The Department of Education (ED) announced earlier this week two final regulations they say will protect students from unreasonable fees, safeguard taxpayer dollars and expand the income-based repayment plan to millions of Americans.
Addressing Student Loan Debt
In June of 2014, President Obama issued a Presidential Memorandum directing the Department of Education to propose regulations to ease the burden of student loan debt. Today’s publication of the Revised Pay As You Earn (REPAYE) Plan regulations responds to that directive by expanding repayment options to allow an additional five million Direct Loan borrowers to cap their monthly student loan payment amount at 10 percent of their annual income allocated per month, without regard to when the borrower first obtained their loans. The Department announced the proposed regulations earlier this year. In addition, the final regulations also include:
- Starting in 2016; an expansion of the circumstances under which institutions may challenge or appeal a cohort default rate that appears artificially high because of a corresponding low rate of student borrowing;
- Starting July 1, 2016; new procedures for FFEL Program loan holders to identify servicemembers who may be eligible for a lower interest rate under the Servicemembers Civil Relief Act (SCRA), enabling these borrowers to receive this important benefit automatically.
- A requirement that guarantors provide information to FFEL Program borrowers on repayment plans available to them after they rehabilitate their defaulted loans, to help ensure that borrowers have a smoother transition to regular repayment. This section of the regulations will be implemented July 1, 2016.
- And a provision to allow lump-sum payments made on behalf of borrowers through student loan repayment programs administered by the Department of Defense to count toward Public Service Loan Forgiveness, similar to the application of lump sum payments for Peace Corps and AmeriCorps volunteers. This action assures that these borrowers benefit more fully from their public service employment.
The new REPAYE repayment plan will be available to borrowers starting this December. ED has posted more information about the program at www.StudentAid.gov/IDR.
Addressing the Use of Debit and Prepaid Cards on Campus
According to the release, recent changes in the higher education marketplace have led to the proliferation of campus debit and prepaid cards offered to students in exchange for monetary benefits to schools. The Government Accountability Office (GAO) and the U.S. Public Interest Research Group (USPIRG) have stated that institutions enrolling approximately nine million students—about 40 percent of all college students—have debit or prepaid card agreements. The Department estimates that nearly $25 billion dollars in Pell Grant and Direct Loan program funds are annually released to students at institutions using these accounts. The Department proposed the Cash Management regulation in May.
Under the final regulations, students will be able to freely choose how to receive their Federal student aid refunds, student will be given objective and neutral information about their financial aid disbursement options, and they will no longer be forced to pay excessive fees to access their Federal student aid, including Pell Grants. They will also:
- Require institutions to give students greater choice about how to receive their student aid.
- Prohibit institutions from requiring students or parents to open a certain account into which their student aid refunds are deposited.
- Require institutions to ensure that students are not charged excessive and confusing fees (e.g., overdraft fees and transaction-swipe fees) if a student selects an account offered directly or indirectly by contractors that assist institutions in making direct payments of Federal student aid.
- Require an institution to provide students with a list of account options that the student may choose from to receive their student aid refunds, where each option is presented in a neutral manner and makes clear that the student can have their student aid deposited to their preexisting bank account.
- Require institutions to ensure that electronic payments made to a student’s preexisting account are made as timely as, and no more onerous to the student than, payments made to accounts marketed through the institution.
- Allow institutions to share limited student information with third-party servicers that offer financial products to allow the continued functioning of disbursement processes, while also protecting private student information, such as Social Security numbers or portions thereof.
These regulations are released amidst a great deal of turmoil in the student loan industry.
The Department of Education debt collection contract remains in limbo. In October of last year ED announced the award of 11 contracts under the small business set-aside program. Yet, 12 months later no business has been placed to those 11 contractors under that new contract. Complicating things is the fact that in February of this year ED announced that it was ending contracts with five student loan collection agencies. Two of those agencies were included in the 11 that were awarded new contracts back in October. Litigation regarding those terminations is still pending. On the unrestricted size side of the equation, there are still approximately 40 companies that had proceeded to Phase II of the RFP process. Three of those companies were part of the February announcement. Theoretically all of the agencies that had moved to Phase II are still in the running for the new contract. In a nutshell: The ED contract/RFP process is far from settled.
Meanwhile, in September the CFPB released a report detailing its findings and recommendations to reform student loan servicing; the report resulted from a request for information issued earlier in the year. The process continues over there as well.