Establishment of the income dependent education assistance loan program and the IDEA loan repayment program

Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) is amended by adding at the end the following:

Income dependent education assistance loans

IDEA loans

499A.

Program authority and agreements

(a)

Program authority

(1)

In general

There are authorized to be appropriated, in accordance with the provisions of this part, such sums as may be necessary to make loans to all eligible students in attendance at participating institutions of higher education selected by the Secretary, to enable such students to pursue their courses of study at such institutions beginning July 1, 2015. Loans made under this part shall be made by participating institutions, or consortia thereof, that have agreements with the Secretary to originate loans, or by alternative originators designated by the Secretary to make loans for students in attendance at participating institutions.(2)

Designation

The program established under this subpart shall be referred to as the Income Dependent Education Assistance Loan Program, or the IDEA Loan Program.(b)

Funds for the origination of IDEA loans

The Secretary shall provide funds for student loans under this part in the same manner as the Secretary provided funds for the origination of Federal Direct Student Loans under part D in accordance with section 452 on the day before the date of enactment of the Dynamic Repayment Act of 2014. The requirements, rights, and limitations with respect to the Secretary and institutions for funds provided for loans under part D on the day before the date of enactment of the Dynamic Repayment Act of 2014 shall apply with respect to the Secretary and institutions for funds provided for loans under this part, except that funds under this part shall not be provided for parent loans.(c)

Selection of institutions for participation and origination, and agreements with institutions

(1)

Selection of institutions for participation and origination

The Secretary shall enter into agreements with institutions of higher education to participate in the IDEA Loan Program under this part and agreements with institutions of higher education, or consortia thereof, to originate loans in such program for academic years beginning on or after July 1, 2015. The provisions of section 453 as in effect on the day before the date of enactment of the Dynamic Repayment Act of 2014 shall apply with respect to agreements under this section. The Secretary shall provide alternative origination services for loans under this part, as appropriate, in a manner consistent with the provisions of sections 453 and 456 as in effect on the day before the date of enactment of the Dynamic Repayment Act of 2014 related to alternative origination services for loans under part D.(2)

Participation and origination agreements with institutions

An agreement with any institution of higher education for participation in the IDEA Loan Program under this part, and an agreement with any institution of higher education, or consortia thereof, to originate loans in such program, shall have the same terms as the terms required under section 454 as in effect on the day before the date of enactment of the Dynamic Repayment Act of 2014 for agreements with an institution for participation or origination, respectively, in the student loan program under part D, except that agreements for participation or origination under this part shall not apply to parent loans.(3)

Withdrawal and termination procedures

The Secretary shall establish procedures by which institutions or consortia may withdraw or be terminated from the program under this part.

499B.

Terms and conditions of IDEA loans

(a)

Parallel terms, conditions, benefits, and amounts

Unless otherwise specified in this part, Income Dependent Education Assistance Loans (referred to in this part as IDEA Loans) made to borrowers under this part shall have the same terms, conditions, and benefits, and be available in the same amounts, as Federal Direct Unsubsidized Stafford Loans made to borrowers under part D, and first disbursed on the day before the date of enactment of the Dynamic Repayment Act of 2014.(b)

Eligible borrowers

(1)

In general

In addition to the requirements of section 484, to be eligible to receive a loan (other than an IDEA Consolidation Loan) under this part, a borrower—(A)shall be an individual who, on the date of application for such loan, has no outstanding balance of principal or interest owing on any loan made, insured, or guaranteed under part B or D (other than an excepted PLUS loan or an excepted consolidation loan (as such terms are defined in section 493C(a))); or(B)in the case of an individual with an outstanding balance of principal or interest owing on any loan described in subparagraph (A), shall consolidate all such existing loans into an IDEA Consolidation Loan under section 499C.(2)

Only student borrowers eligible

For purposes of this part, the term borrower shall not include a parent borrower.(c)

Annual and aggregate limits

(1)

In general

Subject to paragraph (2), the maximum annual amount of IDEA Loans in any academic year (as defined in section 481(a)(2)) or its equivalent, and the maximum aggregate amount of IDEA Loans that a student may borrow, shall be the maximum annual amounts and maximum aggregate amounts, respectively, of Federal Direct Unsubsidized Stafford Loans under part D that such student would have been eligible to borrow in the absence of section 455(a)(4), as added by the Dynamic Repayment Act of 2014.(2)

Graduate and professional students eligible for PLUS loans

In the case of a graduate or professional student who would have been eligible to borrow a Federal Direct PLUS Loan under part D in the absence of section 455(a)(4), as added by the Dynamic Repayment Act of 2014, the maximum annual amounts and maximum aggregate amounts, respectively, of IDEA Loans that such a student may borrow as determined under paragraph (1) for any academic year (as defined in section 481(a)(2)) or its equivalent, may be increased to an amount equal to the maximum annual amounts and maximum aggregate amounts, respectively, of Federal Direct PLUS Loans that such student would have been eligible to borrow in the absence of such section 455(a)(4).(d)

Loan fee

The Secretary shall charge the borrower of a loan (other than an IDEA Consolidation Loan) made under this part an origination fee. Such fee shall be the sum of—(1)for the portion of the principal amount of the loan that is equal to (or less than) the maximum annual amount a student may borrow under subsection (c)(1), 1.0 percent of such portion of the principal amount of the loan; plus(2)for the portion of the principal amount of the loan that exceeds the maximum annual amount a student may borrow under subsection (c)(1), as authorized by subsection (c)(2), 4.0 percent of such portion of the principal amount of the loan.(e)

Interest rates

(1)

Undergraduate students

With respect to IDEA Loans made to undergraduate students for which the first disbursement is made on or after July 1, 2015, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to the lesser of—(A)a rate equal to the high yield of the 10-year Treasury note auctioned at the final auction held prior to such June 1, plus 2.05 percent; or(B)8.25 percent.(2)

Graduate and professional students

With respect to IDEA Loans made to graduate or professional students for which the first disbursement is made on or after July 1, 2015, the applicable rate of interest shall, during any 12-month period beginning on July 1 and ending on June 30, be determined on the preceding June 1 and be equal to the lesser of—(A)the rate determined under paragraph (1)(A), except that 3.6 percent shall be substituted for 2.05 percent in such determination; or(B)9.25 percent.(3)

Consultation

The Secretary shall determine the applicable rate of interest under paragraphs (1) and (2) after consultation with the Secretary of the Treasury and shall publish such rate in the Federal Register as soon as practicable after the date of determination.(4)

Application of interest rate during the life of the loan

(A)

In-school deferment period

Interest shall accrue and be capitalized or paid by the borrower (but periodic installments of principal need not be paid) during the in-school deferment period with respect to an IDEA Loan. For the purposes of this part, the in-school deferment period with respect to an IDEA Loan is the first period during which the borrower is pursuing at least one-half the normal full-time academic workload (as determined by the institution) in the course of study for which the borrower received such loan and ending on the first day of the first month that begins after the borrower ceases to carry at least one-half the normal full-time academic workload (as determined by the institution) in the course of study.(B)

Grace and repayment periods

Interest that accrues during the borrower’s grace period (for the purposes of this title, defined as the period between the borrower’s in-school deferment period and the borrower’s repayment period) and during the borrower’s repayment period shall not be capitalized.(f)

Armed forces student loan interest payment program

Using funds received by transfer to the Secretary under section 2174(f)(2) of title 10, United States Code, the Secretary shall pay the interest on a loan made under this part to a member of the Armed Forces as due for a period not in excess of 36 consecutive months. The Secretary may not pay interest on such a loan out of any funds other than funds that have been so transferred.(g)

No accrual of interest for active duty service members

(1)

In general

Notwithstanding any other provision of this part and in accordance with paragraphs (2) and (4), interest shall not accrue for an eligible military borrower on a loan made under this part for which the first disbursement is made on or after July 1, 2015.(2)

IDEA consolidation loans

In the case of any IDEA Consolidation loan made under this part that is disbursed on or after July 1, 2015, interest shall not accrue pursuant to this subsection only on such portion of such loan as was used to repay a loan made under part D for which the first disbursement is made on or after October 1, 2008.(3)

Eligible military borrower

In this subsection, the term eligible military borrower means an individual who—(A)(i)is serving on active duty during a war or other military operation or national emergency; or(ii)is performing qualifying National Guard duty during a war or other military operation or national emergency; and(B)is serving in an area of hostilities in which service qualifies for special pay under section 310 of title 37, United States Code.(4)

Limitation

An individual who qualifies as an eligible military borrower under this subsection may receive the benefit of this subsection for not more than 60 months.(h)

Loan cancellation and discharge

The Secretary shall discharge a borrower’s liability on a loan made under this part in accordance with subsections (a) and (c) of section 437.(i)

Loan forgiveness

A loan made under this part shall be eligible for loan forgiveness under the following conditions:(1)After 20 years of payments pursuant to section 499F for borrowers who begin repayment with an outstanding balance of principal and interest that is less than the maximum aggregate amount of IDEA Loans that an undergraduate student may borrow as provided under subsection (c).(2)After 30 years of payments pursuant to section 499F for borrowers who begin repayment with an outstanding balance of principal and interest that is equal to or greater than the maximum aggregate amount of IDEA Loans that an undergraduate student may borrow as provided under subsection (c).

499C.

IDEA consolidation loans

(a)

IDEA consolidation loans

(1)

In general

Except as otherwise provided in this section, an IDEA Consolidation Loan under this section shall have the same terms, conditions, and benefits as IDEA Loans made under this part.(2)

Borrower and loan eligibility

To be eligible to receive an IDEA Consolidation Loan under this section, a borrower—(A)shall—(i)meet the criteria described in section 428C(a)(3)(A); and(ii)in the case of a borrower described in section 499B(b)(1)(B), agree to consolidate into an IDEA Consolidation Loan all loans made to the borrower that are described in subparagraphs (A) and (C) of section 428C(a)(4) (other than an excepted PLUS loan or an excepted consolidation loan (as such terms are defined in section 493C(a)));(B)may consolidate the loans described in subparagraphs (B), (D), and (E) of section 428C(a)(4) into such IDEA Consolidation Loan; and(C)may not consolidate an IDEA Loan made under section 499B into such IDEA Consolidation Loan.(3)

Requirements for the secretary

In making IDEA Consolidation Loans under this section, the Secretary—(A)shall ensure that—(i)each IDEA Consolidation Loan will be made, notwithstanding any other provision of this title limiting the annual or aggregate principal amount for all loans made to the borrower, in an amount that is equal to the sum of the unpaid principal, interest, penalties, and fees of all loans received by the borrower which are selected by the borrower for consolidation under this section; and(ii)the proceeds of each IDEA Consolidation Loan will be paid by the Secretary to the holder or holders of the loans being consolidated to discharge the liability on such loans;(B)shall not discriminate against any borrower seeking such an IDEA Consolidation Loan—(i)based on the number or type of loans the borrower seeks to consolidate;(ii)based on the interest rate to be charged to the borrower with respect to the consolidation loan; or(iii)based on the type or category of institution of higher education that the borrower attends or attended; and(C)shall disclose to a prospective borrower, in simple and understandable terms, at the time the Secretary provides an application for an IDEA Consolidation Loan—(i)whether consolidation would result in a loss of loan benefits under part B or part D, including loan forgiveness, cancellation, and deferment;(ii)with respect to Federal Perkins Loans under part E—(I)that if a borrower includes a Federal Perkins Loan under part E in the consolidation loan, the borrower will lose all interest-free periods that would have been available for the Federal Perkins Loan, including—(aa)the periods during which no interest accrues on such loan while the borrower is enrolled in school at least half-time;(bb)the grace period under section 464(c)(1)(A); and(cc)the periods during which the borrower’s student loan repayments are deferred under section 464(c)(2);(II)that if a borrower includes a Federal Perkins Loan in the consolidation loan, the borrower will no longer be eligible for cancellation of part or all of the Federal Perkins Loan under section 465(a); and(III)the occupations listed in section 465 that qualify for Federal Perkins Loan cancellation under section 465(a);(iii)the options of the borrower to prepay the IDEA Consolidation Loan;(iv)the consequences of default on the IDEA Consolidation Loan; and(v)that by applying for an IDEA Consolidation Loan, the borrower is not obligated to agree to take the consolidation loan.(b)

Interest rate

Notwithstanding section 499B(e), an IDEA Consolidation Loan for which the application is received on or after July 1, 2015, shall bear interest at an annual rate on the unpaid principal balance of the loan that is equal to the weighted average of the interest rates on the loans consolidated, rounded to the nearest higher one-eighth of one percent. Interest that accrues on such an IDEA Consolidation Loan shall not be capitalized.

IDEA Loan Repayment Program

Establishment of the IDEA Loan Repayment Program

499D.

Duties of the Secretary of the Treasury

(a)

In general

As part of the IDEA Loan Repayment Program established under this subpart, the Secretary of the Treasury shall, with respect to each individual for whom a loan made under this part is in repayment status during a taxable year, transmit to the Secretary of Education—(1)in the case of such an individual who files an income tax return for such taxable year, such tax information as is necessary to determine the individual’s income-based repayment obligation under section 499E; and(2)in the case of any such individual who does not file a return for such taxable year, any available tax information of the individual as may be necessary to determine such obligation and whether such individual is in default under the terms of such loan for not so filing.(b)

Additional program requirements

The Secretary of the Treasury shall establish such other policies, procedures, and guidance as may be necessary to carry out the purposes of this subpart, including measures to prevent underreporting and evasion of repayment or filing.

499E.

Duties of the Secretary of Education

(a)

In general

The Secretary shall carry out, as part of the IDEA Loan Repayment Program established under this subpart, the following activities:(1)

Calculation of annual repayment amounts

The Secretary shall calculate the annual repayment amount under this subpart for borrowers with 1 or more loans made under this part in repayment status, including the income-based repayment obligations of such borrowers in accordance with section 499F(i).(2)

Communication with the secretary of the treasury

The Secretary shall transmit to the Secretary of the Treasury such information as is necessary for the Secretary of the Treasury to carry out section 499F(i).(3)

Annual statements

Upon calculating the annual repayment amounts under paragraph (1) for a taxable year, the Secretary shall provide a statement, on an annual basis, to each borrower with a loan made under this part, which lists the following:(A)Total payments made on the borrower’s annual repayment amount for such taxable year.(B)The borrower’s annual repayment amount for such taxable year.(C)In the case of a borrower who, according to section 499F(f), has underpaid such annual repayment amount, the amount of such underpayment and the process for paying such underpayment under section 499F(f)(2).(D)In the case of a borrower with an overpayment on such annual repayment amount, the amount of such overpayment and the process for requesting a refund of such amount under section 499F(g), if applicable.(E)The outstanding balances on all the loans made to the borrower under this part.(F)A description of how the borrower’s annual repayment amount was calculated under paragraph (1) or (2) of section 499F(b).(4)

Direct payment

The Secretary shall enable a borrower to make direct payments on the borrower’s annual repayment amount for the taxable year to the Secretary throughout the year.(5)

Payments on a borrower's behalf

The Secretary shall—(A)provide a mechanism for other individuals or entities to make payments on the annual repayment amount of a borrower for a taxable year; and(B)notify the borrower that any payments made under subparagraph (A) for the taxable year that exceed the annual repayment amount for the year shall not be refunded to the borrower.(6)

Calculating interest accrued

The Secretary shall calculate the interest accrued for the taxable year as if the borrower’s payments under wage withholding under paragraph (10) for the taxable year were made in 12 equal increments throughout the year.(7)

Appeals process

The Secretary shall make available a process through which a borrower can appeal the calculation of the borrower’s annual repayment amount, including a worksheet that enables a borrower to calculate the borrower’s annual repayment amount.(8)

Default for failure to file a return

In a case in which the Secretary receives information from the Secretary of the Treasury under section 499D that a borrower with a loan made under this part in repayment status has failed to file a return under section 6012(a)(1) of the Internal Revenue Code of 1986 and such borrower was required to file such a return, the Secretary shall—(A)notify the borrower of the borrower’s failure to file such a return; and(B)if the borrower fails to file such a return within 90 days of receipt of the notice described in subparagraph (A), consider the borrower’s loans made under this part in repayment status to be in default.(9)

Withholding opt-out

The Secretary shall establish a process through which a borrower can indicate that the borrower would like to opt-out of the withholding process under subsection (b) and, in lieu of such process, make payments on a monthly basis, as described in subsection (c).(10)

Employer withholding

The Secretary shall establish a process that meets the requirements of subsection (b) under which employers making payment of wages deduct and withhold upon such wages amounts determined in accordance with subsection (b)(3) with respect to an employee—(A)who has a loan made under this part that is in repayment status;(B)who has not opted out of the withholding process under this paragraph; and(C)who is not in a forbearance period under section 499F(a)(2)(C).(11)

Monthly payments process

The Secretary shall establish a monthly payments process described in subsection (c).(b)

Requirements for employer withholding

(1)

Withholding orders

In carrying out the employer withholding process under subsection (a)(10), the Secretary shall carry out the following:(A)

New employment

Upon determining, using the information provided under section 453(j)(12) of the Social Security Act (42 U.S.C. 653(j)(12)), that a borrower who meets the requirements of subparagraphs (A) through (C) of subsection (a)(10) obtains new employment, issue a withholding order to the borrower’s employer directing the employer to withhold and transmit the amounts described in paragraph (3) to the Secretary.(B)

Other purposes

Upon notification by a borrower that the borrower no longer wishes to opt out of the withholding process under subsection (a)(10) or that a borrower who has been in forbearance under section 499F(a)(2)(C), voluntarily ends or no longer qualifies for such forbearance, or upon determining that a borrower has entered repayment status on 1 or more loans made under this part (and the borrower had no loans made under this part already in repayment status), using the information provided under section 453(j)(12) of the Social Security Act (42 U.S.C. 653(j)(12)), issue a withholding order to all of the borrower’s employers directing such employers to withhold and transmit the amounts described in paragraph (3) to the Secretary.(C)

Stop withholding order

Upon determining that a borrower is eligible for a forbearance under section 499F(a)(2)(C), that the borrower has opted out of the withholding process under subsection (a)(10), or that a borrower has repaid the borrower’s loans made under this part, using the information provided under paragraph 12 of section 453(j)(12) of the Social Security Act (42 U.S.C. 653(j)(12)), issue a withholding order to the borrower’s employers directing such employers to cease withholding under this paragraph.(D)

Transfer of payments

Outline clearly the process through which employers shall transfer money withheld under this subsection to the Secretary.(E)

Electronic transmission

(i)

In general

Make available electronic means of transmitting and processing both withholding orders and payments from employers, including a means to correct under- and overpayments to the extent feasible, with the goal of streamlining the processing of such orders and payments and minimizing impacts on employers.(ii)

No requirement to use electronic transmission

Nothing in this part shall be construed to require an employer, in carrying out a withholding order under this section, to use the electronic process described in clause (i).(2)

Employer remittance

(A)

In general

In the case where an employer has received a withholding order under subparagraph (A) or (B) of paragraph (1) or the employee has indicated under paragraph (4)(A) that the employee has a loan that meets the requirements of subparagraphs (A) through (C) of subsection (a)(10), and the employer has not subsequently received an order to stop withholding under paragraph (1)(C) for such employee, the employer shall withhold and transmit the amounts described in paragraph (3) to the Secretary as directed under paragraph (1)(D) and shall be liable for, and the Secretary, as appropriate, may sue the employer in a State or Federal court of competent jurisdiction to recover any amount that such employer fails to withhold from wages with respect to an employee after being directed to do so for such employee, plus attorneys’ fees, costs, and, in the court’s discretion, punitive damages. Such employer shall not be required to vary the normal pay and disbursement cycles in order to comply with this subparagraph.(B)

Timing

An employer transmitting to the Secretary withholding payments under this subsection shall transmit such payments on a periodic basis, as determined by the employer but not less frequently than quarterly.(3)

Withholding amount

The amount withheld by an employer for each pay period with respect to any employee for whom the employer is withholding under this subsection shall be an amount equal to the sum of—(A)the amount that results from the employer withholding—(i)10 percent of the employee’s wages for such pay period that will count towards the employee’s annual repayment amount under section 499F(b) that is in excess of the employee’s exemption amount for such pay period (as determined by dividing the employee’s exemption amount under section 499F(i)(3) by the number of pay periods for the taxable year); or(ii)in a case in which an employee requests that such exemption amount not be taken into account, 10 percent of the employee’s wages for such pay period that will count towards the employee’s annual repayment amount under section 499F(b); and(B)any additional amounts the employee wishes to have withheld in accordance with paragraph (4)(C).(4)

Withholding preferences

The Secretary shall provide forms and procedures to allow an employee to indicate to the employee’s employer—(A)that the employee has a loan that meets the requirements of subparagraphs (A) through (C) of subsection (a)(10) and therefore the employer shall withhold payments under this subsection;(B)that the employer shall not take into account the exemption amount to which the employee is eligible under this part in determining the employee’s withholding amount because the exemption amount has already been taken into account with respect to such employee; and(C)an election by the employee to have amounts withheld in addition to the employee’s withholding amount as calculated under paragraph (3).(5)

Employee protection

An employer may not discharge from employment, refuse to employ, or take disciplinary action against an individual subject to wage withholding in accordance with this section by reason of the fact that the individual’s wages have been subject to withholding under this section, nor may an employer require that an individual opt-out under subsection (a)(9) and such individual may sue in a State or Federal court of competent jurisdiction any employer who takes such action. The court shall award attorneys’ fees to a prevailing employee and, in its discretion, may order reinstatement of the individual, award punitive damages and back pay to the employee, or order such other remedy as may be reasonably necessary.(6)

Garnishment

For purposes of title III of the Consumer Credit Protection Act (15 U.S.C. 1671 et seq.), amounts withheld under this subsection shall—(A)not be considered a garnishment; and(B)be considered to be amounts required by law to be withheld.(c)

Monthly payments process

(1)

In general

The Secretary shall establish a process under which a borrower may make monthly payments towards the borrower’s annual repayment amount, at any time in the taxable year, because the borrower—(A)has opted-out of withholding under subsection (a)(10); or(B)expects to have income that is not subject to the withholding process described in subsection (b).(2)

Information required

The procedure for initiating the monthly payments process under paragraph (1) shall include the following:(A)

Income estimate

A requirement for a borrower to provide an estimate of the borrower’s income for the taxable year that will count towards the borrower’s income-based repayment obligation, excluding, in the case of a borrower subject to the withholding process, any income subject to the withholding process.(B)

Amortization schedule

In the case of a borrower who has opted out of the withholding process, the ability for the borrower to indicate that the borrower would like the borrower’s monthly payments set such that the borrower’s outstanding loans made under this part would be repaid within a specified number of years.(3)

Monthly payments amounts

The Secretary shall set the borrower’s monthly payment amount to the greater of—(A)the difference between the borrower’s annual repayment amount that would result given the income estimate provided by the borrower under paragraph (2)(A) and the payments the borrower has already made in the year towards such amount (excluding, for borrowers who have not opted-out of withholding, payments through the withholding process), divided by the remaining months in the taxable year; or(B)for a borrower who indicates a time frame under paragraph (2)(B), the monthly payment amount that would result in the borrower’s currently outstanding loans made under this part being repaid within the number of years specified by the borrower.(4)

Automatic continuation

The monthly payments process shall continue until—(A)the borrower elects to stop such payments; or(B)the borrower’s loans made under this part are repaid.(5)

Updating payment amounts

(A)

Secretary

The Secretary shall automatically recalculate a borrower’s monthly payment amount at the beginning of a new taxable year using the most recent income estimate provided under paragraph (2)(A) by the borrower.(B)

Borrower

The borrower may update the borrower’s income estimate under paragraph (2)(A) at any time.

Borrower repayment of IDEA loans and IDEA consolidation loans

499F.

Borrower repayment

(a)

Repayment period

The repayment period of a loan made under this part shall—(1)begin on the first day of the first taxable year that begins after the borrower’s in-school deferment period, or in the case of an IDEA Consolidation Loan, on the first day of the first taxable year that begins after such Consolidation Loan is disbursed; and(2)continue until the loan is paid in full, except that the Secretary may grant a borrower forbearance of the borrower’s annual repayment amount—(A)for a period not to exceed 60 days, due to administrative or technical reasons;(B)for a period not to exceed 3 months, due to unusual circumstances that disrupt the borrower’s ability to make timely payments on the loan; or(C)renewable at 12-month intervals for a period not to exceed 3 years, due to documented extreme economic hardship on the part of a borrower.(b)

Annual repayment amount

The annual repayment amount under this part for a taxable year for a borrower with 1 or more loans made under this part in repayment status shall be equal to the lesser of—(1)the income-based repayment obligation for such borrower for such year, as calculated under section 499E(a)(1); or(2)an amount equal to the sum of the outstanding balances (equal to the sum of the unpaid principal, interest, penalties, and fees) that the borrower owes on such loans.(c)

Methods of repayment

A borrower who expects to have an annual repayment amount for the taxable year that is greater than the amount specified in subsection (f)(1)(D) shall make payments through the following methods:(1)With respect to any wages earned by the borrower that are subject to Federal income tax withholding, the withholding process described in section 499E(a)(10).(2)The monthly payments process described in section 499E(c), to meet the portion of the borrower’s obligation that is not paid through withholding, or, in the case of a borrower who opts out of the withholding process, to meet the borrower’s entire obligation.(3)The direct payments process under section 499E(a)(4).(4)The process described in section 499E(a)(5) that allows other individuals or entities to make payments on the borrower’s annual repayment amount for the year.(d)

Order of crediting

Payments on loans made under this part shall be applied, without regard to the method of such payments, first toward penalties due on the loans, next toward any fees due on the loans, then toward any interest due on the loans, and finally toward the principal due on the loan with the highest applicable rate of interest among such loans.(e)

Prepayment authorized

A borrower shall have the right to prepay all or part of such loan, at any time and without penalty. Any such prepayment amount will be applied to loans made under this part in the same order as described in subsection (d).(f)

Underpayments

(1)

Penalties for underpayments

(A)

In general

Subject to subparagraph (C), if, as of the last day of a taxable year, a borrower has not paid at least 90 percent of the borrower’s annual repayment amount for such year, the borrower shall be charged a penalty in an amount equal to 10 percent of the difference between—(i)an amount equal to 90 percent of the borrower’s annual repayment amount for such year; and(ii)the amount paid on such annual repayment amount as of such day.(B)

Increase of annual repayment amount

A borrower’s annual repayment amount calculated under subsection (b) for such year shall be increased by the amount of such penalty, but such penalty shall not be treated as a principal or interest amount for a loan made under this part.(C)

Exception for meeting the obligation for the previous year

A borrower who has paid 100 percent of the borrower’s annual repayment amount for the taxable year preceding the taxable year described in subparagraph (A) shall not be subject to the penalty under this paragraph for the taxable year described in subparagraph (A).(D)

De minimus exception

A borrower whose annual repayment amount is less than $300 shall not be subject to the penalty under this paragraph for the taxable year described in subparagraph (A).(2)

Reconciling underpayments

(A)

In general

If, as of the last day of a taxable year, the sum of the payments made on a borrower’s annual repayment amount for such year is less than the total amount of the borrower’s annual repayment amount for such year, the borrower—(i)in the case of the first year that the borrower has a difference between such amounts—(I)may request, in such manner as the Secretary shall require, that the Secretary reduce the borrower’s annual repayment amount for such year to the sum of—(aa)the payments made, as of such day, on the borrower’s annual repayment amount for such year; and(bb)any penalties calculated under paragraph (1) resulting from such underpayment; and(II)if the borrower qualifies for the reduction requested under subclause (I), shall pay the sum calculated under such subclause at such time and in such manner as required by the Secretary;(ii)if the borrower does not qualify for a reduction under clause (i) or does not request such a reduction, shall pay to the Secretary an amount equal to the difference between such amounts within the 30-day period beginning on the date of receipt by the borrower of the borrower’s annual statement described in section 499E(a)(3) for such year; or(iii)if the borrower fails to pay the amount owed by the borrower as calculated under clause (ii) within the 30-day period, shall be charged a penalty equal to 2 percent of such amount for each month (prorated based on the percentage of a month such penalty is charged) that such amount is owed or until the borrower defaults on the loan for which such amount is owed, whichever occurs first.(B)

Default

A loan for which an amount is owed under subparagraph (A) and that is not paid within 270 days after the date of receipt by the borrower of the borrower’s annual statement described in section 499E(a)(3) shall be considered to be in default.(g)

Overpayments

If, as of the last day of a taxable year, the sum of the payments made on a borrower’s annual repayment amount for such year is greater than the total amount of the borrower’s annual repayment amount for such year, the Secretary shall—(1)refund the overpayment amount, if the borrower notifies the Secretary, within the 90-day period beginning on the date of receipt of the borrower’s annual statement described in section 499E(a)(3) for such year and in a manner prescribed by the Secretary, that the borrower desires to have the overpayment amount refunded; or(2)if a borrower fails to notify the Secretary of the borrower’s desire for a refund of such amount within such 90-day period, apply such amount as a prepayment to the borrower’s loans made under this part in the same manner as a prepayment authorized under subsection (e).(h)

Employer failure To withhold payments

In the case of a borrower whose employer fails to withhold amounts under section 499E(b) upon any wages earned by the borrower that are subject to Federal income tax withholding and with respect to which the borrower made an election to have amounts withheld under such section, the Secretary shall—(1)reduce the borrower’s annual repayment to an amount equal to the borrower’s annual repayment amount had wages from such employer been excluded when calculating the borrower’s annual repayment amount; and(2)reduce any penalties for underpayments calculated under subsection (f)(1) and refund any overpayments on such annual repayment amount, accordingly.(i)

Determination of income-Based repayment obligation

(1)

In general

The income-based repayment obligation with respect to an individual for any taxable year is an amount equal to 10 percent of the excess of—(A)the sum of—(i)the wages, salaries, tips, and other employee compensation of the individual, but only if such amounts are includible in gross income for the taxable year (determined without regard to sections 911, 931, and 933 of the Internal Revenue Code of 1986) and are readily attributable to the individual, plus(ii)any other amount included in total income of the taxpayer for the taxable year but not described in clause (i), except that such amount shall be divided by 2 in the case of an individual who is married and filing a joint tax return, over(B)the sum of—(i)the exemption amount with respect to such individual, plus(ii)the lesser of the amount determined with respect to the taxpayer under subparagraph (A)(ii), or $3,000.(2)

Exclusion of certain amounts paid on behalf of individual

Any amount paid on the borrower's behalf under section 499E(a)(5) shall not be taken into account in determining such borrower's income-based repayment obligation.(3)

Exemption amount

For purposes of this subpart, the exemption amount with respect to an individual shall be $10,000 (adjusted each year to reflect changes in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor for the most recent 12-month period for which such data are available).(4)

Individuals not filing a return

The income-based repayment obligation with respect to an individual not required to file a return under section 6012(a)(1) of the Internal Revenue Code of 1986 shall be treated as zero.