NAICU Washington Update

Department Publishes Proposed Regulations on Loan Repayment

July 23, 2012

The Department of Education has published proposed rules intended to “clean up” out-of-date FFELP regulations, and at the same time standardize the regulations for the various Title IV loan programs where possible. More importantly, the new rules would also expand and improve options by which low income borrowers may repay their loans, and streamline procedures for discharging Title IV student loans of disabled borrowers.

The notice of proposed rule-making (NPRM) was published in the Federal Register on July 17, with comments due by August 16. The NPRM is based on public hearings held in May 2011, and negotiated rule-making that took place this past January to March 2012.

Specifically, the proposed regulations would create a new Income Contingent Repayment (ICR) plan for Direct Loans based on the President’s “Pay As You Earn” initiative. As proposed, the ICR would be divided into ICR-A and ICR-B. ICR-B would function essentially as ICR currently does.

ICR-A would be available only to recent borrowers - those who were new borrowers on or after July 1, 2007, and had a loan disbursed to them on or after October 2, 2011. Recent borrowers would have a lower qualifying income threshold, which would lower their monthly and annual payments. Also, their loan forgiveness would come after 20 years, rather than 25. The improvements for new borrowers become available July 1, 2013. The regulatory changes to the ICR are intended to ease the loan repayment burden for low-income borrowers prior to those same changes being available under the Income Based Repayment (IBR) in July 1, 2014. The ICR statute provides greater regulatory flexibility to the Secretary than the IBR statute.

IBR benefits were improved in the Health Care and Reconciliation Act of 2010. The proposed regulations outline how those statutory IBR changes would be implemented. As with the ICR, these changes reduce the partial financial hardship threshold that determines a borrower’s eligibility for participation, and also shorten the period for loan forgiveness from 25 to 20 years. The proposed regulations would also make it simpler for Title IV loan borrowers to apply for total and permanent disability discharge of their loans. They also clarify the definition of a “borrower’s representative” and the functions such a representative may carry out for a disabled borrower.

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