Income-Contingent Repayment Plan Options

<RULE> DEPARTMENT OF EDUCATION <CFR>34 CFR Part 685</CFR> <DEPDOC>[Docket ID ED-2024-OPE-0135]</DEPDOC> <RIN>RIN 1840-AD97</RIN> <SUBJECT>Income-Contingent Repayment Plan Options</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of Postsecondary Education, Department of Education. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Department of Education (Department) adopts as final, without changes, the interim final rule published in the <E T="04">Federal Register</E> on November 15, 2024. This final rule amends the regulations governing income-contingent repayment plans available to Federal student loan borrowers to satisfy the Department's statutory obligation under the Higher Education Act of 1965, as amended, (HEA) to offer borrowers access to an income-contingent repayment plan. The scope of this rule is narrow. It revises the last date for most borrowers to enroll in the Income-Contingent Repayment or Pay As You Earn plans from July 1, 2024, to July 1, 2027. Changing the eligibility restrictions that went into effect on July 1, 2024, to July 1, 2027, allows the Department to meet its statutory obligations while it undertakes the necessary administrative changes to make its repayment plans compliant with the terms of an injunction pending appeal from the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit). </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective on July 1, 2026. <E T="03">Implementation date:</E> For the implementation date of these regulatory changes, see the <E T="03">Implementation Date of These Regulations</E> section of this document. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> For further information contact Tamy Abernathy, U.S. Department of Education, Office of Postsecondary Education, 400 Maryland Avenue SW, 5th Floor, Washington, DC 20202. Telephone: (202) 245-4595. Email: <E T="03">tamy.abernathy@ed.gov.</E> If you are deaf, hard of hearing, or have a speech disability and wish to access telecommunications relay services, please dial 7-1-1. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> In this final rule, the Department uses the term “income-contingent repayment plans” to include the original Income-Contingent Repayment (ICR) plan established by the Department in 1994 as well as the Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and the Saving on a Valuable Education (SAVE) plans. <E T="03">Implementation Date of These Regulations:</E> These regulations are effective on July 1, 2026. Section 482(c) of the HEA requires that regulations affecting programs under title IV of the HEA be published in final form by November 1, prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier, as well as the conditions for early implementation. As described in the interim final rule (IFR) (89 FR 90221), the Secretary exercised the authority under section 482(c) of the HEA to designate the regulatory changes to 34 CFR part 685 included in the IFR (and reaffirmed in this document) for early implementation on December 16, 2024, for the reasons set forth in the IFR and <E T="03">Background</E> and <E T="03">Need for Regulatory Action</E> sections of this document. <HD SOURCE="HD1">Executive Summary</HD> <HD SOURCE="HD2">Purpose of This Regulatory Action</HD> The regulations in the November 15, 2024, interim final rule enact a time-limited fix to make certain the Department meets its obligations under section 455(d)(1) of the HEA. That section requires the Secretary of Education (Secretary) to offer Federal Direct Loan borrowers a variety of student loan repayment plans, including an “income-contingent repayment plan,” under which a borrower makes payments “based on the borrower's income” for “an extended period of time prescribed by the Secretary, not to exceed 25 years.”  <SU>1</SU> <FTREF/> On November 15, 2024, the Department published an IFR to satisfy the Department's statutory obligation under the HEA to offer borrowers an income-contingent repayment plan. <SU>2</SU> <FTREF/> This final rule and the IFR that preceded it allow the Department to comply with this requirement. The rule titled “Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program” that took effect on July 1, 2024 (income-driven repayment [IDR] final rule), limited new enrollments in the PAYE and ICR plans for student borrowers so that they would have one clear option under this authority—the Saving on a Valuable Education (SAVE) plan (88 FR 43820). However, legal challenges to the SAVE plan resulted in an injunction pending appeal from the Eighth Circuit that prevents the Department from implementing significant aspects of the SAVE plan. <SU>3</SU> <FTREF/> The Department cannot immediately execute the operational work needed to conform the SAVE plan to the court's Eighth Circuit's injunction pending appeal, so we have placed borrowers who had enrolled in the SAVE plan in a forbearance to avoid violating that injunction. With SAVE not available and other ICR plans closed to new enrollments, the Department was therefore not in compliance with the statutory requirement to offer an income-contingent repayment plan to borrowers. <FTNT> <SU>1</SU>  HEA section 455(d)(1)(D) (20 U.S.C. 1087e(d)(1)(D)). </FTNT> <FTNT> <SU>2</SU>  89 FR 90221 (November 15, 2024). </FTNT> <FTNT> <SU>3</SU>  Specifically, in the <E T="03">Missouri</E> case, the U.S. District Court for the Eastern District of Missouri entered a preliminary injunction on June 24, 2024, enjoining the shortened time to forgiveness that had been offered by the SAVE Plan. <E T="03">Missouri</E> v. <E T="03">Biden,</E> No. 4:24-CV-00520-JAR, 2024 WL 3104514, at *1 (E.D. Mo. June 24, 2024) (preliminary injunction). The challengers appealed and on July 18, 2024, the Eighth Circuit stayed the entire rule pending appeal, <E T="03">Missouri</E> v. <E T="03">Biden,</E> No. 24-2332, 2024 WL 3462265, at *1 (8th Cir. July 18, 2024), and then on August 9, 2024, the Eighth Circuit entered an injunction pending appeal that replaced the previously entered stay, <E T="03">Missouri</E> v. <E T="03">Biden,</E> 112 F.4th 531 (8th Cir. 2024) (per curiam) (injunction pending appeal). In the <E T="03">Alaska</E> case, the U.S. District Court for the District of Kansas entered a preliminary injunction on June 24, 2024. <E T="03">See Alaska</E> v. <E T="03">Cardona,</E> No. 24-1057-DDC-ADM, 2024 WL 3104578, at *1 (D. Kan. June 24, 2024). Thereafter, the Tenth Circuit Court of Appeals stayed the preliminary injunction pending appeal. <E T="03">See Alaska</E> v. <E T="03">Cardona,</E> No. 20-3089, Order Staying Prelim. Inj. (10th Cir. June 30, 2024). That Tenth Circuit appeal has been held in abeyance pending the outcome of the Eighth Circuit proceedings. </FTNT> The IFR announced the reopening of the PAYE and ICR plans to new enrollments until July 1, 2027. This reopening allows the Department to offer borrowers an income-contingent repayment option as required under the HEA. <HD SOURCE="HD2">Summary of the Major Provisions of This Regulatory Action</HD> This final rule adopts without change the provisions in the IFR, which— • Adjust the date after which borrowers cannot begin to repay a loan under the PAYE plan unless they are already enrolled in the plan as provided in § 685.209(c)(4)(iv) from July 1, 2024, to July 1, 2027. • Revise the date after which borrowers cannot begin to repay a loan under the ICR plan unless they are already enrolled in that plan or have a consolidation loan that repaid a Parent PLUS loan as provided in § 685.209(c)(5)(i)(B) from July 1, 2024, to July 1, 2027. <HD SOURCE="HD2">Costs and Benefits</HD> As further detailed in the <E T="03">Regulatory Impact Analysis (RIA),</E> this final rule does not create significant budgetary costs for the Department. For existing borrowers, the Department already assumes in our budget baseline that borrowers who would receive more benefit from being enrolled in PAYE or ICR rather than SAVE over the long term are already in those plans. The budget baseline also assumes that borrowers seeking Public Service Loan Forgiveness (PSLF) would continue to make payments. So, a borrower who leaves SAVE to join PAYE or ICR so they can qualify for forgiveness under PSLF does not generate additional costs. The final rule provides some non-monetary benefits to the Department by allowing it to comply with requirements in the HEA. For borrowers, the final rule provides benefits to those who now enroll in PAYE or ICR and make payments that allow them to reach forgiveness sooner than they would by staying in forbearance. The Department anticipates these benefits would be most likely to occur for borrowers seeking PSLF due to the shorter number of required payments before receiving forgiveness. <HD SOURCE="HD1">Background</HD> Section 455(d)(1) of the HEA directs the Secretary to offer borrowers a range of loan repayment plans, including an income-contingent repayment plan. The Secretary first met this requirement by issuing final regulations for the original ICR plan in 1994, <SU>4</SU> <FTREF/> and then expanded the options available to borrowers under this authority with the creation of PAYE and REPAYE as income-contingent repayment plans in 2012 and 2015, respectively. <SU>5</SU> <FTREF/> On July 10, 2023, the Department published the IDR final rule amending the terms of REPAYE and renaming it the SAVE plan. <SU>6</SU> <FTREF/> Among other changes, that ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 46k characters. 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