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Department details changes to deferments, forbearance and rehabilitation in proposed rules
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Summary
Proposed text would remove unemployment and economic-hardship deferments for loans disbursed on or after July 1, 2027; limit forbearance for new loans to nine months in any 24-month window; and allow up to two rehabilitations with a minimum rehab payment of $10.
The U.S. Department of Education told negotiators on Sept. 30 that the proposed regulatory revisions follow statutory directives to narrow some borrower protections for loans made after specified effective dates.
Tammy, a Department presenter, said the statute bars unemployment and economic-hardship deferments for direct loans disbursed on or after July 1, 2027: "Loans dispersed on or after 07/01/2027, the borrower may not receive an unemployment deferment." She clarified that loans dispersed before that date retain current deferment eligibility.
On forbearance, the Department proposed a new limit for loans disbursed on or after July 1, 2027: a period of forbearance may not exceed nine months within any 24-month period, measured from the first month the forbearance is granted. Negotiators raised operational questions about which types of administrative or processing forbearances would count toward that cap; Department staff said they would take complex hypotheticals back to operations and OGC for written responses.
On rehabilitation, staff explained Congress authorized a second rehabilitation opportunity for loans meeting the statutory trigger. As Tammy summarized, "on or after 07/01/2027, the borrower may rehabilitate a defaulted loan a maximum of 2 times." The Department also indicated it will align administrative wage-garnishment suspension benefits with the rehabilitation allowance.
Tammy noted the statute also increased the minimum rehabilitation payment; under the proposed text a rehabilitation payment "may not be less than $10." Taxpayer advocate Alex Holt urged the Department to consider the higher of $10 or a borrower’s IDR payment ("the higher of $10 or the IVR or wrap payment") to avoid immediate redefault, but staff said the statute prescribes the minimum and the Department believes it lacks discretion to impose a higher required minimum.
Why it matters: These changes reduce the availability and duration of common borrower relief mechanisms for loans made after the statutory cutoffs — potentially shortening administrative relief windows and changing servicing practices. Negotiators pressed the Department to clarify servicer communications and whether administrative forbearances granted while an application is pending would count against the new caps.
Next steps: Staff agreed to take operational hypotheticals back to subject-matter experts, produce written clarifications about which forbearances count toward the nine-month cap and return with answers in a subsequent session.
