The Obama Administration's New 'REPAYE' Plan for Student Loan Borrowers: Not Much Help for Law School Graduates

Abstract

In response to President Obama’s 2014 directive the DOE has proposed a new student loan repayment option, labeled the Repay As You Earn Plan (“REPAYE Plan”). The DOE on July 9, 2015 requested comments on their proposed REPAYE Plan rules, and the Plan will probably be open for enrollment in early 2016 for up to 6 million student loan borrowers who are not eligible for enrollment in the generous Pay As You Earn Plan (“PAYE Plan”) because of their pre-October 1, 2007 federal student loan debts. I estimate that approximately 72,000 of those 6 million persons are law graduates. However, I also estimate that approximately 62% of those 72,000 law graduates have already enrolled in either the Income-Based Repayment Plan (“IBR Plan”) or the Income-Contingent Repayment Plan (“ICR Plan”). Most of those persons among the remaining group of about 27,500 PAYE Plan-ineligible law graduates who have not already enrolled in a loan repayment Plan, if they later do decide to enroll, will enroll in the old IBR Plan rather than the new REPAYE Plan because of the REPAYE Plan’s harsh spousal income inclusion rules.The largest group of REPAYE Plan law graduate enrollees in 2016 will be those old IBR or ICR Plan enrollees who expect to have relatively modest spousal incomes over the coming two decades, and who consequently will in many instances be able to reduce their monthly repayment obligations by switching over to the REPAYE Plan. For the REPAYE Plan to be made more broadly attractive to other law graduates, especially to those more recent law graduates eligible for PAYE Plan enrollment, the required repayment period for law graduates would have to be reduced to 20 years and the spousal income inclusion rules eliminated. Such an amendment to the REPAYE Plan rules could be made by the Department of Education under existing statutory authority and would not require additional Congressional authorization. But this is unlikely because of the politically controversial lost governmental revenue implications, and because of opposition from those persons within the DOE and elsewhere who regard the existing PAYE Plan’s terms as too generous to high-debt graduate school borrowers, and who would not want to see those terms made available to a broader group of law graduate borrowers.