July 1st Changes
FAQs on July 1st Changes to Department of Education [Regulations/Rules]
On July 1, 2023, new rules for several U.S. Department of Education (ED) loan programs will go into effect. These new rules aim to streamline and improve the rules for several targeted debt relief programs by expanding program eligibility and removing barriers to accessing critical relief.
Check out the FAQs below to learn how these rule changes may affect you!
What are some of the programs and issues affected by the July 1, 2023 rule changes?
The Biden Administration has been rewriting the rules for many of the federal student loan cancellation programs. The programs and issues affected by the changes include Public Service Loan Forgiveness (PSLF), Total and Permanent Disability (TPD), Closed School Discharge, Borrower Defense Discharge, Interest Capitalization, and Arbitration.
Why did the rules change on July 1, 2023?
Under the Higher Education Act, in order to change the rules, ED is required to engage in a specific rulemaking process called negotiated rulemaking. The result of that process is new rules that go into effect at the beginning of the academic calendar year—July 1.
What are the July 1, 2023 changes to the PSLF program?
There are several changes going into effect for the PSLF program. First, ED will expand the payments being counted toward forgiveness. They will accept late payments, payments made in installments, and some forbearances and deferments if the borrower buys back the time under what they would have owed in an income-driven repayment plan. Second, for nonprofit organizations other than those designated as 501(c)(3) for tax purposes, the rule permits them to qualify as PSLF employers if they devote a majority of their full-time staff to one or more of twelve specific types of public service work, such as emergency management, early childhood education, or public service for individuals with disabilities or for the elderly, which are each listed and defined in the rule. The rule also makes 30 hours a week the standard hours requirement of “full time.” Contingent faculty are able to use a 3.35 hour multiplier for the purposes of PSLF to bring them over the 30 hour threshold. Third, borrowers will no longer lose credit for qualifying payments made prior to consolidating their Direct loans. After they consolidate, they will keep a weighted average of payments made on Direct Loans for the purposes of PSLF. Finally, there will also be a formalized appeals process for applications that have been denied.
What are the July 1, 2023, changes to the TPD program?
There are four main changes to the TPD program. First, in addition to medical doctors (MDs) and osteopaths (DOs), now Nurse Practitioners and Physician Assistants are able to sign the paperwork required for TPD. Second, the Department has expanded which categories of Social Security disability determinations that will automatically qualify borrowers for TPD. Third, borrowers receiving a TPD discharge will no longer have their income monitored for three years.
What are the July 1, 2023, changes to the Closed School Discharge Program?
Borrowers are now eligible for Closed School Discharge if they did not complete their degree and their school closed within 180 days of their attendance. The Department will also now provide automatic relief to certain borrowers: if a borrower is not offered or does not accept a “teach-out” to complete their program, or if a borrower does not complete their program through a “teach-out” after one year of the school’s closure. The Department has expanded the definition of “closed” to include schools for which the programs that enrolled a majority of their students have closed down. Finally, if a borrower was required to complete a pre-requisite program in order to enroll in their program of choice, the borrower can receive refunds for both the pre-requisite and their program of choice.
What are the July 1, 2023, changes to the Borrower Defense Discharge Program?
These rules expand the parameters of a school’s misconduct that would make a borrower eligible for relief, eliminate time limitations on when borrowers can apply, allow state and local agencies to submit Borrower Defense claims on behalf of groups of people, and require the Department to resolve claims within 3 years. In addition, if a claim is granted to a borrower, all of the loans taken out for that borrower will be discharged, they will be refunded for any payments made on the loan, and all negative credit history pertaining to the loan will be erased. Finally, all pending and future applications for Borrower Defense Discharge will be governed by these new rules regardless of when the loans were taken out.
What are the July 1, 2023, changes to Interest Capitalization?
The Department has limited the times that interest can capitalize on a student loan. Interest on student loans will no longer capitalize:
When the borrower first enters repayment;
After a forbearance;
When a borrower enters default;
When switching out of (or not recertifying on time for) a Pay As You Earn, Revised Pay As You Earn, or Income-Contingent Repayment Plan;
During periods of negative amortization (ie, when the borrower’s monthly payments are less than the amount of interest charged each month) in Income-Contingent Repayment or the alternative repayment plan.
What are the July 1, 2023, changes to Arbitration?
These new rules allow borrowers to take their case to court by preventing institutions that participate in the Direct Loan program from requiring borrowers to engage in pre-dispute arbitration or sign class action waivers.
Want more information about the rule changes taking effect July 1, 2023? Visit NCLC’s page on the July 1st changes.