The Biden administration announced the week of July 18, 2022, that it is delaying the release of a new income-driven repayment (IDR) plan that could provide borrowers with more affordable monthly payments.
Here’s an overview.
1. An “alphabet soup” of income-driven repayment plans: Background 2. Education department had proposed a new IDR plan last year 3. Biden Administration delays release of new IDR proposal 4. Other student loan relief initiatives are set to expire soon
An “alphabet soup” of income-driven repayment plans: Background
Income-driven repayment (IDR) is a category of federal student loan repayment options that allows borrowers to have an affordable payment based on their income and family size.
IDR programs use a formula to calculate a borrower’s payments based on their “discretionary income,” which is typically the amount of their Adjusted Gross Income (AGI), as reported on their most recently-filed federal tax return, that exceeds a poverty exemption.
Payments are recalculated every 12 months through a process called income recertification, and any remaining balance at the end of 20 or 25 years would be forgiven (although this could be treated as a taxable event).
There are currently four main IDR plans:
- Income Contingent Repayment (ICR): Initial income in the amount of 100% of the federal poverty limit for the borrower’s family size is excluded under a poverty exemption. Payments are then tied to 20% of the borrower’s AGI above that exclusion, with loan forgiveness after 25-years. ICR is a popular plan for Parent PLUS borrowers, as Parent PLUS loans consolidated into a federal Direct consolidation loan can be repaid under ICR, but not any other IDR plan.
- Income Based Repayment (IBR): Poverty exclusion based on 150% of the federal poverty limit for the borrower’s family size, and payments are based on 15% of the borrower’s AGI above that exclusion. As with ICR, IBR has a 25-year term before the borrower is eligible for student loan forgiveness.
- Pay As You Earn (PAYE): The same poverty exclusion as IBR, but payments are based on only 10% of the borrower’s AGI above that exclusion, and PAYE has a shorter repayment term of 20 years before loan forgiveness eligibility. PAYE has strict disbursement date restrictions, however, that significantly limit this plan’s eligibility.
- Revised Pay As You Earn (REPAYE): The same poverty exclusion as IBR, and the same payment formula as PAYE, but no disbursement date restrictions. REPAYE has two possible repayment terms: a 20-year term term for borrowers with only undergraduate federal student loans, and a 25-year term for borrowers who have taken out any federal loans for a graduate degree program.
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Education department had proposed a new IDR plan last year
Last year, in 2021, the Education Department released a proposed new IDR plan as part of negotiated rulemaking — a complex process that can overhaul the regulations governing federal student loan programs.
During negotiated rulemaking, a committee of stakeholders holds public meetings to discuss proposed changes to federal regulations, with the goal of achieving consensus on potential reforms. If consensus is not reached, however, the Department proceeds with its intended overhaul of regulations, while trying to take into account the comments and concerns raised by the committee.
In preparation for last year’s negotiated rulemaking sessions, the Education Department released a new IDR proposal called “Expanded Income-Contingent Repayment” or EICR. EICR, as proposed, had a number of potentially useful features including a larger poverty exemption and a more favorable payment formula that could cause lower payments for some borrowers.
But many members of the negotiated rulemaking committee were highly critical of elements of the EICR proposal, including the exclusion of Parent PLUS borrowers and graduate degree holders, as well as a complicated marginal repayment formula that would lead to a significant jump in payments for borrowers with higher incomes. Other aspects of the plan — such as interest subsidies and the exact size of the poverty exclusion — remained uncertain.
Ultimately, the negotiated rulemaking committee failed to reach consensus, so the Department of Education has moved forward in crafting a proposal for a new IDR plan.
Biden Administration delays release of new IDR proposal
As first reported by POLITICO, top Education Department officials confirmed that the new IDR proposal would not be released in July 2022 along with proposed reforms to other key federal student loan programs (such as new proposed PSLF regulations, which were released earlier in July).
Administration officials indicated that the proposal may not be publicly released until sometime after November 1, 2022, a key deadline for finalization of proposed new regulations.
Advocacy groups for student loan borrowers slammed the administration for its delays.
“The decision by [the Education Department] to delay its income-driven repayment rule for student debt is just further evidence of how dysfunctional the student loan system is,” said the Student Borrower Protection Center (SBPC) in a tweet on Friday. “This is bad news for borrowers. By delaying the IDR rule, [the administration] is abandoning the lowest income student loan borrowers to the devastating impacts of default and ballooning debt.”
Other student loan relief initiatives are set to expire soon
The criticisms of the Education Department’s delay in releasing the new IDR plan comes as the administration also drags its feet on making decisions about key federal student loan relief programs that are set to expire soon, as well as the question on broader student loan forgiveness initiatives.
The ongoing student loan payment pause is set to end in a matter of weeks on August 31, 2022, and the administration has not indicated whether or not it will be extended. The Limited PSLF Waiver — a broad expansion of relief under the Public Service Loan Forgiveness program — is scheduled to end on October 31, 2022, and top officials have not directly responded to pleas from advocacy groups to extend the relief further.
Meanwhile, President Biden promised a decision on broad student loan forgiveness within a matter of weeks — in April. Earlier this week, Biden indicated a decision on student loan forgiveness would be made “by the end of August.”
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