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February 9, 2015

Administration Suggests Changes to PAYE and PSLF in Budget Proposal

Each year, the executive branch submits a budget PROPOSAL to the legislative branch.  The administration's budget serves as a starting point for negotiations in congressional committees.  To me, there is no world in which this congress passes this president's proposal precisely as it has been submitted.  More on the bizarre budget process from the Center on Budget and Policy Priorities and from the Washington Post.

In my view, the substance of the budget proposal is important for two reasons:  first, it clearly signals that the administration is willing to narrow benefits for graduate and professional student loan borrowers and second, because the proposed changes will likely be part of the debate during the upcoming budgetary process and the negotiations over reauthorization of the Higher Education Act. But the specific language of the budget proposal IS NOT LAW and although some version of it may end up being enacted at some point, there is no sense trying to interpret the precise language of the budget proposal because it is NOT controlling.

So here is what's in the President's proposal:
  • ​Establish PAYE as the only income-driven plan for NEW BORROWERS after July 1, 2016 
  • Use household income for married couples when calculating income-driven payments (currently married borrowers may file separate federal tax returns to have payments based on separate income)
  • Eliminate current cap on monthly payments (currently, payments will never exceed the amount that would have been paid under a standard 10-year repayment plan, even if the payment calculation would otherwise result in a higher payment based on a borrower’s income)
  • For borrowers with federal loan balances above $57,500, increase length of time to forgiveness from 20 to 25 years 
  • Exempt forgiven amounts from taxation 
  • Caps the amount of interest that can accrue when required monthly payment is insufficient 
  • Cap PSLF forgiveness at $57,500 (the current borrowing limit for undergraduates) 
  • Allow only those payments made under income-driven repayment plans to count toward PSLF 
  • Increase the amount of money spent on loan servicing to $855 million


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