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Federal Student Loan Help Is Finalized

WASHINGTON (CN) - The Department of Education's Office of Postsecondary Education has completed changes to three federal student loan programs based on President Barack Obama's "Pay as You Earn" initiative to help borrowers repay student loans, according to new regulations.

The action implemented an Income-Contingent Repayment (ICR) plan in the Direct Loan program, made changes to the Income-Based Repayment (IBR) plan in the Direct Loan and Federal Family Education Loan programs, and clarified the total and permanent disability (TPD) discharge process for borrowers in those loan programs as well as the Perkins Loan program, all under Title IV of the Higher Education Act.

Increased enrollment and rising tuition have added to significantly increased student loan debt in an economic climate that limits recent college graduates' ability to find work at wages sufficient to repay the debt, while some borrowers with "a total and permanent disability" face inconsistencies in determining eligibility for a loan discharge, the rule noted.

"The revised ICR and IBR plans will provide borrowers with improved income-related payment management options. They will also encourage borrowers to honor their debt commitments by offering loan forgiveness after a significant period of repayment in an income related payment plan," the rule said.

The Pay as You Earn repayment plan capped payments at 10 percent of discretionary income, a reduction from the current 15 percent cap, and will be available to eligible borrowers in the fall of 2012, according to the agency.

For borrowers with a total and permanent disability, the new regulations will permit a TPD discharge of the debt based on the borrower's Social Security Administration disability notice of award of benefits if it indicates that eligibility will be reviewed on a five- to seven-year schedule, "which classifies the borrower as permanently impaired-medical improvement not expected," the rule said. Borrowers would still be subject to the three-year discharge review process currently in place, according to the agency.

The streamlined TPD discharge process established a single point of contact through the Department of Education, rather than through individual lenders, to reduce processing time and provide more consistency in determinations, the regulations stated.

The new regulations are estimated to have a net budget impact of $2.1 billion in subsidy cost "over the 2012 to 2021 loan cohorts," the regulations specified.

The rules are meant to be effective July 1, 2013, but the secretary of the Department of Education has exercised his authority to designate an early implementation date of Nov. 1, 2012, for some sections of the new regulations.

To learn more, click the document icon for this regulation and others.

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