Sunday, July 14, 2024
Student Loan

What Student Loan Borrowers Should Know

This fall, the U.S. Department of Education is continuing a process known as negotiated rulemaking to make changes to the federal student loan program. While this bureaucratic process can seem wonky, its outcome will directly affect millions of student loan borrowers across the country.

Negotiated rulemaking, often called “neg reg,” is a process by which the Department of Education creates new regulations in order to implement laws passed by Congress. The process allows outside stakeholders – including students, student loan borrowers, consumer advocates and colleges – to have input via public hearings, committee meetings and comment periods in how the department interprets and ultimately implements laws related to the student aid programs authorized under the Higher Education Act of 1965.

Here’s a breakdown of what the current process could mean for student loan borrowers.

Changes to Student Loan Repayment

During the fall 2021 session, negotiators will cover a range of topics related to student loans and college affordability. This includes new regulations related to the income-contingent repayment plan and likely the other three income-driven repayment plans that enable borrowers to make student loan payments based on their income and family size.

Borrowers currently have access to four income-driven repayment plans, some of which were created through negotiated rulemaking. The newest such plan – Revised Pay As You Earn, or REPAYE – was created in 2015 via negotiated rulemaking, as was Pay As You Earn, or PAYE, in 2012. REPAYE expanded program eligibility and included more favorable terms for borrowers. For example, income-driven repayment plans before REPAYE required borrowers to demonstrate financial hardship, but REPAYE eliminated that requirement and opened income-driven repayment eligibility to more federal direct student loan borrowers.

Through this fall’s rulemaking process, the Department of Education may propose new student loan repayment plans or revisions to existing ones, with the goal of providing simpler and more favorable terms and protections for borrowers.

The department is also planning to address the issue of interest capitalization, which is when unpaid accumulated interest on a student loan is added to the principal loan balance. This often increases the cost of the loan over time because interest is then calculated based on the new, higher loan balance.

A rule that would limit interest capitalization could mean lower loan balances for many borrowers, especially those who are making low monthly payments in an income-driven repayment plan.

Eased Access to Existing Forgiveness Programs

In addition to student loan repayment, the department will be seeking to improve programs that discharge borrowers’ student loans under certain circumstances, including closed school discharge, false certification discharge and borrower defense to repayment, which is commonly referred to as borrower defense.

Under borrower defense, for example, students may be relieved from repaying their federal student loans if the loans were taken out as a result of a school’s misleading, fraudulent or illegal acts. And under closed school discharge, borrowers may no longer be required to make payments on their loans if the school closed while they were enrolled or within 120 days after they withdrew.

During former President Barack Obama’s administration, the Department of Education issued a rule creating a process for borrowers to seek such discharges and for the department to consider them for groups of students. The rule was changed during former President Donald Trump’s administration. The current administration under President Joe Biden is looking to create another rule with the goal of making it easier for more borrowers to be granted student loan discharges.

The department is also planning to use negotiated rulemaking to improve the program by which borrowers who are totally and permanently disabled can have their loans discharged, since many qualified borrowers struggle to access the forgiveness to which they may be entitled.

Improve the Public Service Loan Forgiveness Program

The Department of Education is also planning to use this fall’s rulemaking session to address ongoing issues with the Public Service Loan Forgiveness program, or PSLF, which provides federal student loan debt forgiveness after 10 years of qualifying payments while working in certain public service jobs.

The program has faced criticism for its low forgiveness rate, and the department seeks to improve how the program is administered with the goal of helping borrowers more easily access student loan forgiveness.

This month, the department formally announced the fall 2021 negotiated rulemaking schedule and requested nominations for individual negotiators – which can include students and borrowers – for the rulemaking committee and a subcommittee. The deadline to nominate someone is Aug. 31, and details on how to submit a nomination can be found here.

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