Ministry of Education delays regulatory plan on income-contingent reimbursement

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Diving Brief:

  • The US Department of Education has pushed back the release of its regulatory proposal that will govern a class of student loans known as income-based repayment plans, in which borrowers repay their debt based on their income.
  • Ed Department officials had intended to release the proposed IDR rule alongside three other proposed regulations this month, such as one that will establish policies for issuing federal Pell grants to incarcerated students.
  • But the Ed department chose to separate the draft IDR regulations, with the aim that the other three proposals could be finalized before the regulatory deadline of November 1, which would allow them to come into force in July 2023. It is unclear not now when the department presents the draft IDR regulations.

Overview of the dive:

Part of the Biden administration’s overhaul of education regulations involves an overhaul of the IDR program, which has been plagued with administrative problems for years.

Income-driven plans allow borrowers to repay their loans over a longer period than is typical, usually 20 years or 25 years, after which they may be eligible to have their remaining balance cleared.

However, the department said loan servicers have pushed many borrowers into forbearance — allowing temporary forbearance or small monthly payments — rather than helping them with income-driven plans they may qualify for.

As a result, they missed payments that would have allowed them to get loan forgiveness sooner, the department said.

A U.S. government accountability office report published in April found that the department had only approved 157 loans for forgiveness under the IDR as of June 1, 2021. Another 7,700 loans worth about $49 million in debt could have been forgiven, the GAO concluded.

The Ed department also failed to communicate the complexities of IDR to borrowers, the GAO said.

The Education Department attempted to patch up the program in April, allowing all borrowers of past payments on student direct loans and federal Family Education Loan Program loans to qualify for cancellation of the loan debt under the IDR.

New IDR regulations would also attempt to improve those plans, the Ed department said.

The Office of Information and Regulatory Affairs this week i finished revising the rest of the proposed rules in the regulatory package, a mandatory step before they are published and the public can submit comments.

Other draft regulations include efforts to address processes for colleges changing ownership. The 90/10 rule, which prohibits for-profit institutions from receiving more than 90% of their income from federal student aid, is also covered by the projects.

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