Monday, December 17, 2012

New Student Loan Repayment Rules for 2013

There is news in the world of federal student loans. There are changes to the income-based repayment (IBR) plan and the income-contingent repayment (ICR) plan. Some of the information is broad for right now, but it looks that for the IBR, there will be new rules in documenting income. For the ICR, new rules will ease the documentation requirements as well as better clarifying parts of the plan. These are to begin July 1, 2013.

Another big change in repayment is a new IBR option: the Pay As You Earn repayment plan. This plan will limit the student's payments to 10% of the difference between their adjusted gross income and 1.5 times the poverty level for the area the student resides. This plan will also reduce from 25 years to 20 years the amount of time a student must make payments under the plan before the remaining loan balances are forgiven.

This Pay As You Earn repayment plan has some conditions. First, the borrower's loans must be held under the Federal Direct Loan Program; second, the borrower must be a new borrower as defined on or after October 1, 2007; third, the borrower must also have received loan disbursements on a direct loan on or after October 1, 2011; and fourthly, the borrower cannot repay under this plan any parents PLUS loans or any consolidation loans that include a parents PLUS loan.

As I understand it, if a borrower's payments while in this Pay As You Earn plan in the first three years do not satisfy the accruing interest and as long as the borrower is repaying a subsidized loan, then the Department of Education will not charge interest above the amount of the borrower's payment on that loan. Naturally, the borrower will have to submit income information for this plan, and like the regular IBR plan, the borrower will have to resubmit most recent income information.

There is no concrete date set yet for the Pay As You Earn repayment plan because as soon as the guidance is published, then the Department of Education will implement it.