2024-26698. Income Contingent Repayment Plan Options

Provision	Regulatory section	Description of provision
Change eligibility limitation on PAYE to 2027	§ 685.209(c)(4)(iv)	Limits PAYE to borrowers enrolled in that plan as of July 1, 2027, instead of July 1, 2024.
Change eligibility limitation on ICR	§ 685.209(c)(5)(i)(B)	Limits ICR to a borrower who was enrolled in that plan as of July 1, 2027, instead of July 1, 2024, while continuing the exception for borrowers repaying a Direct consolidation loan that repaid a Parent PLUS loan.

4. Discussion of Costs, Benefits and Transfers

This rule adjusts the eligibility requirements that allow borrowers to enroll in the ICR and PAYE plans until July 1, 2027, an extension from the existing date of July 1, 2024.

As described further in the Net Budget Impact section of this RIA, the Department does not estimate a significant budgetary impact from this regulation. For existing borrowers, the Department already assumes in our budget baseline that borrowers who would benefit from PAYE or ICR over SAVE in the long term are already in those plans. As noted in the IDR final rule that created the SAVE plan,^[17] the Department's budget modeling assigns IDR borrowers to specific plans based on a comparison of the net present value of the payments the borrower makes under the various plans for which they are eligible. For future borrowers, we anticipate continued availability of the SAVE plan and do not evaluate borrowers having the choice of ICR or PAYE against IBR in the absence of SAVE. Moreover, the time-limited nature of these changes means that only a future borrower who enters repayment by July 1, 2027, would be able to select the ICR or PAYE plans.

The primary benefit of these changes for the Department is that they allow us to meet our statutory obligation under the HEA to offer payments under the income contingent repayment authority. There may also be secondary benefits to the Department. This includes the possibility that borrowers choose to enroll in PAYE or ICR instead of falling delinquent or going into default. It could also mean a reduction in questions or concerns from borrowers, such as those seeking PSLF, who are trying to figure out how to make qualifying monthly payments.

Borrowers who elect to enroll in the PAYE or ICR plans during this time-limited period may also see some benefits, which would include some additional certainty about their payment amounts in the face of litigation as well as the ability to make progress toward certain types of forgiveness during the time until the pending cases are resolved. For instance, there are approximately 200,000 borrowers enrolled in the SAVE plan who have certified at least some employment toward PSLF, and who are eligible for the PAYE plan, but who are not eligible for the terms of the IBR plan offered to borrowers who first took out a loan on or after July 1, 2014. If these individuals choose to sign up for PAYE, they would ( print page 90228) be able to continue making progress toward PSLF by making payments equal to 10 percent of their discretionary income. By contrast, if these borrowers did not have access to PAYE, they would have to choose a version of the IBR plan that sets their payments at 15 percent of discretionary income. For instance, a single borrower who makes $60,000 a year would pay $318 a month on PAYE instead of $477 on the older IBR plan, a savings of $159. It is possible that there may be other borrowers on SAVE who would consider a switch on a temporary basis, such as a borrower who would have a $0 payment on either PAYE or ICR. There were also just over 800,000 borrowers who switched from either of these plans onto SAVE after its creation.

Beyond borrowers currently enrolled in SAVE, there are approximately 13.9 million borrowers who are in repayment and who do not have Parent PLUS loans who are not currently on an income contingent repayment plan.^[18] While the Department cannot speculate on how many of these borrowers may want to sign up for either ICR or PAYE, depending on their eligibility, the Department is not currently meeting its obligations under the HEA to provide these borrowers with an income contingent repayment option.

The monthly payment savings described above would be similar for any borrower with older loans that are not eligible for the version of IBR for newer borrowers but who is eligible for PAYE. This could include borrowers who have recently returned to repayment through the Fresh Start Initiative, which allowed borrowers to exit default. It also could include older borrowers who are now considering IDR plans.

This IFR creates administrative costs relating to systems updates that allow borrowers to access PAYE and ICR. We anticipate these would be one-time costs of $400,000 as these plans still exist for continuously enrolled borrowers. The ability to select PAYE or ICR could also create costs in the form of transfers if borrowers are able to select plans that produce lower payments over the borrower's time in repayment. The nature and extent of these costs depends on baseline policy, namely what other plans are available and the terms of those plans. We do not anticipate these costs will be significant, as we discuss in the Net Budget Impact section.

There may be additional costs related to the potential that borrowers may have a harder time choosing among repayment plans. However, we think several factors mitigate this concern. One is that, until a version of the SAVE plan that is compliant with the court injunction is available, the number of options for borrowers to make payments on an income contingent repayment plan will not be appreciably larger. For some borrowers, the ICR plan may be their only option, while the choice for borrowers who are eligible for PAYE and ICR should be simple, because the former generally produces lower payments for most borrowers. Over the long run, the time-limited nature of these changes means that eventually borrowers will go back to only choosing the SAVE plan, or the ICR plan if they have a consolidation loan that repaid a Parent PLUS loan. The Department will also continue working to improve and update tools available to help borrowers choose their plans.

5. Net Budget Impact

As the Department expects the SAVE plan to be available and advantageous to most borrowers in the long run, we do not estimate a significant budget impact from making PAYE and ICR available again to eligible borrowers, including those who had chosen SAVE. As was noted in the final rule that created the SAVE plan (88 FR 43820), the Department's budget modeling assigns IDR borrowers to specific plans based on a comparison of the net present value of the payments the borrower makes under the various plans for which they are eligible.^[19] That means the borrowers we estimate would be better off in PAYE or ICR are already in that plan in the President's Budget for fiscal year (FY) 2025 (PB2025) baseline. These borrowers are generally going to be those who have graduate debt and those with incomes that are expected to rise to the point where their calculated payment would eventually be equal to or greater than what they would owe on the 10-year standard repayment plan. These borrowers might be better off on PAYE because the terms of PAYE, absent the current injunction, provide for forgiveness after 20 years of payments instead of the 25 years on IBR if the loan was borrowed before July 1, 2014, or the 25 years for graduate borrowers on SAVE.^[20] In addition, PAYE caps payments at the amount determined under the 10-year standard plan for borrowers so long as their payments were below that level when they first enrolled. By contrast, there is no payment cap on SAVE. With this assumption that borrowers know their income and family profile trajectories over the life of their loans and choose the plan that offers the lowest lifetime, present-discounted payments, the regulation provides borrowers with an option to enroll in a non-SAVE income contingent repayment plan that does not have a significant scoreable budgetary impact.

However, there is considerable uncertainty regarding when borrowers in SAVE may see their payments resume due to ongoing litigation. A lengthy forbearance for borrowers in the SAVE plan could lead some borrowers to decide to enroll in a different income contingent repayment plan if that would result in lower net present value of payments. In order to evaluate this, the Department has done a sensitivity analysis that includes a nine-month forbearance in FY 2025 that does not count toward IDR forgiveness with the PB2025 baseline SAVE borrowers and compared that to a run with the SAVE or PAYE/ICR choice redone to include that forbearance in the choice decision. As is the case for the baseline choice decision, the plan choice for the sensitivity is based on the net present value (NPV) at a 30 percent discount rate between the cashflow streams for each plan generated for the borrower sample. This is the approach the Department has used for modeling IDR plan choice decisions and takes into account changes across the entire payment stream. This approach assumes borrowers know their income and family profile trajectories over the life of their loans and choose the plan that offers the lowest lifetime, present-discounted payments. The Department recognizes that borrowers may use different logic when choosing a repayment plan, such as comparing near-term monthly payments, and will not have information about their future incomes and family patterns to match this type of analysis, but we believe any decision logic would result in a relatively small percentage of borrowers choosing to revert to PAYE or ICR long-term. The sensitivity run resulted in a cost of $70.5 million, which represents the effect of the change in payments on the estimated net present value of all future non-administrative Federal costs associated with cohorts of loans.

6. Accounting Statement

As required by OMB Circular A-4, we have prepared an accounting statement ( print page 90229) showing the classification of the expenditures associated with the provisions of these regulations. These effects occur over the lifetime of the first ten loan cohorts following implementation of this rule. The cashflows are discounted to the year of the origination cohort in the modeling process and then those amounts are discounted at two percent to the present year in this Accounting Statement. This table provides our best estimate of the changes in annualized monetized transfers that result from these final regulations. Expenditures are classified as transfers from the Federal Government to affected student loan borrowers.

Category	Benefits
Complying with statutory requirements to offer an income contingent repayment plan	Not quantified.
Category	Costs (2%)
One-time administrative costs to Federal Government to update systems and contracts to implement the final regulations	$0.04.
Category	Transfers (2%)
Reduced transfers from borrowers based on borrowers now accessing PAYE or ICR	Not quantified.