The United States Department of Education (ED) recently announced two additional regulations (designated REPAYE or Revised Pay As You Earn) which are intended to ease the burden of federal student loan repayment. The REPAYE initiative complements an earlier memorandum issued by President Obama on June 2014 by expanding the “Pay As You Earn” plan to an additional five million borrowers involved in Federal Direct Loans.
The principal aims cited by the memorandum include plans to improve communication with the aim of helping vulnerable borrowers make informed decisions, preventing such individuals from being taken advantage of, and increasing awareness and support of repayment options during tax filing season. The major impact of the new regulations is a cap on monthly interest payments for some borrowers to 10 percent of their annual income (prorated at its monthly equivalent). Supporters of the program hope that it will be “an effective tool to help individuals manage their debt, and pursue their careers while avoiding consequences of defaulting on a Federal student loan, such as a damaged credit rating, a tax refund offset, or garnished wages.”
Major regulations that begin with the 2016 calendar year include the following:
- New instances in which institutions can appeal or challenge the cohort default rate in the event it appears artificially high due to low percentages of student taking loans at the particular institution. The intent of this rule is to prevent small sample sizes from misrepresenting the institution’s loan practices.
Additional regulations that take effect midway through 2016 (July 1, 2016) include the following:
- Lump sum payments made on behalf of borrowers through student debt repayment programs will be allowed to count towards the Public Service Loan Forgiveness (PSLF) program. The PSLF is a federal program that “forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”
- Loan guarantors will have to provide information regarding repayment plans to Federal Family Education Loan (FFEL) borrowers once they have restructured loans in default. The intent is to smooth the loan repayment process in order to get from a condition of default to regular repayment.
- The FFEL Program is instituting new procedures designed to identify military personnel who may be eligible for a lower interest rate as part of the Servicemembers Civil Relief Act (SCRA).
If you want more details on the new regulations you can find them at the Department of Education’s student aid website. If you're a student and not sure what to do about student debt, here is an outline of your options for repayment.
