During the Department of Education’s third negotiated rulemaking session, it was determined that the current debt-to-income ratio would remain in effect only through June 30, 2009, and would be replaced on July 1, 2009 with an income-based repayment plan. Last fall, the Department of Education had confirmed its intent to retain the current debt-to-income ratio pathway for borrowers to qualify for an economic hardship deferment (which is of great importance to interns and residents), after it had been eliminated by the College Cost Reduction and Access Act (CCRA). The pathway is being eliminated because the 10-year cost of the program is $1.1 billion.
The Department expects the new income-based repayment plan to mitigate the adverse effect the elimination of the debt-to-income pathway would have on students. Under this plan, total loan payments will be capped at no more than 15 percent of the amount by which the borrower’s adjusted gross income exceeds 150 percent of the poverty line applicable to the borrower’s family size. The regulations codify a provision in CCRA that stipulates that for married borrowers filing separately, only the adjusted gross income of the borrower is included.