What You Need To Know About New REPAYE

The U.S. Department of Education published a Notice of Proposed Rulemaking (NPRM) in the Federal Register on Wednesday, January 11, 2023. This NPRM proposes a new income-driven repayment plan that will cut the monthly payments on some federal student loans in half.

The U.S. Department of Education estimates that the new REPAYE plan will cost $137.9 billion over 10 years, assuming that about a third of borrowers choose the new REPAYE plan.

Here’s what to know about New REPAYE student loan repayment plan, including potentially lower student loan payments, more loan forgiveness opportunities, and more.

Public Comments On The Proposed Rule

Public comments must be received by February 10, 2023. As of February 1, 2023, more than 8,000 comments have been received. Most of these comments, however, are not substantive comments. They don’t provide new information, present reasonable alternatives to the proposed rule or identify or correct errors in the assumptions or analysis. A public comment is not a vote in favor or against the proposed rule. Public comments that state that the commenter agrees or disagrees with the proposed rule will be ignored.

The U.S. Department of Education will respond to the substantive comments in the preamble to a final rule published in the Federal Register.

If the final rule is published by November 1, the new rule will go into effect the following July 1. In some situations, the U.S. Department of Education can implement the new rule earlier. 

Changes To Existing Income-Driven Repayment Plans 

There are three main purposes for income-driven repayment plans:

1. Providing a safety net for borrowers
2. Providing affordable payments pegged to income instead of the amount owed
3. Integration with Public Service Loan Forgiveness

The changes proposed by the Biden Administration are focused primarily on making student loan payments more affordable.  

The new income-driven repayment plan will be implemented as a change to the Revised Pay-As-You-Earn Repayment Plan (REPAYE), as opposed to creating a brand new repayment plan. 

Borrowers who are already in REPAYE will get the benefit of the changes to REPAYE immediately when they go into effect. Borrowers in other repayment plans can choose to switch into “New” REPAYE. 

The changes will also simplify the set of repayment plans, by phasing out enrollment in existing income-driven repayment plans. 

Specifically, the new regulations will limit eligibility for Pay-As-You-Earn Repayment (PAYE) and Income-Contingent Repayment (ICR) to borrowers who were in PAYE and ICR on the effective date of the new regulations, except for Parent PLUS loan borrowers. Parent PLUS loan borrowers are ineligible for the new REPAYE plan and will continue to be eligible for ICR on Federal Direct Consolidation Loans that repay a Parent PLUS loan. 

The new regulations will not be able to eliminate Income-Based Repayment (IBR), because IBR was enacted by statute. Borrowers in REPAYE can choose to switch into IBR only until they have made 120 payments under REPAYE. This primarily affects graduate students, who may choose to switch into IBR because it has a shorter 20-year repayment term instead of the 25-year repayment term available to graduate students under REPAYE. 

Lower Student Loan Payments Under The New REPAYE Plan

The new REPAYE plan reduces the monthly student loan payments by changing the percentage of discretionary income, changing the definition of discretionary income and changing the repayment period.

• Percentage of Discretionary Income. The percentage of discretionary income will be reduced to 5% for undergraduate loans. It will remain at 10% for graduate loans, but will combine them using a weighted average based on the original loan balances of the loans that are still outstanding. 
• Definition of Discretionary Income. The definition of discretionary income will be adjusted gross income (AGI) minus 225% of the poverty line, instead of 150% of the poverty line.
• Repayment Period. The remaining debt will be forgiven after 20 years of payments (240 payments) for undergraduate debt and 25 years (300 payments) for graduate debt. There will be a shorter repayment period and earlier forgiveness for borrowers with low original loan balances.
• Loan Forgiveness. If the original loan balance is $12,000 or loss, the remaining debt will be forgiven after 10 years. Add one year for each additional $1,000 in original loan balance above $12,000. The use of one-year increments is intended to prevent cliff effects. If a student borrows more student loans later, the time to forgiveness will adjust. Up to $22,000 of undergraduate debt and up to $27,000 of graduate debt will qualify for a shorter repayment period. Note that $12,000 is the maximum a dependent student can borrow in the first two years of undergraduate education, such as at a community college. 

The time in repayment may increase for some borrowers, as compared with the old REPAYE plan, since the monthly payment will be lower, yielding slower progress toward paying off the debt in full.

It’s estimated that more than two thirds (69%) of undergraduate borrowers will reach the 20-year forgiveness point and more than 98% of graduate students will reach the 25-year forgiveness point under the new REPAYE plan.

The new REPAYE plan will no longer charge accrued but unpaid interest after applying the borrower’s payment. So, loan balances will no longer grow when borrowers make the required payments, even if the payments are less than the new interest that accrues. This eliminates a significant source of stress for borrowers who were previously negatively amortized. 

If a married borrower files their federal income tax returns as Married Filing Separately, only that borrower’s income will count toward the loan payment under REPAYE. The borrower’s spouse will be excluded from household size in the calculation of the poverty line. 

Counts More Payments Toward Forgiveness

Progress toward student loan forgiveness will no longer reset when the borrower consolidates their loans. Payments before consolidation will count toward forgiveness based on a weighted average of the loan balances of the loans with and without qualifying payments. 

In addition, more deferment and forbearance periods will count toward forgiveness. This includes the cancer deferment, rehabilitation training program deferment, unemployment deferment, economic hardship deferment (including Peace Corps), military service deferment, national service forbearance, National Guard duty forbearance, DoD Student Loan Repayment Program forbearance, and certain administrative forbearances.

New Options For Delinquency And Default

When a borrower is 75 days delinquent on their federal student loans, they will automatically be enrolled in the income-driven repayment plan with the lowest monthly payment. However, the enrollment won’t really be automatic, since the borrower must still consent to the disclosure of their income information to enable the calculation of the monthly loan payment. 

Borrowers who are in default on their federal student loans can make payments under IBR and have them count toward forgiveness.