I am a grad student loan borrower with only fed. loans currently in IBR seeking to enter PAYE.  Recently, my loan servicer informed me that in order to leave IBR I would be required to be put in 10 year standard repayment and make a payment (or fee) under this plan.  When I learned of this condition, I immediately contacted my loan servicer, speaking to multiple people including managing officials.  My loan servicer claimed that the Department of Education required the payment condition for leaving IBR.  I challenged this assertion and verified to my loan servicer’s satisfaction that other servicers were not charging a “fee”.  However, in the end my loan servicer refused to change from its position that I must make a payment to leave IBR, preventing me from entering PAYE unless the condition was met.  I have two questions:

(1) Have you heard of this payment condition, for leaving IBR?
(2) What other avenues do I have for challenging this payment requirement?

I’ll explain the weird rule below, and recommend you contact the office of the ombudsman for help settling this: https://studentaid.ed.gov/repay-loans/disputes/prepare/contact-ombudsman

Here’s how the bizarre rule works:
A borrower who leaves the IBR plan is required to go into a 10-year standard payment plan (or longer for a consolidated loan), minus the number of years they were in IBR, for one full month before the borrower may switch to another repayment plan.  That much is true.  Stupid, but true.

Although the borrower must be in standard repayment for a month, IBR regulations permit the borrower to make a lesser payment under a reduced-payment forbearance agreement to satisfy the one-payment requirement under the standard repayment plan.  Tell your servicer this.  Your loan servicer is allowed to accept any payment higher than $0 and less than the standard amount.  Technically, FFEL servicers can make a borrower leaving IBR pay the standard amount for one month, but there are “authorized to grant reduced-payment forbearances to borrowers in these circumstances and we [the Dept of Ed] strongly recommend and expect that they will do so.”

But to get into PAYE, you must be In the Direct Loan program.  In the Direct Loan program, the regs say that “the Secretary will grant a reduced-payment forbearance to borrowers in this circumstance.”

Also be aware that upon switching, any unpaid interest will be capitalized or added to the principal of the loan.

Here’s the specific language from the regulations:
IBR regulations permit the
borrower to make a lesser payment
under a reduced-payment forbearance
agreement to satisfy the one-payment
requirement under the standard
repayment plan.
With regard to the commenters’
request that the Department require
FFEL loan holders to grant a reducedpayment
forbearance to borrowers
exiting IBR, section 428(c)(3)(A) of the
HEA requires loan holders to grant
forbearances in limited circumstances
specified in the HEA. Otherwise, section
428(c)(3)(B) of the HEA states that
lenders may grant forbearance for the
benefit of the borrower as permitted
under regulations of the Secretary.
Under the proposed regulations, FFEL
holders are authorized to grant reducedpayment
forbearances to borrowers in
these circumstances and we strongly
recommend and expect that they will do
so. However, we do not believe that
under the HEA we can mandate that
FFEL holders grant forbearances in
these circumstances.
With regard to the comments that
sought clarification on the payment
amount required under the reducedpayment
forbearance for such a
borrower, the amount of any reducedpayment
forbearance is a matter
negotiated between the borrower and
the loan holder. The Department
believes that for these borrowers it can
be any amount that is greater than $0
and less than the borrower’s scheduled
monthly payment under the standard
repayment plan. For example, one
approach to determining the reduced
payment amount in this circumstance
would be to require the borrower to pay
the scheduled monthly payment amount
the borrower would pay under the
repayment plan the borrower seeks to
pay under after leaving the standard
repayment plan. If the borrower is
eligible for and wants to enter the
extended repayment plan, the reducedpayment
forbearance amount could be
set at the amount the borrower would
otherwise be required to pay under the
extended repayment plan.
With regard to the commenters’
request for clarification that the
reduced-payment forbearance period
need not be longer than one month, we
agree that the forbearance period can be
limited to the time associated with the
one required monthly payment under
the standard repayment plan. Finally,
because the forbearance is granted while
the borrower is repaying under the
standard repayment plan, and not when
the borrower is transferring to the
standard repayment plan, there is no
basis under the for not capitalizing any
unpaid accrued interest related to the
forbearance period.

So loan services “may” (not must) allow this reduced payment forbearance? How do I request it? What language should I use? I’m having the same problem and the sooner I get put on an affordable plan, the sooner I can seek loan forgiveness. I’ve been given the run around for 4 months and I’m glad I checked your site and found out about the “weird rule.” Heather: your visit to Seton Hall Law in 2010-11 convinced me to finish my degree despite the cost. You’re still the best advocate out there for us.