the
implementation of the Department's authority to compromise claims, it
is an implementation of the Department's authority to prescribe income-
contingent repayment plans under Sec. 455 of the HEA.
---------------------------------------------------------------------------
\45\ 20 U.S.C. 1082(a)(6).
---------------------------------------------------------------------------
The Department also disagrees that low-balance borrowers are most
likely to be able to repay their debts. In fact, multiple studies as
well as Department administrative data establish that lower balance
borrowers are at a far greater likelihood of defaulting on their loan
than those with larger balances. As noted in the IDR NPRM, 63 percent
of borrowers in default had original loan balances of $12,000 or below.
While it is true that lower balances equate to lower loan payments, the
commenter fails to consider that many borrowers with lower balances
either did not complete a postsecondary program or obtained only a
certificate. They likely received lower financial returns and
demonstrably are more likely to struggle with repaying their loans. For
borrowers with persistently low income, requiring payments for 20 years
would not result in substantial increases in payments. In other words,
reducing the time to forgiveness for such borrowers would not lead to
large amounts of forgone payments.
Changes: None.
Definitions (Sec. 685.209(b))
Comments: Several commenters suggested modifying the definition of
``family size'' to simplify and clarify language in the proposed
regulations. One commenter suggested that we revise the definition of
``family size'' to better align it with the definition of a dependent
or exemption on Federal income tax returns, similar to changes made to
simplify the Free Application for Federal Student Aid (FAFSA) that
begin in the 2024-2025 cycle. Another commenter stated that changing
the definition of ``family size'' in this manner will streamline the
IDR process and make it easier to automatically recertify a borrower's
participation without needing supplemental information from the
borrower.
Discussion: We appreciate the commenters' suggestions to change the
definition of ``family size'' to simplify the recertification process
and make the definition for FAFSA and IDR consistent. We agree that it
is important that borrowers be able to use data from their Federal tax
returns to establish their household size for IDR. Doing so will make
it easier for borrowers to enroll and stay enrolled in IDR. For that
reason, we have added additional clarifying language noting that
information from Federal tax returns can be used to establish household
size.
The Department notes that in the IDR NPRM we did adopt one key
change in the definition of ``family size'' that is closer to IRS
treatment and is being kept in this final rule. That change is to
exclude the spouse from the household size if the borrower is married
filing separately. Prior to this change it was possible for a borrower
on the IBR, ICR, or PAYE plans to file separately and still include the
spouse in their household. (This was not possible in the REPAYE plan
because it always required the inclusion of the spouse's income
regardless of whether the borrower was married filing jointly or
separately.) The Department believes that if the spouse's income is not
being counted for the purpose of establishing payment amounts then the
spouse should not be included in the household size, which has the
effect of protecting more income from payments.
As noted in the Implementation Date of These Regulations section,
the Department will be early implementing this change on July 30, 2023.
Between that date and July 1, 2024, borrowers completing the electronic
application will have their spouse automatically excluded from their
household size if they are married and file a separate tax return.
Those who file separately and wish to include their spouse in their
household size will have to complete the separate alternative
documentation of income process to include the spouse's income. This
change will affect any IDR plan chosen by Direct Loan borrowers. It
will not be early implemented for FFEL borrowers.
Beyond that change that was also in the IDR NPRM, the Department
chose not to adjust the definition of ``family size'' to match the IRS
definition because we are concerned about making the process of
determining one's household size through a manual process too onerous
or confusing. The family size definition we proposed in the IDR NPRM
captures many of the same concepts the IRS uses in its definition of
dependents. This includes considering that the individual receives more
than half their support from the borrower, as well as that dependents
other than children must live with the borrower. The full IRS
definition includes other considerations appropriate for tax filing but
that could confuse borrowers when they determine who to include in
their household size for IDR. These considerations include a cap on the
amount of income an individual could have to be considered a dependent
and provisions for how to address which household a child of a divorced
couple should be included within. By using a simplified, easy to
understand definition of family size, borrowers will have the ability
to accurately modify the family size data retrieved from the IRS.
Additionally, the definition explains when the borrower is permitted to
include the spouse in the family size for all IDR plans.
Changes: We added subparagraph (ii) to the definition of ``family
size'' in Sec. 685.209(b).
Comments: One commenter urged the Department to create consistent
treatment for all student loan borrowers (including borrowers with
Direct Loans,
[[Page 43835]]
FFELs and graduate and Parent PLUS borrowers in both programs) under
our regulations. This commenter argued that the divisions between FFEL
and Direct Loans frustrate borrowers and generate resentment. The
commenter also believes these changes would reduce complexity in the
student loan system and particularly help Black and Hispanic borrowers
who need to borrow loans to pay for their education.
Discussion: The Department supports aligning program regulations
for Direct Loan and FFEL borrowers where appropriate and permitted by
statute and has determined it is appropriate to align the definition of
``family size'' in Sec. 682.215(a)(3) of the FFEL program regulations
with the definition in Sec. 685.209(b), with the exception of Sec.
685.209(b)(ii), which must be excluded because the FUTURE Act only
permits the sharing of tax information from the IRS to the Department
and not to private parties who hold FFEL loans. The alignment of the
definition in Sec. 682.215(a)(3) provides for the exclusion of the
borrower's spouse from the family size calculation except for borrowers
who file their Federal tax return as married filing jointly.
The Department will work with FFEL partners, including lenders and
guaranty agencies, to make sure that borrowers repaying their FFEL
loans under the IBR plan are treated consistently with Direct Loan
borrowers with respect to borrowers' family size. Unlike the comparable
changes to the Direct Loan program, this change will not be early
implemented and will instead go into effect on July 1, 2024. We are
treating FFEL loans differently in this case to make certain there is
sufficient time to adjust systems and avoid a situation where some
lenders voluntarily choose to implement this change and others do not.
Changes: We have revised the definition of ``family size'' in Sec.
682.215(a)(3) to align with the definition of ``family size'' in Sec.
685.209(b).
Comment: One commenter suggested that we include definitions and
payment terms related to all of the IDR plans, not just REPAYE, because
borrowers may be confused about which terms apply to which plans. This
commenter recommended adding additional subsections in the regulations
to eliminate confusion.
Discussion: Effective July 1, 2024, we will limit student borrowers
to new enrollment in REPAYE and IBR. We do not believe that any
additional changes to the other plans are necessary. Overall, we think
the reorganization of the regulatory text to put all IDR plans in one
place will make it easier to understand the terms of the various plans.
Changes: None.
Borrower Eligibility for IDR Plans (Sec. 685.209(c))
Comments: Many commenters supported our proposed changes to the
borrower eligibility requirements for the IDR plans. However, many
commenters expressed concern that we continued the existing exclusion
of parent PLUS borrowers from the REPAYE plan. These commenters argued
that parent PLUS borrowers struggle with repayment just as student
borrowers do, and that including parents in these regulations would be
a welcome relief.
Commenters also expressed concern that our proposed regulations
excluded Direct Consolidation Loans that repaid a parent PLUS loan from
the benefits that student borrowers would receive. These commenters
noted that parents may have borrowed student loans to finance their own
education in addition to taking out a parent PLUS loan to pay for their
child's education.
One commenter alleged that the Direct Consolidation Loan repayment
plan for parent PLUS borrowers is not as helpful compared to the other
repayment plans. This commenter noted that the only IDR plan available
to parent PLUS borrowers when they consolidate is the ICR plan, which
uses an income protection calculation based on 100 percent of the
applicable poverty guideline compared to 150 percent of the applicable
poverty guideline for the other existing IDR plans. The commenter also
noted that the only IDR plan available to borrowers with a Direct
Consolidation Loan that repaid a parent PLUS loan requires parents to
pay 20 percent of their discretionary income compared to 10 percent for
the other existing IDR plans available to students. Together, these
conditions make monthly payments unmanageable for parent PLUS borrowers
according to this commenter.
One commenter noted that while society encourages students to
obtain a college degree due to the long-term benefits of higher
education, tuition is so expensive that oftentimes students are unable
to attend a university or college without assistance from parents. In
this commenter's view, the Department has structured an IDR plan for
parent PLUS borrowers that is unfair and punitive to parents. The
commenter also noted that parent PLUS borrowers who work an additional
job to help with expenses will have an increase in AGI, which leads to
higher monthly loan payments the following year.
One commenter said that excluding parent PLUS borrowers from most
IDR plans, especially parents of students who also qualify for Pell
Grants, suggested that the Department is not concerned that parents are
extremely burdened by parent PLUS loan payments. Several commenters
stated that if parents are still unable to access the REPAYE plan
benefits, some or all of those repayment improvements should be
implemented into the ICR plan available to parent PLUS borrowers.
One commenter asserted that students attending Historically Black
Colleges and Universities (HBCUs) are more likely to rely on parent
PLUS loans than students attending other institutions. The commenter
further stated that given racial disparities in college affordability,
the proposed REPAYE plan should be amended to include Direct
Consolidation loans that repaid Direct or FFEL parent PLUS Loans.
Discussion: While we understand that some parent PLUS borrowers may
struggle to repay their debts, parent PLUS loans and Direct
Consolidation loans that repaid a parent PLUS loan will not be eligible
for REPAYE under these final regulations. The HEA has long
distinguished between parent PLUS loans and loans made to students. In
fact, section 455(d)(1)(D) and (E) of the HEA prohibit the repayment of
parent PLUS loans through either ICR or IBR plans.
Following changes made to the HEA by the Higher Education
Reconciliation Act of 2005, the Department determined that a Direct
Consolidation Loan that repaid a parent PLUS loan first disbursed on or
after July 1, 2006, could be eligible for ICR.\46\ The determination
was partly due to data limitations that made it difficult to track the
loans underlying a consolidation loan, as well as recognition of the
fact that a Direct Consolidation Loan is a new loan. In granting access
to ICR, the Department balanced our goal of allowing the lowest-income
borrowers who took out loans for their dependents to have a path to low
or $0 payments without making benefits so generous that the program
would fail to acknowledge the foundational differences established by
Congress between a parent who borrows for a student's education and a
student who borrows for their own education. The income-driven
repayment plans provide a safety net for student borrowers by allowing
them to repay their loans as a share of their earnings over a number of
years. Many Parent
[[Page 43836]]
PLUS borrowers are more likely to have a clear picture of whether their
loan is affordable when they borrow because they are older than student
borrowers, on average, and their long-term earnings trajectory is both
more known due to increased time in the labor force and more likely to
be stable compared to a recent graduate starting their career. Further,
because parent PLUS borrowers do not directly benefit from the
educational attainment of the degree or credential achieved, the parent
PLUS loan will not facilitate investments that increase the parent's
own earnings. The parent's payment amounts are not likely to change
significantly over the repayment period for the IDR plan. Moreover,
parents can take out loans at any age, and some parent PLUS borrowers
may be more likely to retire during the repayment period. Based on
Department administrative data, the estimated median age of a parent
PLUS borrower is 56, and the estimated 75th percentile age is 62. As
such, the link to a 12-year amortization calculation in ICR reflects a
time period during which these borrowers are more likely to still be
working.
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\46\ <a href="http://fsapartners.ed.gov/sites/default/files/attachments/dpcletters/GEN0602.pdf">fsapartners.ed.gov/sites/default/files/attachments/dpcletters/GEN0602.pdf</a>.
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We appreciate and agree with the commenter's concern about racial
disparities in college affordability, and we recognize that students
attending HBCUs often rely on parent PLUS loans. However, we do not
agree that making Direct Consolidation Loans that repaid a parent PLUS
loan eligible for REPAYE is the appropriate way to address that issue.
The Department supports numerous ways to improve affordability for all
borrowers, including parent PLUS borrowers, and address resource
inequities faced by HBCUs and the students they serve. Parent PLUS
loans have benefited from the pause on payments and interest, and they
are eligible for President Biden's plan to cancel to up to $20,000 in
student debt. The Department delivered approximately $3 billion of
additional American Rescue Plan funding to HBCUs, Tribally Controlled
Colleges and Universities (TCCUs), Minority Serving Institutions
(MSIs), and Strengthening Institutions Program (SIP) institutions.
Additionally, the Department's proposed budget for Fiscal Year 2024
would increase investments in capacity building and student success
efforts at these institutions and provide up to $4,500 in tuition
assistance to students at HBCUs, TCCUs, and MSIs. The Department will
continue to explore ways to make college affordable for all students
and address racial disparities. We will also continue to explore all
available options, including legislative recommendations, regulatory
amendments, and other means to identify ways to make certain that
parent PLUS borrowers are able to successfully manage and repay their
loans.
Changes: None.
Comment: One commenter emphatically stated that the Department
should not under any circumstances expand this proposed rule to make
parent PLUS loans eligible for REPAYE. The commenter further stated
that while earnings are uncertain but likely to grow for most
borrowers, parent PLUS borrowers' earnings are more established and
consistent. Allowing these loans to be eligible for REPAYE would make
the proposed rule far more expensive and regressive.
Discussion: We agree with the commenter that parents borrowing for
their children are different than student borrowers and have more
established and consistent earnings. As discussed previously, we know
that many parent PLUS borrowers do struggle to repay their loans, but
we do not believe that including consolidation loans that repaid a
parent PLUS loan in REPAYE is the appropriate way to address that
problem given the difference between students and parents borrowing for
their child's education.
The Department is taking some additional steps in this final rule
to affirm our position about the treatment of parent PLUS loans or
Direct consolidation loans that repaid a parent PLUS loan being only
eligible for the ICR plan In the past, limitations in Department data
may have enabled a parent PLUS loan that was consolidated and then re-
consolidated to enroll in any IDR plan, despite the Department's
position that such loans are only eligible for the ICR plan. The
Department will not adopt this clarification for borrowers in this
situation currently on an IDR plan because we do not think it would be
appropriate to take such a benefit away. At the same time, the
Department is aware that a number of borrowers have consolidated or are
in the process of consolidating in response to recent administrative
actions, including the limited PSLF waiver and the one-time payment
count adjustment. Because some of these borrowers may be including
parent PLUS loans in those consolidations without understanding that
they would need to exclude that loan type to avoid complicating their
future IDR eligibility, we will be applying this clarification for any
Direct Consolidation loan made on or after July 1, 2025.
Changes: We added Sec. 685.209(c)(5)(iii) to provide that a Direct
Consolidation loan made on or after July 1, 2025, that repaid a parent
PLUS loan or repaid a consolidation loan that at any point paid off a
parent PLUS loan is not eligible for any IDR plan except ICR.
Limitation on New Enrollments in Certain IDR Plans (Sec.
685.209(c)(2), (3), and (4))
Comments: Several commenters raised concerns about the Department's
proposal in the IDR NPRM to prevent new enrollments in PAYE and ICR for
student borrowers after the effective date of the regulations. They
noted that these plans are included in the MPN that borrowers signed.
Several commenters pointed out that the Department has not previously
eliminated access to a repayment plan for borrowers even if they are
not currently enrolled on such plan. These commenters also argued that
some of the plans being limited might provide lower total payments for
borrowers than REPAYE, especially for graduate borrowers who could
receive forgiveness after 20 years on PAYE.
One commenter suggested that we consider ceasing enrollment in IBR
for new borrowers--other than borrowers in default--to simplify
repayment options and possibly reduce the cost of the plan if high-
income graduate borrowers use REPAYE before switching back into IBR to
receive forgiveness.
Discussion: The MPN specifically provides that the terms and
conditions of the loan are subject to change based on any changes in
the Act or regulations. This provides us with the legal authority to
prohibit new enrollment in PAYE and ICR. However, we do not believe it
is appropriate to end a repayment plan option for borrowers currently
using that plan who wish to continue to use it. Therefore, no borrower
will be forced to switch from a plan they are currently using. For
example, a borrower already enrolled in PAYE will be able to continue
repaying under that plan after July 1, 2024.
The Department also does not think limiting new enrollment in PAYE
or ICR creates an unfair limitation for student borrowers not currently
enrolled in those plans. Borrowers in repayment will have a year to
decide whether to enroll in PAYE. This provides them with time to
decide how they want to navigate repayment. The overwhelming majority
of borrowers not currently in repayment have loans that should be
eligible for the version of IBR that is available to new borrowers on
or after July 1, 2014. That plan has terms that are essentially
identical to PAYE. Given that borrowers will have time to choose
[[Page 43837]]
their plan, have access to REPAYE, and most likely have access to IBR
if they are not currently in repayment, the simplification benefits far
exceed the size of this population.
Accordingly, the Department has retained the structure in the IDR
NPRM. Student borrowers will not be eligible to access PAYE or ICR
after July 1, 2024, although consolidation loans that repaid a parent
PLUS loan will maintain access to ICR. Any borrower on PAYE or ICR as
of July 1, 2024 will maintain access to those plans so long as they do
not switch off those plans, and the limitation only applies to those
not enrolled in those plans on that date.
In response to the commenter's suggestion to consider sunsetting
new enrollment in IBR, we do not believe that sunsetting the IBR plan
is permitted by section 493C(b) of the HEA which authorized the IBR
plan. For the PAYE and ICR plans, both of which are authorized by the
same statutory provisions that are distinct from those that establish
IBR, we believe it is appropriate to limit new enrollment and to
prevent re-enrollment in those plans for borrowers who choose to leave
REPAYE.
In the IDR NPRM, we proposed limitations on switching plans out of
concern that a borrower with graduate loans may pay for 20 years on
REPAYE to receive lower payments, then switch to IBR and receive
forgiveness immediately. We proposed limiting such a switch after the
equivalent of 10 years of monthly payments (120 payments) so that
borrowers would have adequate time to choose and not feel suddenly
stuck in one plan.
However, we are changing the way the limitation on switching from
REPAYE to IBR will work in this final rule. Instead of applying a
cumulative payment limit, which could include time prior to July 1,
2024, we are prohibiting borrowers from switching to IBR after making
the equivalent of 5 years of payments (60 months) on REPAYE starting
after July 1, 2024. Applying this requirement prospectively makes
certain that no borrower is inadvertently excluded from the plan and
that we can properly enforce this requirement. This is especially
important as the Department works to award IDR credit through the one-
time payment count adjustment. However, because we are restricting this
prospectively, we agree with the commenter that a shorter amount of
allowable time on REPAYE is appropriate. Accordingly, we reduced the
amount of time a borrower can spend on REPAYE and still change plans to
half of the time we proposed in the IDR NPRM.
Changes: We have clarified that only borrowers who are repaying a
loan on the PAYE or ICR plan as of July 1, 2024, may continue to use
those plans and that if such a borrower switches from those plans they
would not be able to return to them. We maintain the exception for
borrowers with a Direct Consolidation Loan that repaid a Parent PLUS
loan. These borrowers will still be able to access ICR after July 1,
2024. We have amended Sec. 685.209(c)(3)(ii) to stipulate that a
borrower who makes 60 monthly payments on REPAYE after July 1, 2024,
may no longer switch from REPAYE to IBR.
Income Protection Threshold (Sec. 685.209(f))
General Support for Income Protection Threshold
Comments: Many commenters supported the Department's proposal to
set the income protection threshold at 225 percent of the FPL. As one
commenter noted, the economic hardship caused by a global pandemic and
the steady rise in the cost of living over the last 40 years have left
many borrowers struggling to make ends meet resulting in less money to
put toward student loans. The commenter noted that the proposed change
would allow borrowers to protect a larger share of their income so that
they do not have to choose between feeding their families and making
student loan payments.
A few commenters agreed that providing more pathways to affordable
monthly payments would reduce the overall negative impact of student
debt on economic mobility. They further suggested that it would
increase a borrower's ability to achieve other financial goals, such as
purchasing a home or saving for emergencies. Another commenter noted
that the proposed change will provide greater economic security for
many borrowers and families, particularly those whose rent represents
too large a share of their income,\47\ and will help borrowers impacted
by rising housing costs, inflation, and other living expenses.
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\47\ <a href="https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html">https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html</a>.
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One commenter noted that requiring payments only for those who earn
more than 225 percent of FPL, as opposed to 150 percent of the FPL,
will positively impact people of color attempting to thrive in the work
world after completing their degree.
Another commenter considered the increased income protection a
major step forward. This commenter noted that early childhood
educators, paraprofessionals, and other low- to moderate-wage workers
often find the current income-driven repayment system unaffordable,
causing these individuals to often go in and out of deferment or
forbearance.
Discussion: We thank the many commenters who supported our proposed
changes. We understand that many borrowers have been struggling to make
ends meet and have less money to put toward student loans. We believe
these final regulations will result in more affordable monthly payments
for many borrowers, particularly the borrowers who struggle the most.
Providing more affordable monthly payments will in turn help reduce
rates of delinquency and default among borrowers.
Changes: None.
General Opposition to Income Protection Threshold
Comments: According to one commenter, an increase in the threshold
provides extensive benefits even to high-income borrowers. Notably,
however, the commenter remarked that it also makes payments
substantially more affordable for low-income borrowers.
Another commenter noted that changing the income protection
threshold from 150 percent to 225 percent of the FPL was the single
costliest provision of the proposed regulations and noted that the
reason for the high cost was because both undergraduate and graduate
loans would be eligible for the higher income protection threshold.
This commenter recommended that we maintain the income protection
threshold at 150 percent for graduate loans to strike a balance of
targeting benefits to the neediest borrowers while also protecting
taxpayers' investment.
Several commenters opposed the proposed revisions to the income
protection threshold, saying that it would be wrong to force taxpayers
to effectively cover the full cost of a postsecondary education. One
commenter felt that the proposed changes were morally corrupt, noting
that many borrowers would pay nothing under this plan, forcing
taxpayers to cover the full amount. Others argued that it was unfair to
set the amount of income protected at 225 percent of FPL because that
amount would be substantially above the national median income for
younger adults, including those who did not attend college.
Discussion: While it is true that the increase in the income
protection threshold protects more income from
[[Page 43838]]
being included in payment calculations, the Department believes this
change is necessary to provide that borrowers have sufficient income
protected to afford basic necessities. Moreover, as noted in the IDR
NPRM, this threshold captures the point at which reports of financial
struggles are otherwise statistically indistinguishable from borrowers
with incomes at or below the FPL. Additionally, this protection amount
provides a fixed level of savings for borrowers that does not increase
once a borrower earns more than 225 percent of FPL. For the highest
income borrowers, the payment reductions from this increase could
eventually be erased due to the lack of a payment cap equal to the
amount the borrower would pay under the standard 10-year plan. This
achieves the Department's goal of targeting this repayment plan to
borrowers needing the most assistance. As the commenter remarked, and
with which we concur, our increase of the income protection threshold
to 225 percent of FPL would result in substantially more affordable
payments for low-income borrowers.
In response to the commenter who opined that the shift from 150
percent of the FPL to 225 percent was the single costliest provision in
these regulations, we discuss in greater detail the cost of this
regulation in the RIA section of this document. We decline to adopt the
commenter's recommendation of using a threshold of 150 percent of FPL
for graduate borrowers because we believe this income protection
threshold provides an important safety net for borrowers to make
certain that they have a baseline level of resources. In choosing this
threshold, we conducted an analysis of student loan borrowers and
looked at the point at which the share of borrowers reporting a
material hardship, either being food insecure or behind on their
utility bills, was statistically different from those whose family
incomes are at or below the FPL and found that those at 225 percent of
the FPL were statistically indistinguishable from those with incomes
below 100 percent of the FPL. Moreover, we are concerned about the
complexity of varying both the amount of income protected and the
amount of unprotected income used to calculate payments based upon loan
types.
We disagree with the commenter's concerns that the income
protection threshold is too high because it is higher than the median
income for young adults. Borrowers who fail to complete a degree or
certificate will likely have similar earnings compared to borrowers who
do not go to college but will have student loan debt they need to
repay, even if they did not receive a financial benefit from their
additional education. In 2020, median full-time full-year income for
high school graduates aged 25 to 34 was $36,600 while the discretionary
income threshold at 225 FPL would have been $28,710 for a single
individual.\48\ Therefore, even a borrower who worked full time but did
not receive any financial benefit from the education for which they
borrowed would still make loan payments under the new REPAYE plan.
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\48\ <a href="http://nces.ed.gov/fastfacts/display.asp?id=77">nces.ed.gov/fastfacts/display.asp?id=77</a>.
---------------------------------------------------------------------------
In response to the commenters who opposed our income protection
threshold provisions on the grounds that it would be wrong to force
taxpayers to pay for the borrower's education and be morally corrupt,
we note that the costs associated with delinquency and default would be
detrimental to both the taxpayers and the individual borrower.
Moreover, we provided further discussion elsewhere in this section,
Income Protection Threshold, as to why we remain convinced that it is
appropriate set the threshold at 225 percent of the FPL.
Changes: None.
Higher Income Protection Amounts
Comment: Commenters argued that the proposed protection threshold
of 225 percent was too low and was beneath what most non-Federal
negotiators had suggested during the negotiated rulemaking sessions.
Discussion: As discussed during the negotiated rulemaking sessions,
the Department agreed with the non-Federal negotiators that the amount
of income protected under the current regulations is too low.
Accordingly, in Sec. 685.209(f)(1), the Department increased the
amount of discretionary income exempted from the calculation of
payments in the REPAYE plan to 225 percent of the FPL. We chose this
threshold based on an analysis of data from the 2020 SIPP \49\ for
individuals aged 18 to 65, who attended postsecondary institutions, and
had outstanding student loan debt. The Department looked for the point
at which the share of those who report material hardship--either being
food insecure or behind on their utility bills--was statistically
different from those whose family incomes are at or below their
respective FPL. The Department never proposed protecting an amount of
income above 225 percent of the FPL during the negotiations, and
consensus was not reached during the negotiations.
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\49\ <a href="http://www.census.gov/programs-surveys/sipp/data/datasets/2020-data/2020.html">www.census.gov/programs-surveys/sipp/data/datasets/2020-data/2020.html</a>.
---------------------------------------------------------------------------
Changes: None.
Comments: Many commenters argued for protecting a larger amount of
the FPL than the Department proposed. One commenter suggested that the
income protection threshold be increased to 300 to 350 percent of FPL
to meet basic needs, specifically for families with young children, and
increased to 400 percent for those with high medical expenses. Other
commenters recommended using a threshold above 400 percent. They said
this amount would better reflect borrowers' true discretionary income
after they pay for housing, food, child care, elder care, health
insurance premiums, utilities, and transportation bills.
Other commenters argued for increasing the amount of income
protected on the grounds that the borrowers most likely to benefit from
the increase disproportionately include first-generation college
students, as well as those who are immigrants, Black, and Latino.
Discussion: The Department disagrees with the suggestions to
increase the amount of income protected. We base payments on the
marginal amount of income above that threshold. As a result, we
determine the payment on the amount of a borrower's income above the
225 percent FPL threshold, rather than on all of their income. For
someone who earns just above 225 percent of FPL, their payments will
still be minimal.
Here, we illustrate the payment amount for a single borrower
earning income that is $1,500 above the 225 percent FPL threshold and
who holds only undergraduate loans. The borrower's payment will be
approximately $10 per month (due to the rounding of minimum payment
amounts), which is only 0.2 percent of their annual income. We believe
that increasing the income protection threshold and reducing the
payment amount for undergraduate loans, coupled with our other
regulatory efforts such as auto-enrollment into IDR for delinquent
borrowers will protect low-income borrowers and reduce defaults.
Changes: None.
Comments: Some commenters suggested that we apply various
incremental increases--from 250 percent to over 400 percent--so that
struggling borrowers can afford the most basic and fundamental living
expenses like food, housing, child care, and health care, in line with
the threshold used for Affordable Care Act subsidies.
[[Page 43839]]
Discussion: The Department sought to define the level of necessary
income protection by assessing where rates of financial hardship are
significantly lower than the rate for those in poverty. Based upon an
analysis discussed in the Income Protection Threshold section of the
IDR NPRM, the Department found that point to be 225 percent of FPL.
We believe the new REPAYE plan provides an important safety net for
borrowers whose income falls at a point at which repaying their student
loans would become difficult. Our analysis found that borrowers between
225 percent and 250 percent of the FPL have statistically different
rates of material hardship compared to those below the poverty line. As
such 250 percent of FPL would not be an appropriate threshold.
The comparison to the parameters of the Affordable Care Act's
Premium Tax Credits is not appropriate. Under that structure, 400
percent of FPL is the level at which eligibility for any subsidy
ceases. An individual up to that point can receive a tax credit such
that they will not pay more than 8.5 percent of their total income.
Individuals above that point receive no additional assistance. In
contrast, all borrowers--including those who have incomes above 225
percent or even 400 percent of FPL--will have income equal to 225
percent FPL protected when calculating their payment. The eligibility
threshold for receiving the minimum ACA premium tax credit is,
therefore, not a suitable gauge of the point below which it is
unreasonable to expect a borrower to make payments on their student
loans.
Changes: None.
Comment: A commenter discussed the relationship of borrowers' debt-
to-income ratios to the percentage of defaulted borrowers. This
commenter cited their own research, which found that default rates
generally level off at a discretionary income of $35,000 and above and
could reasonably justify income protection of 400 percent FPL if the
goal is to reduce default rates.
Discussion: Reducing default rates is a concern for the Department.
We believe that the changes made to the REPAYE plan will reduce default
rates. However, we do not believe that raising the income protection
from 225 percent to 400 percent would sufficiently reduce defaults in a
way that would justify the added costs. Changing the income protection
to 400 percent would protect up to $58,320 for a single individual and
$120,000 for a four-person household. Existing evidence on default
indicates that borrowers with much lower incomes are the ones most
likely to struggle with loan repayment. For example, data from the
2012/17 Beginning Postsecondary Students Longitudinal Study show that
around 1.4 percent of individuals who had incomes below the equivalent
of $58,320 in 2017 dollars (about $47,700) defaulted in the previous
year, and 5.7 percent ever defaulted by that point, compared to less
than 1 percent (both in the previous year and ever defaulted) for those
above $58,320.\50\
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\50\ Analysis using Beginning Postsecondary Students (BPS) 2012/
2017, PowerStats reference zqelzd.
---------------------------------------------------------------------------
Changes: None.
Comments: One commenter noted that while material hardship is a
valid determination for an income threshold, there are significantly
more families experiencing financial hardship beyond the definition in
the IDR NPRM. The commenter said that our estimation of a material
hardship was inequitable by only looking at food insecurity and being
behind on utility bills and suggested that we raise the threshold to
incorporate other areas such as housing and health care.
Discussion: Our examination of the incidence of material hardship
used two measures that are commonly considered in the literature on
material hardship and poverty as proxies for family well-being.\51\ We
agree that there are other expenses that can create a financial
hardship. We believe that the 225 percent threshold provides that those
experiencing the greatest rates of hardship will have a $0 payment,
while borrowers above that threshold will have more affordable
payments.
---------------------------------------------------------------------------
\51\ See, for instance: Mayer, S.E., & Jencks, C. (1989).
Poverty and the distribution of material hardship. The Journal of
Human Resources, 24, 88-114 Ouellette, T., Burstein, N., Long, D., &
Beecroft, E. (2004). Measures of material hardship final report.
Prepared for U.S. Department of Health and Human Services, ASPE.
Short, K.S. (2005). Material and financial hardship and income-based
poverty measures in the USA. Journal of Social Policy, 34, 21-38.
---------------------------------------------------------------------------
Changes: None.
Lower Income Protection Amounts
Comments: The Department received a range of comments arguing for
not increasing the amount of income protected to 225 percent of FPL.
Some of these commenters argued that the threshold should remain at 150
percent of FPL. Others argued that the amount should be set at 175 to
200 percent of FPL because of concerns that 225 percent was higher than
necessary and untargeted.
One commenter stated that leaving the income exemption at 150
percent of the FPL would still cut monthly payments in half for low-
income undergraduate borrowers, would avoid other potential problems,
and would make programs without any labor market value free or nearly
free for many students, but the Federal Government and taxpayers would
foot the bill.
Another commenter advised that the income limit for student loan
forgiveness should be set to benefit only those who are either below
the poverty level or who are making less than the poverty level for a
set number of working years and only if there is evidence that they are
putting in effort to improve their situations.
Discussion: According to the Department's analysis, keeping the
monthly income exemption at 150 percent of the FPL or lowering it would
exclude a substantial share of borrowers who are experiencing economic
hardship from the benefits of a $0 or reduced payment. The Department
analyzed the share of borrowers reporting a material hardship (i.e.,
experiencing food insecurity or behind on utility bills) and found that
those at 225 percent of the FPL were statistically indistinguishable
from those with incomes below 100 percent of the FPL. Requiring any
monthly payment from those experiencing these hardships, even if
payments are small, could put these borrowers at higher risk of
delinquency or default.
The Department also disagrees with suggestions from commenters to
require evidence that of borrowers are trying to financially better
themselves. Such an approach would be administratively burdensome with
no clear benefit.
Changes: None.
Comments: A few commenters argued for phasing out the income
protection threshold altogether at a level at which a household's
experience of hardship diverges markedly from households living in
poverty. Other commenters argued for phasing down the amount of income
protected as a borrower's earnings increased. For instance, one
commenter suggested phasing down the protection first to 150 percent
and then phasing it out entirely for borrowers who earn more than
$100,000.
Discussion: One of the Department's goals in constructing this plan
is to create a repayment system that is easier for borrowers to
navigate, both in terms of choosing whether to enroll in IDR or not, as
well as which IDR plan to choose. This simplified decision-making
process is especially important to help the borrowers at the greatest
risk of delinquency or default make choices that will help them avoid
those outcomes. No other IDR plan has such a phase out and to adopt one
here
[[Page 43840]]
would risk undermining the simplification goals and the benefits that
come from it. While we understand the goals of the commenters, the
importance of the income protection also diminishes as borrowers'
income grows. All borrowers above the income protection threshold save
the same amount of money as any other borrower with the same household
size. But as income grows, the percentage of their total payment
reduced by this change diminishes. Because there is no payment cap
under this plan, high-income borrowers can have larger payments that
exceed the standard 10-year repayment plan. This could include
situations where the payment amount above the standard 10-year
repayment plan is greater than the savings the borrower would receive
from the higher income protection amount.
A phased reduction would also make the plan harder to explain to
borrowers. This approach, alongside the use of a weighted average to
calculate loan payments, would make it significantly harder to explain
likely payment amounts to borrowers and increase confusion.
Changes: None.
Comments: One commenter asserted that the 225 percent poverty line
threshold is not well justified and questioned why other means-tested
Federal benefit thresholds are not sufficient. The commenter further
pointed out that the Supplemental Nutrition Assistance Program (SNAP)
has a maximum threshold of 200 percent of the FPL, and the Free and
Reduced-Price School Lunch program, also targeted at food insecurity,
has a maximum threshold of 185 percent of the poverty line.
Along similar lines, a commenter noted that the taxation threshold
for Social Security benefits is $25,000 and did not see the sense in
protecting a higher amount of income for purposes of REPAYE payments.
Discussion: We disagree with the commenter's assertion that the
income protection threshold is not well justified and reiterate that
the data and analysis we provided in the IDR NPRM is grounded with
sufficient data and sound reasoning. With respect to means-tested
benefits that use a lower poverty threshold, we note fundamental
differences between Federal student loan repayment plans and other
Federal assistance in the form of SNAP or free-reduced lunch. First,
some of these means-tested benefits have an indirect way to shelter
income. SNAP, for example, uses a maximum 200 percent threshold for
broad-based categorical eligibility criteria that allows certain
deductions from inclusion in income including: a 20 percent deduction
from earned income, a standard deduction based on household size,
dependent care deductions, and in some States, certain other
deductions,\52\ among others. Even though the Department of
Agriculture's use of the maximum threshold is 200 percent of the FPL,
the deductions from inclusion in income could result in a higher
protection of income and assets than our use of an across-the-board 225
percent of the FPL. The Department does not allow other deductions from
income or sheltering certain assets.
---------------------------------------------------------------------------
\52\ <a href="http://www.fns.usda.gov/snap/recipient/eligibility">www.fns.usda.gov/snap/recipient/eligibility</a>.
---------------------------------------------------------------------------
Second, it is inappropriate to compare the poverty thresholds used
for means-tested benefits to the thresholds used for income protection
under the REPAYE plan. Other agencies use the FPL as a baseline to
determine eligibility for their benefits whereas we are using the 225
percent to calculate a monthly payment. A key consideration in our
analysis and justification for using 225 percent of the FPL for the
income protection threshold was identifying the point at which the
share of those who reported material hardship was statistically
different from those at or below the FPL.
Finally, with respect to the commenter who noted that the taxation
threshold for Social Security benefits is $25,000, this provision is
from the Social Security Amendments of 1983 under which 50 percent of
an individual's Social Security benefits would be subject to the
Federal income tax if that individual's income is above a specified
threshold--$25,000 for individual filers and $32,000 for married
couples filing jointly.\53\ FPL thresholds simply do not apply to
Social Security benefits and the comparison to REPAYE is therefore
inappropriate.
---------------------------------------------------------------------------
\53\ The 2022 Annual Report of the Board of Trustees of the
Federal Old-Age and Survivors Insurance and Federal Disability
Insurance Trust Funds, June 2, 2022, at <a href="http://www.ssa.gov/OACT/TR/2022/tr2022.pdf">www.ssa.gov/OACT/TR/2022/tr2022.pdf</a>.
---------------------------------------------------------------------------
Changes: None.
Comments: Another commenter encouraged the Department to limit the
income protection threshold and all other elements of the rule, to
undergraduate loans. They further asserted that, by allowing the higher
disposable income exemption to apply to graduate debt, the rule is
likely to eliminate or substantially reduce payments for many doctors,
lawyers, individuals with MBAs, and other recent graduate students with
very high earning potential who are in the first few years of working.
Other commenters similarly recommended that the Department maintain the
income protection threshold for graduate loans at 150 percent of FPL.
Discussion: We decline to limit the income protection to only
undergraduate borrowers or to adopt a 150 percent income protection
threshold for graduate borrowers. The across-the-board 225 percent of
the FPL income protection threshold provides an important safety net
for borrowers to make certain they have a baseline of resources. We
provide our justification in detail in the IDR NPRM.\54\ In addition, a
differential income protection threshold in REPAYE between
undergraduate and graduate borrowers would be operationally complicated
and would add confusion given the other parameters of this plan. For
one, it is unclear how this suggestion would work for a borrower who is
making a payment on both undergraduate and graduate loans at the same
time. The Department does not think a weighted average approach would
work either because it would be confusing to be protecting different
amounts of income and then charging varying shares of that
discretionary income for payments. And we are concerned that applying
the lower threshold if the borrower has any graduate debt could put the
lowest-income graduate borrowers at risk of default. Moreover, it would
create challenges in simplifying repayment options because other plans
also protect 150 percent of FPL and might offer other benefits that
would cause graduate borrowers to choose them, such as forgiveness
after 20 years instead of 25 years.
---------------------------------------------------------------------------
\54\ See 88 FR 1901-1902.
---------------------------------------------------------------------------
Changes: None.
Cost-of-Living Adjustments
Comments: Many commenters argued for adopting regional cost-of-
living adjustments to the determination of the amount of income
protected. Commenters said this was necessary to address disparities in
cost of living across the country. Several commenters pointed to high-
cost urban areas, particularly in New York City and elsewhere, as
evidence that even 225 percent of FPL was insufficient for individuals
to still afford basic necessities, such as rent and groceries.
Commenters also pointed to differences in local tax burdens, which also
affect the availability of income for loan payments and necessities.
Commenters noted that this adjustment is particularly important because
so many individuals who attend college tend to live in higher-cost
areas.
[[Page 43841]]
Another commenter who argued in favor of regional cost-of-living
adjustments suggested using Regional Price Parities available at both
the State and metropolitan area levels. This commenter stated that
failure to consider this alternative would be arbitrary and capricious.
Discussion: The Department declines to adjust the income protection
amount based upon relative differences in the cost of living in
different areas outside of the existing higher thresholds used for
Alaska and Hawaii.
The FPL is a widely accepted way of assessing a family's income.
Many State programs use it without regional cost of living adjustments,
making it difficult to choose a regional adjustment factor that would
not be arbitrary. First, we have not identified a well-established and
reliable method to adjust for regional differences. Examples of State
agencies that use the FPL for their benefits or programs include New
York's Office of Temporary and Disability Assistance, Wisconsin's
health care plans, as well many other State health agencies across the
country. At the Federal level, the U.S. Citizenship and Immigration
Services (USCIS) allows non-citizens to request a fee reduction \55\
when filing Form N-400, an Application for Naturalization if that
individual's household income is greater than 150 percent but not more
than 200 percent of the FPL. This fee reduction does not account for
regional cost differentials where the individual resides; rather, USCIS
uses an across-the-board factor to better target that benefit to those
needing the most assistance to become naturalized U.S. citizens.
Moreover, Federal courts in Chapter 7 bankruptcy proceedings may waive
certain administrative fees if a debtor's income is less than 150
percent of the FPL.\56\ Across the various cases of these State and
Federal benefits, the use of the FPL is consistent after accounting
that there is no reliable method to adjust for regional differences.
---------------------------------------------------------------------------
\55\ See Form I-942, OMB Form No. 1615-0133, <a href="http://www.uscis.gov/i-942">www.uscis.gov/i-942</a>.
\56\ 28 U.S.C. 1930(f).
---------------------------------------------------------------------------
Second, we think it is valuable to provide a straightforward way
for borrowers to understand how much income will be protected from
payments. We would lose the simplicity of such an approach if we
adjusted based upon the cost of living. Relatedly, it would be
operationally difficult to apply a borrower's regional cost of living
adjustment such as if we used the Bureau of Economic Analysis' (BEA)
Regional Price Parities by State and Metropolitan area, as the
commenters suggest. It is unclear how we would determine the
appropriate cost of living factor to use for income protection--whether
we would use the address on file on the IDR application, where the
borrower files taxes, or the State of domicile. Furthermore, use of BEA
data could obligate the Department to collect data elements that would
be onerous to compile and could result in borrowers failing to enroll
or recertify in an IDR plan. Instead, as we have done since the
inception of the ICR plans, we will use a percentage of the FPL as the
baseline for income protection.
Changes: None.
Comments: Commenters suggested alternative measures that are more
localized than FPL, such as State median income (SMI). They maintained
that SMI better accounts for differences in cost of living and provides
a more accurate reflection of an individual or family's economic
condition. Commenters noted that some Federal social service programs,
including the Low-Income Home Energy Assistance Program (LIHEAP) and
housing programs such as Section 8 Housing Choice Vouchers, use the SMI
rather than the FPL for this reason.
Discussion: It is important to calculate payments consistently and
in a way that is easy to explain and understand. Using SMI to determine
income protection would introduce confusion and variability that would
be hard to explain to borrowers. Additionally, it would create
operational challenges when borrowers move and lessen our ability to
simplify payment calculations when we obtain approval to use a
borrower's Federal tax information.
Changes: None.
Periodic Reassessment
Comments: Many commenters suggested that the Department reassess
the income protection threshold annually or at other regular intervals.
One of these commenters commended the Department for proposing these
regulatory changes and asked that we periodically reassess whether the
225 percent threshold protects enough income for basic living expenses
and other inflation-related expenses such as elder care.
Discussion: The Department declines to make any changes. The
Department believes concerns about periodic reassessment are best
addressed through subsequent negotiated rulemaking processes.
Calculating the amount of income protected off the FPL means that the
exact dollar amount protected from payment calculations will
dynamically adjust each year to reflect inflation changes. However, if
there are broader societal changes that suggest the overall level of
income protected based on the percentage of the FPL is too low, it
would be appropriate to conduct further rulemaking to consider input
from stakeholders and the public before making any changes.
Changes: None.
Income Protection Threshold Methodological Justification
Comments: One commenter stated that the Department acknowledged
that 225 percent is insufficient because we said that the payment
amount for low-income borrowers on an IDR plan using that percentage
may still not be affordable. The commenter also believed that our
rationale for arriving at this percentage was flawed, as it used a
regression analysis with a 1 percent level of significance to show that
borrowers with discretionary incomes at the 225 percent threshold
exhibit an amount of material hardship that is statistically
distinguishable from borrowers at or below the poverty line. These
commenters stated that we did not comment on the magnitude of this
difference and any difference is merely fractional.
Another commenter opined that the derivation from the 225 percent
FPL threshold is not well justified. This commenter questioned the
confidence level and sample size used in our calculations. The
commenter believed that the choice of a confidence interval is more
definitional than supported by a firm analytical basis.
Discussion: We disagree with the commenters' methodological
critiques. Our rationale for arriving at the discretionary income
percentages was based on our statistical analysis of the differences in
rates of material hardship by distance to the Federal poverty threshold
using data from the SIPP. We note that our figures were published in
the IDR NPRM as well as our policy rationale for arriving at 225
percent of the FPL.
As we stated in the analysis, an indicator for whether an
individual experienced material hardship was regressed on a constant
term and a series of indicators corresponding to mutually exclusive
categories of family income relative to the poverty level. The analysis
sample includes individuals aged 18 to 65 who had outstanding education
debt, had previously enrolled in a postsecondary institution, and who
were not currently enrolled. The SIPP is a nationally representative
sample and we reported standard errors using replicate weights from the
Census Bureau that takes into account sample size. The Department used
these data
[[Page 43842]]
because they are commonly used and well-established as the best source
to understand the economic well-being of individuals and households.
The table notes show that two stars indicate estimated coefficients
which are statistically distinguishable from zero at the 1 percent
level. Using a 1 percent significance level is appropriate based on
current Office of Management and Budget (OMB) guidance under the Data
Quality Act (also known as the Information Quality Act).\57\ The point
of this analysis was to start at the premise that the commenter did not
challenge, which is that someone who is at or below 100 percent of FPL
should not be required to make a payment. We then looked for the point
above which those rates of the individuals who reported financial
hardship is statistically different from those individuals in poverty.
As shown in our analysis, families with incomes above 225 percent FPL
have rates of material hardship that are clearly both statistically and
meaningfully different than families with incomes less than 100 percent
FPL. Above the 225 percent FPL, coefficients are all statistically
significantly different at the 1 percent level and range from 8.8 to
24.7 percentage points depending on the group, with the size of the
coefficient generally getting larger as income increases.
---------------------------------------------------------------------------
\57\ See Section 515 of the Consolidated Appropriations Act,
2001 (Pub. L. 106-554).
---------------------------------------------------------------------------
We also note that the IDR NPRM included a discussion of why the 225
percent threshold is meaningful in its alignment to the minimum wage in
many states. This consideration is discussed further in response to
another comment in this Income Protection Threshold section.
Changes: None.
Comments: One commenter noted that our income protection threshold
proposal of 225 percent of the FPL--$30,600 using the 2022 FPL--when
compared to non-Federal data would encompass about the 65th percentile
of earnings for individuals aged 22-31. Other commenters made similar
claims but concluded this represented different percentiles in the
income distribution. The commenter believes the Department undercounted
the number of borrowers who would choose REPAYE as a result of this FPL
threshold. The commenter claimed that the Department underestimated the
proportion of borrowers up to age 31 who would have $0 or very low
payments within this time frame, which the commenter claimed was a
significant number of borrowers. The commenter said the data needed to
estimate that number are readily available from other Federal agencies,
including the Census Bureau, the Bureau of Labor Statistics (BLS), and
the Federal Reserve.
Discussion: We disagree with the commenter and affirm that our use
of data from the SIPP for individuals aged 18-65 who attended college
and who have outstanding student loan debt was appropriate. The
commenter's analysis is incorrect in several ways: first, it presumes
that the analysis should be relegated only to borrowers aged 22-31. The
Department's own data \58\ indicate that student loan borrowers' range
in age, and we believe our use of SIPP is an appropriate data set for
our analysis. Second, the reference point that the commenter proposes
uses data from a non-Federal source and we cannot ascertain the
validity of the survey design. In accordance with the Data Quality Act,
we believe using our 225 percent income protection threshold to the
data set that we used in the IDR NPRM was appropriate for the questions
specific to this rule: ``at which point would the share of those who
reported material hardship be statistically different from those whose
family incomes are at or below the FPL?'' As a reminder, SIPP is a
nationally representative longitudinal survey administered by the
Census Bureau that provides comprehensive information on the dynamics
of income, employment, household composition, and government program
participation \59\ and we do not believe we undercounted borrowers who
would choose REPAYE.
---------------------------------------------------------------------------
\58\ <a href="http://studentaid.gov/data-center/student/portfolio">studentaid.gov/data-center/student/portfolio</a>.
\59\ <a href="http://www.census.gov/programs-surveys/sipp.html">www.census.gov/programs-surveys/sipp.html</a>.
---------------------------------------------------------------------------
Changes: None.
Comments: One commenter argued we should have used more objective
data from the IRS instead of the SIPP. The commenter questioned why the
Department chose to base its comparison on those with an income below
100 percent FPL, when it could have chosen to use 150 percent of the
FPL established by Congress.
This same commenter believed the Department arrived at a
statistical justification for a predetermined threshold by arbitrarily
choosing the comparison group and arbitrarily choosing what to look at
(e.g., rates of food insecurity rather than something related to
student loans like repayment rates).
Discussion: We reviewed various sources of data. SIPP is a
longitudinal dataset administered by the Census Bureau. Information
about the methodology and design are available on the Census
website.\60\ We believe that the SIPP data is sound and the most
appropriate dataset to use for our purposes because it contains
information on student loan debt, income, and measures of material
hardship. Because IRS data does not have information on material
hardships, it would not be possible to conduct the analysis of the
point at which the likelihood of a borrower reporting material hardship
is statistically different from the likelihood for someone at or below
the FPL reporting material hardship.
---------------------------------------------------------------------------
\60\ <a href="http://www.census.gov/programs-surveys/sipp/methodology.html">www.census.gov/programs-surveys/sipp/methodology.html</a>.
---------------------------------------------------------------------------
In response to the commenter's question why we chose the reference
point to be 100 percent of the FPL rather than 150 percent, our
intention was to find the point under which individuals with family
incomes up to a certain percentage of the FPL would have rates of
material hardship statistically indistinguishable from rates for
borrowers with income at or below the FPL. Using 100 percent of the FPL
is demonstrably appropriate as the Census considers someone at or below
the FPL to be living in poverty.
We disagree with the commenter's suggestion that our statistical
analysis was done in an arbitrary manner. As we stated in the IDR NPRM,
we focused on two measures as proxies for material hardship: food
insecurity and being behind on utility bills.\61\ These two measures
are commonly used in social science to represent material hardship. As
we stated in the IDR NPRM, we regressed these measures of material
hardship on a constant term and a series of indicators corresponding to
categories of family income relative to the FPL.
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\61\ This is not intended to suggest that individuals who do not
report these two measures are not experiencing material hardship.
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Changes: None.
Comments: One commenter noted that the annual update of the HHS
Poverty Guidelines was released after the IDR NPRM was published and
suggested that the Department rely on the most recent data available
because the change in the HHS Poverty Guidelines is significant enough
to potentially alter some of the conclusions in the IDR NPRM.
Discussion: We do not believe the inflation-based updates to the
FPL since the IDR NPRM was published materially change our analyses.
For one, some of the analyses conducted were already using earlier
years of data to reflect the best available sample data present. For
instance, the analyses for the 225 percent threshold used data from the
[[Page 43843]]
2020 SIPP. The analysis used to determinate the reduction of payment
amounts on undergraduate loans to 5 percent of discretionary income was
based upon figures from the 2015-16 National Postsecondary Student Aid
Study. The analysis of the threshold for when low-balance borrowers
should receive earlier forgiveness was based upon 5-year estimates from
the 2019 American Community Survey. As discussed in the NPRM, we
proposed that borrowers should repay for an additional 12 months for
every $1,000 in principal balance above $12,000 because such a
structure means the income above which a borrower would cease
benefiting from the shortened forgiveness option is roughly consistent
across all shortened repayment lengths. This goal of a consistent
maximum earnings threshold for shortened forgiveness would not be
affected by changes in the FPL.
The biggest effect of the change in the FPL would be to alter what
was Table 4 in the IDR NPRM that showed the effect of the FPL increase.
That table is recreated here using updated numbers. For a single-person
household, the change in FPL from 2022 to 2023 results in additional
savings of $9 a month if payments are assessed at 5 percent of
discretionary income and $19 if payments are assessed at 10 percent of
discretionary income. For a four-person household, those numbers are
$21 and $42 a month, respectively.
Table 1--Maximum Monthly Payment Savings at Different Levels of Income Protection, 2023 Federal Poverty
Guidelines (FPL)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Household Size One
Four
----------------------------------------------------------------------------------------------------------------
Payment as Percent of Discretionary Income.......................... 5 10 5 10
150% FPL (Current REPAYE regulations)............................... $91 $182 $188 $375
225% FPL (Final REPAYE regulations)................................. $137 $273 $281 $563
Final REPAYE minus Current REPAYE................................... $46 $91 $94 $188
----------------------------------------------------------------------------------------------------------------
Note: The 2023 Federal Poverty Guideline is $14,580 for a single household and $30,000 for a house of four.
The IDR NPRM also included some discussion of the implied hourly
wage for someone who earns 150 percent or 225 percent of FPL on an
annual basis. Under the 2023 FPL baseline for the 48 contiguous states
and the District of Columbia, that amount is $10.94 an hour instead of
$10.19 an hour using the 2022 guidelines for someone whose earnings are
equivalent to 150 percent of FPL for a single household and $16.40 an
hour instead of $15.29 an hour at 225 percent of FPL.\62\ These figures
assume working 2,000 hours a year.
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\62\ For Alaska, the implied hourly wage for someone who earns
150 percent of FPL in 2022 and 2023 is $12.74 and $13.66,
respectively. For Hawaii, the implied hourly wage for someone who
earns 150 percent of FPL in 2022 and 2023 is $11.73 and $12.58,
respectively.
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The change in FPL also does not materially affect the Department's
analysis of how 150 percent of FPL compares to State minimum wages. In
the IDR NPRM we noted that a threshold of 150 percent of FPL for a
single individual is an implied annual wage that is below the minimum
wage in 22 States plus the District of Columbia.\63\ Those 22 States
plus DC represent 50 percent of individuals nationally with at least
some college.\64\
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\63\ The analysis uses the federal minimum wage in states where
minimum wages are lower than the federal minimum wage or with no
minimum wage law. For Nevada, the analysis uses the minimum wage if
qualifying health insurance is not offered by the employer. Based on
minimum wages as of January 1, 2023 <a href="https://www.dol.gov/agencies/whd/state/minimum-wage/history">https://www.dol.gov/agencies/whd/state/minimum-wage/history</a>.
\64\ Based on the American Community Survey 2021 5-year
estimates https://data.census.gov/
table?q=education&g=010XX00US$0400000&tid=ACSST5Y2021.S1501&tp=true.
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While the FPL has increased, so have several State minimum wages in
the interim, though not always at the same magnitude as the FPL
increase. Using 2023 FPL and minimum wage laws, 20 States, plus the
District of Columbia, still have minimum wages that are above the
implied hourly wage at 150 percent of FPL.\65\ The change in the data
is the inclusion of Florida as a state whose 2023 minimum wage exceeds
the implied hourly rate at 150 percent of FPL, whereas Hawaii,
Minnesota, and Nevada no longer have minimum wages that exceed the
implied hourly rate at 150 percent of FPL. Because of differences in
the number of individuals with at least some college across States, the
net result is that using the 2023 FPL and minimum wages shows that
about 53 percent of adults with some colleges are in States where the
minimum wage is at or just above the implied hourly wage at 150 percent
of FPL. As noted above, the equivalent figure for 2022 is 50 percent.
The update therefore does not materially change any of the analyses
provided in the IDR NPRM.
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\65\ <a href="http://www.dol.gov/agencies/whd/minimum-wage/state">www.dol.gov/agencies/whd/minimum-wage/state</a>.
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Changes: None.
Other Issues Pertaining to Income Protection Threshold
Comments: Some commenters suggested calculating discretionary
income based on the borrower's net income rather than pre-tax gross
income. The commenter further stated that payment amounts should be
capped at no more than 10 percent of net discretionary income instead
of a borrower's gross pay. This approach would base the payment
percentage on the borrower's net take-home pay available for their
expenses.
Discussion: We disagree with the commenters' suggestion to
calculate the discretionary income based on the borrower's net income.
Net income varies based on a variety of withholdings and deductions,
some of which are elective. The definition of ``income'' in Sec.
685.209(e)(1) provides a standardized definition that we use for IDR
plans. The borrower's income less any income protection threshold
amount is the most uniform and operationally viable method the
Department could craft to consider a borrower's discretionary income
for calculating a payment amount. The FPL is a widely accepted method
to assess a family's income, and we believe that using 225 percent of
the FPL to allocate for basic needs when determining an affordable
payment amount for borrowers in an IDR plan is a reasonable approach.
Our regulations still provide that a borrower may submit alternative
documentation of income or family size if they otherwise meet the
requirements in Sec. 685.209(l).
Changes: None.
Comments: Several commenters recommended that we extend the
increase in the percentage of discretionary income protected to all IDR
plans, not just REPAYE.
Discussion: Under this final rule, student borrowers not already on
an IDR plan will have two IDR plans from which to choose in the
future--REPAYE and IBR. The HEA outlines the terms for the IBR plan
that the commenters are
[[Page 43844]]
asking to alter. Specifically, section 493C(a)(3)(B) of the HEA sets
the amount of income protected under IBR at 150 percent of the poverty
line applicable to the borrower's family size. We cannot make the
suggested changes to IBR via regulatory action. Accordingly, we do not
think it would be appropriate to modify the percentage on PAYE. As
explained in the section on borrower eligibility for IDR plans, we do
not think it would be appropriate to change the threshold for ICR.
Changes: None.
Comment: One commenter argued that the proposal to use FPL violated
the requirements outlined in Section 654 of the Treasury and Government
Appropriations Act of 1999 that requires Federal agencies to conduct a
family policymaking assessment before implementing policies that may
affect family well-being and to assess such actions related to
specified criteria.
With respect to our IDR proposals, a few commenters said that using
FPL disadvantages married couples relative to single individuals
because the amount of income protected for a two-person household is
not double what it is for a single person household. They suggested
instead setting the threshold at 152 percent of FPL for a single
individual.
Discussion: The Department disagrees with the commenter's
assessment of the applicability of section 654 of the Treasury and
Government Appropriations Act of 1999 to this regulation. This
regulation does not impose requirements on States or families, nor will
it adversely affect family well-being as defined in the cited statutory
provision. A Federal student loan borrower signed an MPN indicating
their promise to repay. The Department does not require student loan
borrowers to use the REPAYE plan. Instead, borrowers choose the plan
under which they will repay their student loan.
Using FPL to establish eligibility or out-of-pocket payment amounts
for Federal benefit programs is a commonly used practice. Moreover, the
Department's use of the FPL focuses on the number of individuals in the
household, not the composition of it.
In response to the comment regarding the alleged disadvantage for
married borrowers, the Department notes that the one possible element
that might have discouraged married borrowers from participating in the
REPAYE plan was the requirement that married borrowers filing their tax
returns separately include their spousal income. We have removed that
provision by amending the REPAYE plan definition of ``adjusted gross
income'' and aligning it with the definition of ``income'' for the
PAYE, IBR, and ICR plans. This change required us to redefine ``family
size'' for all plans in a way that would no longer include the spouse
unless the borrower filed their Federal tax returns under the married
filing jointly category. We no longer allow a borrower to include the
spouse in the family size when the borrower knowingly excludes the
spouse's income. Otherwise, we do not agree that further changes are
needed to equalize the treatment of single and married borrowers.
Changes: None.
Comments: Some commenters argued that the FPL that is used to set
the income protection threshold is flawed because the FPL is based
exclusively on food costs and therefore excludes important costs that
families face, such as childcare and medical expenses. As a result, the
resulting FPLs are far too low and the threshold we use in our
regulation would need to increase to meet basic needs.
Discussion: We discuss our justification for setting the income
protection threshold at 225 percent of the FPL elsewhere in this rule.
We disagree that our use of the FPL is a flawed approach. The FPL is a
widely accepted method used to assess a family's income. Moreover,
setting FPL at a threshold higher than 100 percent allows us to capture
other costs. We believe that using 225 percent of the FPL to allocate
for basic needs when determining an affordable payment amount for
borrowers in an IDR plan is a reasonable approach. While borrowers may
have various financial obligations, such as childcare and medical
expenses, the FPL is a consistent measure to protect income and treat
similarly situated borrowers fairly in repayment. Excluding income from
the IDR payment calculation in a standard way will equalize treatment
of borrowers. Furthermore, the Department has consistently used the FPL
as a component in determining a borrower's income under an IDR plan
since the introduction of the first IDR plan.\66\
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\66\ See 59 FR 61664. In the initial ICR plan (see 59 FR 34279),
the family size adjustment was a mere $7 per dependent for up to
five dependents.
---------------------------------------------------------------------------
Changes: None.
Payment Amounts (Sec. 685.209(f)(1)(ii) and (iii))
General Support
Comments: Many commenters strongly supported the proposed REPAYE
provision that would decrease the amount of discretionary income paid
toward student loans to 5 percent for a borrower's outstanding loans
taken out for undergraduate study. Several commenters supported our
proposal to limit the discretionary income percentage of 5 percent to
only undergraduate loans to avoid expensive windfalls to those with
high-income potential, namely graduate borrowers.
Discussion: We thank the commenters for their support.
Changes: None.
General Opposition
Comment: Several commenters stated that setting payments at 5
percent of discretionary income is far lower than rates in the United
Kingdom and New Zealand, which are 9 and 12 percent, respectively.
Discussion: The Department thinks that considering the share of
income that goes toward student loan payments is an insufficient way to
consider cross-country comparisons. Different countries provide
differing levels of support for meeting basic expenses related to food
and housing. They also have different cost bases. Housing in one
country might be more or less affordable than another. Relative incomes
and national wealth might vary as well. As such, comparing the relative
merits of the different student loan repayment structures is not as
straightforward as simply comparing the share of income devoted to
payments.
International comparisons would also require reckoning with
differences in the prices charged for postsecondary education, which
types of educations or institutions a borrower is able to obtain a loan
for, and other similar considerations that are more complicated than
solely looking at the back-end repayment terms. The commenters,
however, did not provide any such analysis with their statements.
In the IDR NPRM and in this final rule we looked to data and
information about the situation for student loan borrowers in the
United States and we believe that is the proper source for making the
most relevant and best-informed determinations about how to structure
the changes to REPAYE in this rule.
Changes: None.
Comments: One commenter noted that they believe statutory
provisions set the share of income owed on loans under the IDR plans as
follows: 20 percent for ICR, 15 percent for IBR, and 10 percent for New
IBR. The commenter points out that when the Department regulated on
PAYE and REPAYE, we used the Congressionally-approved 10 percent
threshold. The commenter argues that Congress has clearly established
various thresholds and our previous regulatory provisions have
respected that. The commenter states
[[Page 43845]]
that there should be a good reason for choosing the 5 percent
threshold.
Discussion: Contrary to what the commenter asserted, Section
455(d)(1)(D) of the HEA does not prescribe a minimum threshold of what
share of a borrower's income must be devoted toward payments under an
ICR plan. Congress left that choice to the Secretary. And, in the past
the Department has chosen to set that threshold at 20 percent of
discretionary income and then 10 percent of discretionary income. We
note that the Department promulgated the original REPAYE regulations in
response to a June 9, 2014, Presidential Memorandum \67\ to the
Secretaries of Education and the Treasury that specifically noted that
Direct Loan borrowers' Federal student loan payment should be set at 10
percent of income and to target struggling borrowers.\68\ As we
explained in the IDR NPRM, and further explain below, we decided to set
payments at 5 percent of discretionary income for loans obtained by the
borrower for their undergraduate study as a way to better equalize the
benefits of IDR plans between undergraduate and graduate borrowers. In
general, the Department is concerned that there are large numbers of
undergraduate borrowers who would benefit from IDR plans but are not
using these plans. Instead, they are facing unacceptably high rates of
delinquency and default. By contrast, data show that graduate borrowers
are currently using IDR plans at significantly higher rates. While the
Department cannot know the specific reason why graduate borrowers are
selecting IDR plans at greater rates than undergraduate borrowers,
graduate borrowers' relatively higher loan balances mean that these
individuals derive greater monthly savings from choosing an existing
IDR plan than an otherwise identical undergraduate borrower with the
same household size and income. As such, the Department seeks to better
equalize the savings between undergraduate and graduate loans, with the
goal that such increased savings for undergraduates will encourage more
borrowers to use these plans and, consequently, avoid delinquency and
default. As discussed in the IDR NPRM, setting payments at 5 percent of
discretionary income for a borrower's undergraduate loans is the lowest
integer percent where a typical undergraduate-only borrower and a
typical graduate-only borrower with the same household size and income
would have similar monthly payment savings.\69\
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\67\ See 79 FR 33843.
\68\ See 80 FR 67225.
\69\ 88 FR 1902-1905.
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Changes: None.
Treatment of Loans for Graduate Education
Comments: Many commenters suggested that borrowers should also pay
5 percent, rather than 10 percent, of their discretionary income on
loans obtained for graduate study. They said requiring borrowers to pay
10 percent of their discretionary income on those loans runs contrary
to the goals of the REPAYE plan and may place a substantial financial
burden on these borrowers. Many commenters further suggested that we
consider that many graduate borrowers are often older than their
undergraduate counterparts, are heads-of-households
[…truncated; see source link]Indexed from Federal Register on July 10, 2023.
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