Administration Issues Directives to Support Income-Based Repayment
In early 2010, Congress approved the Income-Based Repayment (IBR) plan, whereby an individualís federal student loan payments could be capped at 15 percent of discretionary income, with any remaining balance forgiven after making payments for 25 years. Subsequently, Congress enacted legislation to reduce IBR terms to 10 percent of discretionary income, with balance forgiveness after 20 years of payments, for new borrowers on or after July 1, 2014. In October 2011, President Obama issued the ďPay as You EarnĒ proposal, which, if approved, may make the reduced IBR terms available to borrowers by the end of 2012.
Because participation in IBR has been relatively low, on June 7, 2012 President Obama issued a memorandum to the Secretary of Education and the Secretary of the Treasury directing that the following specific actions be taken to ease the application process and improve participation:
- By July 15, 2012, ED must create integrated online and mobile resources to educate students and borrowers about federal student aid, IBR, and debt management principles.
- By Sept. 30, 2012, ED, in coordination with the Commissioner of Internal Revenue, must create an online IBR application process that allows borrowers with federally-held loans to apply without first contacting their loan servicer, and to import Internal Revenue Service income data directly into the application.
- ED must instruct direct loan servicers to notify borrowers of the IBR option both before the borrower leaves school and upon entering repayment. By June 7, 2012, ED must make available to schools a model exit counseling module to increase understanding of repayment options.