New Rules Expand Student Loan Repayment Plan

The U.S. Department of Education on Tuesday released two regulatory packages addressing products and payment plans directed at student borrowers.

The revised Pay as You Earn plan, known as REPAYE, which is one of the department’s income-based repayment programs, is similar to the one negotiators settled on earlier this year. The plan’s expansion caps monthly payments at 10% of borrowers’ discretionary income. Borrowers still paying off bank-based federal loans that were phased out in 2010 can also consolidate their debt into a direct loan to be eligible for the plan.

The Education Department's new REPAYE plan will become available in December. It comes more than a year after President Obama ordered the department to make it available to borrowers who took out loans before October 2007 or who stopped borrowing by October 2011. 

“In addition to the monthly payment cap, REPAYE will forgive remaining debt after 20 years for those who only borrowed for undergraduate study and 25 years for those who borrowed for graduate study,” Education Department Undersecretary Ted Mitchell wrote in a blog post.

The revised REPAYE plan could help an estimated five million more borrowers pay off their student loans, according to the Education Department. The changes to REPAYE will cost an estimated $15.4 billion and expand the cost of the program by 8%, according to estimates by The Washington Post.

A May report from Equifax analyzed college debt levels and detailed how an income-based student loan repayment system could help borrowers. The report showed that borrowers earning less than $30,000 tally up to four times the delinquency rates of higher-earning peers.  

The Education Department also released rules aimed at ending what it described as "the proliferation of campus debit and prepaid cards offered to students in exchange for monetary benefits to schools."Under the new regulations, colleges and universities can’t force students or parents to receive student aid refunds on a prepaid or debit card but must instead give them a non-biased list of options. The rules also ban schools from charging exorbitant fees on prepaid or debit cards if a student overdraws his or her account. A Government Accountability Office report from February 2014 found several problems with the college debit card market including that students were getting biased, misleading information persuading them to enroll in college card programs.  

The Consumer Financial Protection Bureau in September released results of a public inquiry into student loan servicing practices. The report detailed widespread servicing failures reported by both federal and private student loan borrowers. Consumers described companies using various sloppy, patchwork practices that create obstacles to repayment, raise costs and contribute to further harming struggling borrowers. 

The CFPB has made it a priority to take action against companies that are engaging in illegal servicing practices and some of that work is addressed in the report, which can be found here.