[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4256 Introduced in House (IH)]

<DOC>






114th CONGRESS
  1st Session
                                H. R. 4256

   To simplify income-based repayment under the Federal student loan 
                    program, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           December 15, 2015

Mr. Murphy of Florida introduced the following bill; which was referred 
to the Committee on Education and the Workforce, and in addition to the 
Committee on Ways and Means, for a period to be subsequently determined 
 by the Speaker, in each case for consideration of such provisions as 
        fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
   To simplify income-based repayment under the Federal student loan 
                    program, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Simple Income-Based Repayment Act''.

SEC. 2. REPAYMENT PLANS FOR BORROWERS.

    Section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e) 
is amended--
            (1) by striking subsection (d) and inserting the following:
    ``(d) Repayment Plans.--
            ``(1) Design and selection for borrowers before july 1, 
        2017.--With respect to a borrower of a loan made under this 
        part before July 1, 2017, and consistent with criteria 
        established by the Secretary, the Secretary shall offer such 
        borrower a variety of plans for repayment of such loan, 
        including principal and interest on the loan. The borrower 
        shall be entitled to accelerate, without penalty, repayment on 
        the borrower's loans under this part. The borrower may choose--
                    ``(A) a standard repayment plan, consistent with 
                subsection (a)(1) of this section and with section 
                428(b)(9)(A)(i);
                    ``(B) a graduated repayment plan, consistent with 
                section 428(b)(9)(A)(ii);
                    ``(C) an extended repayment plan, consistent with 
                section 428(b)(9)(A)(iv), except that the borrower 
                shall annually repay a minimum amount determined by the 
                Secretary in accordance with section 428(b)(1)(L);
                    ``(D) an income contingent repayment plan, with 
                varying annual repayment amounts based on the income of 
                the borrower, paid over an extended period of time 
                prescribed by the Secretary, not to exceed 25 years, 
                except that the plan described in this subparagraph 
                shall not be available to the borrower of a Federal 
                Direct PLUS loan made on behalf of a dependent student;
                    ``(E) an income-based repayment plan that enables 
                borrowers who have a partial financial hardship to make 
                a lower monthly payment in accordance with section 
                493C, except that the plan described in this 
                subparagraph shall not be available to the borrower of 
                a Federal Direct PLUS Loan made on behalf of a 
                dependent student or a Federal Direct Consolidation 
                Loan, if the proceeds of such loan were used to 
                discharge the liability on such Federal Direct PLUS 
                Loan or a loan under section 428B made on behalf of a 
                dependent student; or
                    ``(F) an income-based repayment plan, consistent 
                with part J, except that the plan described in this 
                subparagraph shall not be available to a borrower of a 
                Federal Direct PLUS Loan made on behalf of a dependent 
                student or a Federal Direct Consolidation Loan, if the 
                proceeds of such loan were used to discharge the 
                liability on such Federal Direct PLUS Loan, or a loan 
                under section 428B made on behalf of a dependent 
                student.
            ``(2) Design and selection for new borrowers on or after 
        july 1, 2017.--The Secretary shall offer a borrower of a loan 
        made under this part on or after July 1, 2017, the following 
        plans for repayment of such loan, including principal and 
        interest on the loan. The borrower shall be entitled to 
        accelerate, without penalty, repayment on the borrower's loans 
        under this part. The borrower may choose--
                    ``(A) a standard repayment plan, consistent with 
                subsection (a)(1) of this section and with section 
                428(b)(9)(A)(i); or
                    ``(B) an income-based repayment plan, consistent 
                with part J, except that the plan described in this 
                subparagraph shall not be available to a borrower of a 
                Federal Direct PLUS Loan made on behalf of a dependent 
                student or a Federal Direct Consolidation Loan, if the 
                proceeds of such loan were used to discharge the 
                liability on such Federal Direct PLUS Loan or a loan 
                under section 428B made on behalf of a dependent 
                student.
            ``(3) Borrower non-selection.--If a borrower of a loan made 
        under this part does not select a repayment plan described in 
        paragraph (1) or (2), the Secretary may provide the borrower 
        with a repayment plan described in subparagraph (A), (B), or 
        (C) of paragraph (1) for borrowers before July 1, 2017, or a 
        repayment plan described in paragraph (2)(B) for new borrowers 
        on or after July 1, 2017.
            ``(4) Changes in selections.--The borrower of a loan made 
        under this part may change the borrower's selection of a 
        repayment plan under paragraph (1) or (2), or the Secretary's 
        selection of a plan for the borrower under paragraph (3), as 
        the case may be, under such terms and conditions as may be 
        established by the Secretary.
            ``(5) Alternative repayment plans.--The Secretary may 
        provide, on a case by case basis, an alternative repayment plan 
        to a borrower of a loan made under this part on or after July 
        1, 2017, who demonstrates to the satisfaction of the Secretary 
        that the terms and conditions of the repayment plans available 
        under paragraph (2) are not adequate to accommodate the 
        borrower's exceptional circumstances. Upon request, the 
        Secretary shall make available for such borrowers repayment 
        plans described in subparagraphs (B) and (C) of paragraph (1). 
        In designing such alternative repayment plans, the Secretary 
        shall ensure that such plans do not exceed the cost to the 
        Federal Government, as determined on the basis of the present 
        value of future payments by such borrowers, of loans made using 
        the plans available under paragraph (2).
            ``(6) Repayment after default or late payment.--For any 
        borrower who has defaulted on a loan made under this part or 
        part B, or is more than 60 days late on a scheduled payment of 
        such loan, the Secretary--
                    ``(A) may require the borrower to pay all 
                reasonable collection costs associated with such loan; 
                and
                    ``(B) if such loan was made--
                            ``(i) to any borrower who, before July 1, 
                        2017, had an outstanding balance on a student 
                        loan made, insured, or guaranteed under this 
                        part or part B, may require the borrower to 
                        repay the loan pursuant to an income contingent 
                        repayment plan, as described in paragraph 
                        (1)(D), or an income-based repayment plan, as 
                        described in paragraph (1)(E); or
                            ``(ii) to a new borrower, may provide the 
                        borrower the option to enroll in the repayment 
                        plan described in paragraph (2)(B).
            ``(7) Applicability provision.--
                    ``(A) In general.--Except as provided in paragraph 
                (5) and subparagraph (B) of this paragraph, the 
                repayment plans under subparagraphs (B), (C), (D), and 
                (E) of paragraph (1) are not available for a borrower 
                who received the borrower's first disbursement of a 
                Federal Direct Loan on or after July 1, 2017.
                    ``(B) Exception.--The repayment plans available to 
                a borrower of a Federal Direct PLUS Loan made on behalf 
                of a dependent student or a Federal Direct 
                Consolidation Loan whose proceeds were used to 
                discharge the liability of a Federal Direct PLUS Loan 
                made on behalf of a dependent student or a loan under 
                section 428B made on behalf of a dependent student on 
                or after July 1, 2017, shall be those described under 
                subparagraphs (A), (B), and (C) of paragraph (1).''.

SEC. 3. INCOME-BASED REPAYMENT PLAN.

    Title IV of the Higher Education Act of 1965 is amended by adding 
at the end the following:

                ``PART J--INCOME-BASED REPAYMENT PROGRAM

                 ``Subpart 1--Establishment of Program

``SEC. 499A. DUTIES OF THE SECRETARY OF THE TREASURY.

    ``(a) In General.--The Secretary of the Treasury, in consultation 
with the Secretary of Education, shall establish a program (hereinafter 
referred to as the `income-based repayment program') that provides 
for--
            ``(1) repaying, through voluntary wage withholding and 
        quarterly estimated payments as provided in subsection (b), 
        loans made under part D (except that such program shall not be 
        available to a borrower of a Federal Direct PLUS Loan made on 
        behalf of a dependent student or a Federal Direct Consolidation 
        Loan, if the proceeds of such loan were used to discharge the 
        liability on such Federal Direct PLUS Loan or a loan under 
        section 428B made on behalf of a dependent student); and
            ``(2) transmitting to the Secretary of Education--
                    ``(A) an account of the amounts collected under 
                subsection (b) with respect to each individual for whom 
                a loan made under this part is in repayment status; and
                    ``(B) such tax return information of each such 
                individual as is necessary to determine the 
                individual's income-based repayment obligation as 
                provided in subsection (c).
    ``(b) Wage Withholding and Estimated Payments.--
            ``(1) In general.--The Secretary of the Treasury shall, 
        under rules similar to the rules of chapter 24 of the Internal 
        Revenue Code of 1986, provide for employers making payment of 
        wages to deduct and withhold upon such wages amounts determined 
        in accordance with tables or computational procedures 
        prescribed by the Secretary with respect to an employee who 
        elects withholding under this subsection with respect to a loan 
        described in subsection (a)(1) that is in repayment status and, 
        if so elected, with respect to any such loans of the employee's 
        spouse.
            ``(2) Withholding requirements.--The tables, procedures, 
        and guidance prescribed under paragraph (1) shall provide--
                    ``(A) for the election to have amounts withheld as 
                provided under this subsection;
                    ``(B) procedures and forms for an employee to 
                indicate--
                            ``(i) whether the employee (and, in the 
                        case of a married individual, whether the 
                        employee's spouse) has a loan described in 
                        subsection (a)(1) that is in repayment status;
                            ``(ii) in the case of a married individual, 
                        whether the employee anticipates filing jointly 
                        (and accompanying guidance explaining that if 
                        filing status for the taxable year is uncertain 
                        the employee should indicate filing jointly to 
                        avoid underwithholding);
                            ``(iii) whether the exemption amount to 
                        which the employee is entitled under this 
                        section should be taken into account in 
                        determining withholding (and accompanying 
                        guidance explaining that, in order to avoid 
                        underwithholding, the employee should only take 
                        into account the exemption in the case of the 
                        employee's primary employer, unless total wages 
                        from more than one place of employment will not 
                        exceed the exemption amount);
                            ``(iv) in the case of a married individual, 
                        whether the exemption amount to which the 
                        employee's spouse is entitled under this 
                        section should be taken into account in 
                        determining withholding from the wages of the 
                        employee (and accompanying guidance explaining 
                        that, in order to avoid underwithholding, the 
                        employee should only take into account such 
                        exemption if such spouse is not employed, or if 
                        the total wages from the employee's job and the 
                        spouse's employment will not exceed the 
                        exemption amount);
                            ``(v) the number of dependents of the 
                        employee with respect to whom the employee is 
                        entitled to a deduction under section 151(c) of 
                        the Internal Revenue Code of 1986, and, if a 
                        different number, in the case of a married 
                        employee, the number of dependents of the 
                        employee's spouse with respect to whom such 
                        spouse is entitled to such deduction; and
                            ``(vi) an election to have additional 
                        amounts withheld; and
                    ``(C) for withholding with respect to any employee 
                in an amount equal to the sum of--
                            ``(i) in the case of an employee who has a 
                        loan described in subsection (a)(1) in 
                        repayment status, the percentage of so much of 
                        the employee's wages that would count towards 
                        the employee's income-based repayment 
                        obligation provided in subsection (c) as 
                        exceeds any exemption amount taken into account 
                        with respect to the employee under subparagraph 
                        (A)(iii) (prorated to the payroll period), plus
                            ``(ii) in the case of an employee who 
                        indicates that the employee's spouse has a loan 
                        described in subsection (a)(1) in repayment 
                        status, the percentage of so much of the 
                        employee's wages that would count towards the 
                        employee's spouse's income-based repayment 
                        obligation (as provided in subsection (c)) as 
                        exceeds any exemption amount taken into account 
                        with respect to the employee's spouse under 
                        subparagraph (A)(iv) (prorated to the payroll 
                        period).
            ``(3) Quarterly estimated tax payments.--In the case of 
        taxpayers who make quarterly estimated tax return payments 
        under section 6654 of the Internal Revenue Code of 1986 and who 
        have a loan described in subsection (a)(1) in repayment status, 
        the Secretary shall provide similar tables and procedures for 
        making voluntary repayments of loans described in section 
        499A(a)(1) concurrently with such quarterly payments.
            ``(4) Collection and payment.--The amounts required to be 
        deducted and withheld under paragraph (1), and amounts required 
        to be paid under paragraph (3), shall be collected by the 
        Secretary of the Treasury and shall be paid into the general 
        fund of the Treasury of the United States.
    ``(c) Determination of Income-Based Repayment Obligation.--
            ``(1) In general.--As soon as practicable after an 
        individual for whom a loan described in subsection (a)(1) is in 
        repayment status during the taxable year files an income tax 
        return for such taxable year, the Secretary of the Treasury 
        shall transmit to the Secretary of Education such tax 
        information as is necessary to determine--
                    ``(A) the amount deducted and withheld under 
                subsection (b)(1), and the amount paid under subsection 
                (b)(3), for the taxable year with respect to such 
                individual, and
                    ``(B) the income-based repayment obligation for the 
                taxable year for such individual.
            ``(2) Income-based repayment obligation.--For purposes of 
        this section:
                    ``(A) 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--
                            ``(i) the sum of--
                                    ``(I) the wages, salaries, tips, 
                                and other employee compensation of the 
                                taxpayer, 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),
                                    ``(II) the amount of the taxpayer's 
                                net earnings from self-employment for 
                                the taxable year (within the meaning of 
                                section 1402(a) of such Code), 
                                determined with regard to the deduction 
                                allowed to the taxpayer by section 
                                164(f) of such Code, plus
                                    ``(III) any other amount included 
                                in total income of the taxpayer for the 
                                taxable year but not described in 
                                subclause (I) or (II), over
                            ``(ii) 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 subclauses (II) and (III) of 
                                clause (i), or $3,000.
                    ``(B) Special rules for married individuals.--
                            ``(i) Each spouse with loan.--Except as 
                        provided in clause (ii), in the case of a joint 
                        return of two individuals who each have a loan 
                        described in subsection (a)(1) in repayment 
                        status, the income-based repayment obligation 
                        with respect to each spouse shall be an amount 
                        determined under subparagraph (A) by 
                        apportioning \1/2\ of the total income on such 
                        return to each spouse.
                            ``(ii) Special rule for first year of 
                        marriage.--In the case of the first taxable 
                        year for which any two individuals make a joint 
                        return, the income-based repayment obligation 
                        with respect to such an individual shall be an 
                        amount equal to the lesser of--
                                    ``(I) the amount determined with 
                                respect to such individual under this 
                                paragraph (determined without regard to 
                                this clause), or
                                    ``(II) the amount determined with 
                                respect to such individual under this 
                                paragraph (determined by allocating to 
                                each spouse the amounts described in 
                                subclauses (I) and (II) of subparagraph 
                                (A)(i) in proportion to the amounts 
                                attributable to each spouse, by 
                                allocating \1/2\ of the amount 
                                described in subparagraph (A)(i)(III) 
                                to each spouse, and without regard to 
                                clause (i)).
                    ``(C) Exclusion of certain amounts paid on behalf 
                of individual.--Any amount paid on the borrower's 
                behalf under section 499B(5) shall not be taken into 
                account in determining such borrower's income-based 
                repayment obligation.
            ``(3) Exemption amount.--For purposes of this section:
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the exemption amount with respect to 
                an individual shall be an amount equal to 150 percent 
                of the poverty line for the individual's household size 
                (as determined under section 673(2) of the Community 
                Services Block Grant Act (42 U.S.C. 9902(2))) for the 
                calendar year in which the taxable year ends.
                    ``(B) Special rule for married individuals who both 
                have loans.--If for any taxable year an individual is 
                married, files a joint return, and has a spouse with a 
                loan described in subsection (a)(1) in repayment 
                status, then the exemption amount with respect to such 
                individual shall be an amount equal to the sum of--
                            ``(i) 150 percent of the poverty line for a 
                        household size of one (as determined under 
                        section 673(2) of the Community Services Block 
                        Grant Act (42 U.S.C. 9902(2))) for the calendar 
                        year in which the taxable year ends, and
                            ``(ii) \1/2\ of the excess of--
                                    ``(I) 150 percent of the poverty 
                                line for the individual's household 
                                size minus 1 (as determined under 
                                section 673(2) of the Community 
                                Services Block Grant Act (42 U.S.C. 
                                9902(2))) for the calendar year in 
                                which the taxable year ends, over
                                    ``(II) the amount determined under 
                                clause (i).
                    ``(C) Household size.--For purposes of this 
                paragraph, an individual's household size shall be 
                determined by reference to the individual, the number 
                of dependents of the taxpayer with respect to whom the 
                taxpayer is entitled to a deduction under section 
                151(c) of the Internal Revenue Code of 1986, and, if 
                married and filing jointly, such individual's spouse.
            ``(4) Individuals not filing a return.--
                    ``(A) Individuals not required to file.--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.
                    ``(B) Failure to file.--In the case of an 
                individual who makes an election under subsection (b) 
                with respect to a loan described in subsection (a)(1) 
                in repayment status and fails to file a return under 
                section 6012(a)(1) of the Internal Revenue Code of 
                1986, the Secretary of the Treasury shall transmit to 
                the Secretary of Education any such tax information of 
                the individual as may be necessary to determine whether 
                such individual is in default under the terms of such 
                loan.
            ``(5) Subsequent transmission of employer information 
        reporting.--As soon as practicable after receiving from an 
        employer information reporting with respect to withholding 
        under subsection (b)(1) of an individual, the Secretary of the 
        Treasury shall transmit to the Secretary of Education such 
        information as may be useful in verifying the information with 
        respect to withholding transmitted under paragraph (1).
    ``(d) 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 section, 
including measures to prevent underwithholding, under-reporting, and 
evasion of repayment or filing. Amounts shall be deducted and withheld 
under this section as the Secretary determines to be most appropriate 
to carry out the purposes of the income-based repayment program and to 
reflect, as accurately as is practicable, an individual's income-based 
repayment obligation.

``SEC. 499B. DUTIES OF THE SECRETARY OF EDUCATION.

    ``The Secretary shall carry out the following activities as part of 
the income-based repayment program established under this part:
            ``(1) Calculation of annual repayment amounts.--The 
        Secretary shall calculate the annual repayment amounts under 
        section 499C(b) for borrowers with 1 or more loans described in 
        section 499A(a)(1) in repayment status, including the income-
        based repayment obligations of such borrowers in accordance 
        with section 499A(c)(2).
            ``(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 499A.
            ``(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 described in section 499A(a)(1), 
        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 499C(f), has underpaid such annual repayment 
                amount, the amount of such underpayment and the process 
                for paying such underpayment under section 499C(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 499C(g), if applicable.
                    ``(E) The outstanding balances on all the loans 
                made to the borrower described in section 499A(a)(1).
                    ``(F) A description of how the borrower's annual 
                repayment amount was calculated under paragraph (1) or 
                (2) of section 499C(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, including by providing a process for the 
        borrower to make such payments automatically, on a periodic 
        basis, and in an amount specified by the borrower.
            ``(5) Payments on a taxpayer'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 or quarterly 
        estimated payments under section 499A(b) for the taxable year 
        were made in 12 equal increments throughout the year.
            ``(7) Managing loans.--The Secretary shall provide, through 
        the Internet, a tool that has an interface that is consistent 
        for all borrowers with a loan described in section 499A(a)(1), 
        which enables each such borrower to--
                    ``(A) view the outstanding balances on the 
                borrower's loans described in section 499A(a)(1);
                    ``(B) make a direct payment on the borrower's 
                annual repayment amount or indicate that any 
                overpayment should be refunded or applied to such loans 
                as a prepayment amount;
                    ``(C) view prior annual statements for such loans 
                provided under paragraph (3);
                    ``(D) view a history of payments made on such loans 
                (including the method and source of each payment, such 
                as tax withholding, estimated taxes, direct payment, or 
                payments made on the borrower's behalf);
                    ``(E) view the borrower's annual repayment amount 
                for that year, the amount already paid on such annual 
                repayment amount, and any amount owed by the borrower 
                or due to be refunded to the borrower;
                    ``(F) view the borrower's loans described in 
                section 499A(a)(1) that have been paid off;
                    ``(G) enable the borrower to initiate an appeal 
                process under paragraph (8); and
                    ``(H) easily determine whether benefits under the 
                Servicemembers Civil Relief Act (50 U.S.C. App. 501 et 
                seq.), if applicable, have been applied to the 
                borrower's loans described in section 499A(a)(1).
            ``(8) 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.
            ``(9) Default for failure to file a return.--In a case in 
        which the Secretary receives information from the Secretary of 
        the Treasury under section 499A(c)(4) that a borrower with a 
        loan described in section 499A(a)(1) 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 
                described in section 499A(a)(1) to be in default.
            ``(10) Loan forgiveness.--The Secretary shall cancel the 
        balance of principal and interest due on any loan described in 
        section 499A(a)(1) that is not in default for a borrower who 
        has made 240 payments on the loan using one or more methods 
        described in section 499C(c).

                    ``Subpart 2--Borrower Repayment

``SEC. 499C. BORROWER REPAYMENT.

    ``(a) Repayment Period.--The repayment period of a loan described 
in section 499A(a)(1) 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 a Federal Direct 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 
described in section 499A(a)(1) 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 499B(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.--In repaying an annual repayment amount 
owed by a borrower for a taxable year, a borrower may--
            ``(1) with respect to any wages earned by the borrower that 
        are subject to Federal income tax withholding, have amounts 
        withheld upon such wages under section 499A(b)(2);
            ``(2) in the case of a borrower who makes quarterly 
        estimated tax return payments under section 6654 of the 
        Internal Revenue Code of 1986 for the year, pay such annual 
        repayment amount concurrently with such quarterly payments 
        under section 499A(b)(3);
            ``(3) make direct payments under section 499B(4) on such 
        amount to the Secretary throughout the year;
            ``(4) have other individuals or entities make payments 
        under section 499B(5) on the borrower's annual repayment amount 
        for the year; or
            ``(5) another repayment plan authorized under section 
        455(d).
    ``(d) Order of Crediting.--Payments on loans described in section 
499A(a)(1) 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 described in section 
499A(a)(1) 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 
                described in section 499A(a)(1).
                    ``(C) Exception.--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).
            ``(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 499B(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 360 
                days after the date of receipt by the borrower of the 
                borrower's annual statement described in subparagraph 
                (A) shall be considered to be 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 499B(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 described in section 499A(a)(1) 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 
499A(b)(2) 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 section 499(b)(2), 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.''.
                                 <all>