The Biden administration is preparing to move forward with a process to enact potentially sweeping changes to key federal student loan cancellation, repayment and relief programs.
The US Department of Education has released draft proposals to reform federal student loan programs as part of Negotiated Rules Development, which is a process of rewriting federal regulations. The Ministry also finalized the negotiated rule-making committee, which is made up of key stakeholders who will work together to find consensus during several rounds of public hearings. The proposals were originally published by POLITICO.
The administration’s proposals call for significant changes in a number of federal student loan programs.
Total and Permanent Disability (TPD) Release Reforms for Federal Student Loans
The Total and Permanent Disability Release (TPD) program cancels federal student loan debt for disabled borrowers. The Department proposes several reforms:
- Eliminate post-discharge surveillance. Under current law, borrowers must report their employment status and employment income for three years after release from TPD. If they don’t respond or earn too much, the canceled loans can be reinstated. The Biden administration recently temporarily removed the surveillance period through executive action and is now asking that the change be made permanent.
- Facilitate the eligibility of borrowers receiving Social Security disability benefits for TPD discharge by increasing the number of SSA categories that would lead to automatic discharge, and expanding the type of SSA documentation that can be accepted for discharge approval.
- Facilitate the eligibility of recipients of a disability pension not covered by social security asking a health care provider other than a doctor to certify that they are disabled. Currently, only a physician or DO can certify a PDT discharge request. Nurse practitioners, physician assistants and therapists cannot.
Reforms to the remission of public service loans (PSLF)
The Public Service Loan Forgiveness Program (PSLF) allows borrowers to obtain forgiveness of their federal student loans after working for at least 10 years in an eligible job in the public service. But the PSLF program has specific, and often opaque, eligibility criteria that limit the program to only direct federal student loans and income-based repayment plans. These criteria have historically not been well communicated to borrowers, which has contributed to a very low approval rate.
The administration proposes many reforms of the PSLF:
- Automatic PSLF applications. Currently, borrowers must confirm their application to the PSLF or certify their employment. The department proposes to use data matching tools between various federal agencies to automatically determine eligible jobs and payments, reducing the risk of human error with manual reviews of claims.
- More flexibility in payments. The ministry is proposing to relax the strict requirements for a PSLF payment to “account” by allowing many more payments to qualify, “even if the payment is made in installments or outside the 15-day payment window. »Authorized under the PSLF program. Lump sum payments would also count toward multiple PSLF payments, overriding previous policies that prohibited this.
- Allow certain postponements and abstentions to count as payments in cases where this status would otherwise count for qualifying PSLF employment, such as postponement of graduate scholarship.
- Correct the trap of direct consolidation. Currently, federal student loan consolidation effectively restarts the clock on a borrower’s PSLF repayment term. The Department proposes to change this, including for consolidation loans which contain FFEL loans, which do not count for the PSLF. It is not entirely clear whether the Department is also proposing to allow FFEL payments to be recorded in the PSLF following a direct loan pool.
- Create an appeal or reconsideration process for rejected PSLF applications. This does not currently exist.
- Develop eligible employment to include other private organizations that provide a public service but are not necessarily 501 (c) (3) registered non-profit organizations.
Student loan interest capitalization reforms
One of the most common issues with federal student loans is the accumulation and capitalization of interest, especially for borrowers who are paying off their student loans under an income-based repayment plan.
According to a Congressional Budget Office report released last year, 75% of borrowers on an income-based repayment plan owed more than their original borrower due to the accumulation of interest. This interest can be periodically capitalized – added to the principal balance – through a number of trigger events such as the non-renewal of a repayment plan on time each year, a request for abstention, a default or a change in repayment plan. The capitalization of interest can have a cumulative effect, causing the balance to grow rapidly.
The Ministry of Education “proposes to eliminate capitalization events when it has the power”, including for each of the above events. The Department notes, however, that it would not be able to eliminate interest capitalization for borrowers specifically in Income Based Repayment (IBR), one of the many income based repayment options available. because the capitalization of IBR interests is enshrined in law. This means that Congress would have to pass a law to make associated changes.
New Income-Driven Repayment Plan for Federal Student Loans
The Biden administration is proposing the creation of a new income-based repayment plan. Currently, there are four income-focused plans, each with its own formula and eligibility criteria: Income-Conditional Repayment (ICR), Income-Based Repayment (IBR), Pay As You Go you earn (PAYE) and the revised payment as you earn (REPAYE).
Unlike its other proposals, however, the Education Department is formulating its proposal for a new income-driven plan on a more open basis by asking questions rather than offering a firm plan. The ministry suggests a more affordable, income-oriented option, primarily for undergraduate borrowers, with a larger income waiver and shorter repayment term for low-income borrowers, and a potentially longer repayment term for low-income borrowers. borrowers receiving loans for graduate studies.
Other student loan relief programs
The ministry is also calling for reforms to the Closed Schools Exit Program, which allows borrowers to apply for the cancellation of their federal student loans if their school closes and they were unable to complete their degree program or certificate accordingly.
The ministry is also proposing significant changes to the Borrower Against Repayment Defense, a program that allows borrowers defrauded by their schools to request the cancellation of their associated federal student loans. The Biden administration wants to relax the standards of proof and timing previously adopted by the Trump administration and streamline the application process, especially for groups of borrowers who all have similar claims.
Next Steps for Changes to the Student Loans Program
At this point, the Ministry’s proposals are just that – proposals. The proposals will be reviewed, evaluated and potentially modified during the next negotiated rule-making sessions. The development of negotiated rules is a long process involving several rounds of public hearings by a rule-making committee made up of key stakeholders. It may take a year or two (or more) to finalize new regulations.
The first negotiated rule-making sessions begin next week, with subsequent hearings scheduled for November and December. All sessions will be virtual and open to the public. More information can be found here.
This article has been updated to reflect the ambiguity regarding the ministry’s proposals for the reform of the PSLF, particularly regarding whether payments made on FFEL loans would be eligible for the PSLF after the direct loan consolidation.
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