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An Early Look at the New Income-Based Repayment Plan

Mark Kantrowitz

May 03, 2012

Use of Regulatory Authority to Fast-Track the New IBR

Presidential authority is limited. The executive branch must operate within the constraints established by Congress. For example, in some cases Congress grants the executive branch the authority to issue regulations that specify the implementation of programs established by Congress.

The authority provided to the US Department of Education to issue regulations for the income-based repayment plan is somewhat limited. While the US Department of Education may reduce the number of years until the remaining balance is forgiven, the US Department of Education does not have the authority to reduce the percentage of discretionary income in the current income-based repayment plan from 15% to 10%. The US Department of Education also does not have the authority to change the effective date of the new income-based repayment plan.

However, the regulatory authority under the income-contingent repayment plan is much broader. Income-contingent repayment is a predecessor to income-based repayment that became available on July 1, 1994. The Student Loan Reform Act of 1993, which was included in the Omnibus Budget Reconciliation Act of 1993, authorized the income-contingent repayment plan as part of the Federal Direct Loan Program. The income-contingent repayment plan bases the monthly payment on 20% of discretionary income, where discretionary income is defined as the amount by which adjusted gross income exceeds 100% of the poverty line. Any remaining debt is forgiven after 25 years in repayment.

The US Department of Education has the regulatory authority to change most of the terms of the income-contingent repayment plan, including the percentage of discretionary income, the definition of discretionary income and the number of years until the remaining balance is forgiven.

Accordingly, the US Department of Education will be issuing new regulations to modify the income-contingent repayment plan into something similar to the new income-based repayment plan and to make it available sooner. The new version of income-contingent repayment will be named ICR-A. The existing version of income-contingent repayment will be named ICR-B.

The process for setting new regulations begins with the selection of a set of negotiators to represent the interests of affected parties, including borrowers, colleges and lenders, among others. These negotiators meet with representatives of the US Department of Education to discuss the terms of the proposed regulatory changes in a process called negotiated rulemaking (NegReg). If consensus is reached, the agreement forms the basis of a Notice of Proposed Rule Making (NPRM). Otherwise the US Department of Education writes the NPRM as it sees fit. There is a public comment period after the NPRM is published in the Federal Register, typically 30, 45 or 60 days. After the end of the public comment period, the US Department of Education issues a final rule that responds to the public comments and specifies the details of the new regulations. If the final rule is published by November 1, the regulations become effective on the following July 1.

Session three of the negotiated rulemaking on student loans ended on March 30, 2012. It is expected that the US Department of Education will publish the NPRM soon, in time for a final rule to be published by November 1, 2012.

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