On Jan. 10, 2023, the U.S. Department of Education (DOE) proposed regulations that would reduce monthly payments for certain federal student loan borrowers. The agency’s proposal overhauls one of the four existing income-driven repayment (IDR) plans—also known as the Revised Pay As You Earn (REPAYE) plan—that aims to make student loan payments more manageable, especially for low- and middle-income borrowers, by tying an individual’s monthly loan payment to their income. Rather than create a new student loan repayment plan, the DOE’s proposed regulations would amend the REPAYE program, which was originally introduced in 2016. This proposal could reduce some borrowers’ monthly loan payments to zero dollars.
The proposed regulations would require borrowers to pay 5% of their monthly discretionary income to student loan debt instead of the current 10% many borrowers are paying. This is half the rate charged by the most generous existing IDR plans, including the REPAYE plan. Under the current REPAYE plan, discretionary income is calculated as income earned over 150% of the federal poverty guidelines. This means a single borrower begins making payments on income above approximately $20,400. The department’s proposed regulations would increase a borrower’s income protected from repayment to 225% of the federal poverty guidelines. This change would allow borrowers under this threshold—those making approximately less than $30,500—to be relieved of monthly student loan payments.
The DOE reports that the new REPAYE plan would reduce many borrowers’ monthly obligations by almost half, saving the typical borrower who attended a four-year public university $2,000 annually. After 20 years of making payments—or 25 years for graduate loans—any remaining debt on undergraduate loans would be forgiven. Additionally, borrowers with $12,000 or less in student loan debt would be entitled to loan forgiveness after making the equivalent of 10 years of payments.
The DOE reports that the new REPAYE plan would reduce many borrowers’ monthly obligations by almost half, saving the typical borrower who attended a four-year public university $2,000 annually. After 20 years of making payments—or 25 years for graduate loans—any remaining debt on undergraduate loans would be forgiven. Additionally, borrowers with $12,000 or less in student loan debt would be entitled to loan forgiveness after making the equivalent of 10 years of payments. Education Secretary Miguel Cardona
While the department’s proposed regulations apply to both undergraduate and graduate student loans, Parent Plus loans would not be eligible for the new IDR plan. The DOE’s proposal may even allow borrowers who have defaulted on their student loan repayments to enroll; defaulted borrowers are typically ineligible to enroll in IDR plans.
The DOE’s announcement comes as the U.S. Supreme Court plans to hear oral arguments on Feb. 28, 2023, regarding the Biden administration’s original debt relief plan. The fate of the Biden administration’s original loan forgiveness plan remains in limbo due to several legal challenges. However, the department’s proposed regulations aim to fulfill the Biden administration’s commitment to providing student debt relief laid out in the administration’s original plan from August. The DOE’s regulations build on the Biden administration’s efforts to provide debt relief to federal student loan borrowers, improve the student loan program and make college more affordable. These regulations would create the most affordable IDR plan ever made available to student loan borrowers.
The DOE published its proposed regulations in the Federal Register on Jan. 11, 2023, and the 30-day public comment window closes on Feb. 10, 2023. The department plans on finalizing the regulations later this year, and the new plan is likely to be available to borrowers starting July 1, 2024; however, some parts of the regulations may be implemented sooner. Once the new REPAYE plan is available, borrowers can apply on StudentAid.gov or call their student loan servicer to enroll. As eligible borrowers are likely to have questions regarding the proposed regulations, they are encouraged to review the DOE’s recently published fact sheet.
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