[Federal Register Volume 77, Number 67 (Friday, April 6, 2012)]
[Notices]
[Pages 20796-20802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-8225]


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DEPARTMENT OF EDUCATION


Annual Updates to the Income Contingent Repayment (ICR) Plan 
Formula for 2011; William D. Ford Federal Direct Loan Program

AGENCY: Federal Student Aid, Department of Education.

ACTION: Notice.

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Catalog of Federal Domestic Assistance (CFDA) Number: 84.063.

SUMMARY: The Secretary announces the annual updates to the ICR plan 
formula for 2011. Under the William D. Ford Federal Direct Loan (Direct 
Loan) Program, borrowers may choose to repay their loans (Direct 
Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to 
graduate or professional students, and Direct Consolidation Loans) 
under the ICR plan, which bases the repayment amount on the borrower's 
income, family size, loan amount, and the interest rate applicable to 
each loan. Each year, we adjust the formula for calculating a 
borrower's ICR payment to reflect changes due to inflation. This notice 
contains the adjusted income percentage factors for 2011, examples of 
how the calculation of the monthly ICR amount is performed, a constant 
multiplier chart for use in performing the calculations, and charts 
showing sample repayment amounts based on the adjusted ICR plan 
formula. The adjustments for the ICR plan formula contained in this 
notice are effective for the period from July 1, 2011 to June 30, 2012.

FOR FURTHER INFORMATION CONTACT: Ian Foss, U.S. Department of 
Education, 830 1st St. NE., Room 114I1, Washington, DC 20202. 
Telephone: (202) 377-3681 or by email: [email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., braille, large print,

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audiotape, or compact diskette) on request to the contact person listed 
under FOR FURTHER INFORMATION CONTACT in this section of the notice.

SUPPLEMENTARY INFORMATION: Direct Loan Program borrowers may choose to 
repay their Direct Subsidized Loans, Direct Unsubsidized Loans, Direct 
PLUS Loans made to graduate or professional students, and Direct 
Consolidation Loans under the ICR plan. This notice contains the 
following four attachments:
     Attachment 1--Income Percentage Factors for 2011
     Attachment 2--Constant Multiplier Chart for Use in 
Calculating the Monthly ICR Amount
     Attachment 3--Examples of the Calculations of Monthly 
Repayment Amounts
     Attachment 4--Charts Showing Sample Repayment Amounts for 
Single and Married Borrowers
    In Attachment 1, we have updated the income percentage factors to 
reflect changes based on inflation. Specifically, we have revised the 
table of income percentage factors by changing the dollar amounts of 
the incomes shown by a percentage equal to the estimated percentage 
change in the Consumer Price Index for all urban consumers from 
December 2010 to December 2011. In Attachment 2, we provide a constant 
multiplier chart for a 12-year loan amortization. Further, in 
Attachment 3, we provide examples of monthly repayment amount 
calculations. Finally, in Attachment 4, we provide two charts that show 
sample repayment amounts for single and married or head-of-household 
borrowers at various income and debt levels based on the updated income 
percentage factors.
    The updated income percentage factors reflected in Attachment 1 may 
cause a borrower's payments to be lower than they were in prior years 
(even if the borrower's income remains the same as the prior year). 
However, the revised repayment amount more accurately reflects the 
impact of inflation on a borrower's current ability to repay.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

    Program Authority: 20 U.S.C. 1087 et seq.

James W. Runcie,
Chief Operating Officer, Federal Student Aid.

Attachment 1--Income Percentage Factors for 2011

                   Income Percentage Factors for 2011
                        [Based on annual income]
------------------------------------------------------------------------
                      Single                           Married, filing
---------------------------------------------------      jointly or
                                                     separately/head of
                                                          household
                 Income                    Factor  ---------------------
                                         (percent)               Factor
                                                      Income   (percent)
------------------------------------------------------------------------
$10,249................................      55.00    $10,249      50.52
14,102.................................      57.79     16,171      56.68
18,146.................................      60.57     19,271      59.56
22,280.................................      66.23     25,192      67.79
26,230.................................      71.89     31,210      75.22
31,210.................................      80.33     39,201      87.61
39,201.................................      88.77     49,164     100.00
49,165.................................     100.00     59,132     100.00
59,132.................................     100.00     74,082     109.40
71,069.................................     111.80     98,991     125.00
91,001.................................     123.50    133,867     140.60
128,887................................     141.20    187,220     150.00
147,781................................     150.00    305,931     200.00
263,224................................     200.00  .........  .........
------------------------------------------------------------------------

Attachment 2--Constant Multiplier Chart for Use in Calculating the 
Monthly ICR Amount

           Constant Multiplier Chart for 12-Year Amortization
------------------------------------------------------------------------
                                                                Annual
                  Interest rate (percent)                      constant
                                                              multiplier
------------------------------------------------------------------------
3.500......................................................     0.102174
4.000......................................................     0.105063
4.500......................................................     0.108001
5.000......................................................     0.110987
5.500......................................................     0.114021
6.000......................................................     0.117102
6.800......................................................     0.122130
7.000......................................................     0.123406
7.900......................................................     0.129237
8.000......................................................     0.129894
8.250......................................................     0.131545
------------------------------------------------------------------------

Attachment 3--Examples of the Calculations of Monthly Repayment Amounts

    General notes about the examples in this attachment:
     The interest rates used in the examples are for 
illustration only. Actual interest rates vary depending on loan type 
and when a loan was first disbursed.
     In the examples, the Poverty Guideline amounts used are 
from the 2011 U.S. Department of Health and Human Services (HHS) 
Poverty Guidelines for the 48 contiguous States

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and the District of Columbia, as published in the Federal Register on 
January 20, 2011 (76 FR 3637). Different Poverty Guidelines apply to 
residents of Alaska and Hawaii.
     The ``constant multiplier'' included in each example is a 
factor used to calculate amortized payments at a given interest rate 
over a fixed period of time. Refer to the constant multiplier chart 
provided in Attachment 2 to this notice to determine the constant 
multiplier that should be used for a specific interest rate. If an 
interest rate is not listed in the constant multiplier chart in 
Attachment 2, use the next highest rate for estimation purposes.
     All examples use an income percentage factor corresponding 
to the borrower's adjusted gross income (AGI). If the AGI is not listed 
in the income percentage factors table in Attachment 1, calculate the 
applicable income percentage factor for the AGI by following the 
instructions under the Interpolation heading later in this attachment.
     For married borrowers, the outstanding balance on the 
loans of each borrower and both borrowers' AGIs are added together to 
determine the ICR payment amount. The amount of each payment applied to 
each borrower's Direct Loan debt is the proportion of the payments that 
equals the same proportion as that borrower's debt to the total 
outstanding balance. Each borrower is billed separately. For example, 
if a married couple has a total outstanding Direct Loan debt of 
$60,000, $40,000 of which belongs to one spouse, and $20,000 of which 
belongs to the other spouse, 67 percent of the monthly ICR payment 
would be apportioned to the spouse with the outstanding debt of 
$40,000, with the remaining 33 percent of the monthly ICR payment being 
apportioned to the spouse with $20,000 of debt. To take advantage of a 
joint ICR payment, married couples need not file taxes jointly; they 
may file separately and subsequently provide the other spouse's tax 
information.

    Example 1. This example assumes that the borrower is a single 
with no dependents, and has $15,000 in Direct Subsidized and 
Unsubsidized Loans. The interest rate on these loans is 6.80 
percent, and the borrower has an AGI of $39,201.
    Step 1: Determine the total annual payment amount based on what 
the borrower would pay over 12 years using standard amortization. To 
do this, multiply the loan balance by the constant multiplier for 
the applicable interest rate. In this example, the interest rate is 
6.80 percent, for which the constant multiplier is 0.122130.
      0.122130 x $15,000 = $1,831.95
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table (see Attachment 
1 to this notice) that corresponds to the AGI and then divide the 
result by 100:
      88.77 x $1,831.95 / 100 = $1,626.22
    Step 3: Determine 20 percent of the borrower's discretionary 
income (discretionary income is AGI minus the U.S. Department of 
Health and Human Services (HHS) Poverty Guideline amount for the 
borrower's family size and state of residence). To do this, subtract 
the Poverty Guideline amount for a family of one, for this example, 
from the borrower's AGI and multiply the result by 20 percent:
      $39,201 - $10,890 = $28,311
      $28,311 x 0.20 = $5,662.20
    Step 4: Compare the amount from Step 2 with the amount from Step 
3. The lower of the two will be the annual payment amount. In this 
example, the borrower will be paying the amount calculated under 
Step 2 ($1,626.22). To determine the monthly repayment amount, 
divide the annual amount by 12.
      $1,626.22 / 12 = $135.52
    Example 2. In this example, the borrower is married and has no 
dependents, other than a spouse. The borrower has a Direct Loan 
balance of $10,000, and the spouse has a Direct Loan balance of 
$15,000. The interest rate on all of the loans is 6.80 percent.
    The borrower and spouse have a combined AGI of $74,082 and are 
repaying their loans jointly under the ICR plan (for general 
information regarding joint ICR payments for married couples, see 
the fifth bullet under the heading entitled ``General notes about 
the examples'' in this attachment).
    Step 1: Add the borrower's and the borrower's spouse's Direct 
Loan balances together to determine their combined aggregate loan 
balance:
     $10,000 + $15,000 = $25,000
    Step 2: Determine the combined total annual payment amount for 
these borrowers based on what the both borrowers would pay over 12 
years using standard amortization. To do this, multiply the combined 
loan balance by the constant multiplier for the applicable interest 
rate. In this example, the interest rate is 6.80 percent, for which 
the constant multiplier is 0.122130.
     0.122130 x $25,000 = $3,053.25
    Step 3: Multiply the result of Step 2 by the income percentage 
factor shown in the income percentage factors table in Attachment 1 
that corresponds to the borrower's and the borrower's spouse's AGI 
and then divide the result by 100:
     109.40 x $3,053.25 / 100 = $3,340.26
    Step 4: Determine 20 percent of discretionary income. To do 
this, subtract the Poverty Guideline amount for a family of two, in 
this example, from the combined AGI and multiply the result by 20 
percent:
     $74,082 - $14,710 = $59,372
     $59,372 x 0.20 = $11,874.40
    Step 5: Compare the amount from Step 3 with the amount from Step 
4. The lower of the two will be the annual payment amount for the 
borrower and the borrower's spouse. The borrower and the borrower's 
spouse will jointly pay the amount calculated under Step 3 
($3,340.26). To determine the monthly repayment amount, divide the 
annual amount by 12.
     $3,340.26 / 12 = $278.36
    Example 3. This example assumes that the borrower is single with 
no dependents and has $15,000 in Direct Subsidized and Unsubsidized 
Loans. The interest rate on all of the loans is 6.80 percent, and 
the borrower's AGI is $31,210.
    Step 1: Determine the total annual payment amount based on what 
the borrower would pay over 12 years using standard amortization. To 
do this, multiply the loan balance by the constant multiplier for 
the applicable interest rate. In this example, the interest rate is 
6.80 percent, for which the constant multiplier is 0.122130.
     0.122130 x $15,000 = $1,831.95
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table in Attachment 1 
that corresponds to the borrower's income and then divide the result 
by 100:
     80.33 x $1,831.95 / 100 = $1,471.61
    Step 3: Determine 20 percent of discretionary income 
(discretionary income is the borrower's AGI minus the HHS Poverty 
Guideline amount for the borrower's family size). To do this, 
subtract the Poverty Guideline amount for a family of one, in this 
example, from AGI and multiply the result by 20 percent:
     $31,210 - $10,890 = $20,320
     $20,320 x 0.20 = $4,064
    Step 4: Compare the amount from Step 2 with the amount from Step 
3. The lower of the two will be the annual payment amount. In this 
example, the borrower will be paying the amount calculated under 
Step 2 ($1,471.61). To determine the monthly repayment amount, 
divide the annual amount by 12.
     $1,471.61 / 12 = $122.63
    Example 4. In this example, the borrower is married and has no 
dependents, other than the spouse. The borrower and spouse have a 
combined AGI of $39,201 and are repaying their loans under the ICR 
plan (for general information regarding joint ICR payments for 
married couples, see the fifth bullet under the heading entitled 
``General notes about the examples'' in this attachment). The 
borrower has a Direct Loan balance of $10,000, $5,000 of which is at 
an interest rate of 6.80 percent and $5,000 of which is at an 
interest rate of 7.0 percent, and the spouse has a Direct Loan 
balance of $5,000 at an interest rate of 6.80 percent and $10,000 of 
which is at an interest rate of 7.0 percent.
    Step 1: Add the borrower's and the borrower's spouse's Direct 
Loan balances that have the same interest rate together to determine 
combined aggregate loan balances by interest rate:
     6.8 percent: $5,000 + $5,000 = $10,000
     7.0 percent: $5,000 + $10,000 = $15,000
    Step 2: Determine the annual payment based on what would be paid 
over 12 years using standard amortization for each interest rate-
based group of combined aggregate loan balances. To do this, 
multiply each group of combined aggregate loan balances by the 
constant multiplier for the applicable interest rate. For 6.80 
percent, the constant multiplier is 0.122130. For 7.0 percent, the 
constant multiplier is 0.123406.
     0.122130 x $10,000 = $1,221.30

[[Page 20799]]

      0.123406 x $15,000 = $1,851.09
    Step 3: Add the products of Step 2 together, multiply that total 
by the income percentage factor shown in the income percentage 
factors table in Attachment 1 that corresponds to the borrower's and 
the borrower's spouse's combined AGI, and then divide the result by 
100:
      87.61 x $3,072.39 / 100 = $2,691.72
    Step 4: Determine 20 percent of discretionary income. To do 
this, subtract the Poverty Guideline amount for a family of two, in 
this example, from the combined AGI and multiply the result by 20 
percent:
      $39,201 - $14,710 = $24,491
      $24,491 x 0.20 = $4,898.20
    Step 5: Compare the amount from Step 3 with the amount from Step 
4. The lower of the two will be the annual payment amount. In this 
example, the borrower and the borrower's spouse will jointly pay the 
amount calculated under Step 3 ($2,691.72). To determine the monthly 
repayment amount, divide the annual amount by 12.
      $2,691.72 / 12 = $224.31
    Interpolation. If the borrower's income is not included on the 
income percentage factor table, calculate the income percentage 
factor through interpolation. For example, assume that the borrower 
is single with income of $30,000.
    Step 1: Find the closest income listed that is less than $30,000 
and the closest income listed that is greater than $30,000.
    Step 2: Subtract the lower amount from the higher amount (for 
this discussion, we will call the result the ``income interval''):
      $31,210 - $26,230 = $4,980
    Step 3: Determine the difference between the two income 
percentage factors that correspond to the incomes used in Step 2 
(for this discussion, we will call the result the ``income 
percentage factor interval''):
      80.33 percent - 71.89 percent = 8.44 percent
    Step 4: Subtract from the borrower's income the closest income 
shown on the chart that is less than the borrower's income of 
$30,000:
      $30,000 - $26,230 = $3,770
    Step 5: Divide the result of Step 4 by the income interval 
determined in Step 2:
      $3,770 / $4,980 = 0.757
    Step 6: Multiply the result of Step 5 by the income percentage 
factor interval:
      8.44 percent x 0.757 = 6.389 percent
    Step 7: Add the result of Step 6 to the lower of the two income 
percentage factors used in Step 3 to calculate the income percentage 
factor interval for $30,000 in income:
      6.389 percent + 71.89 percent = 78.28 percent (rounded 
to the nearest hundredth)
    The result is the income percentage factor that will be used to 
calculate the monthly repayment amount under the ICR plan.

Attachment 4--Charts Showing Sample Repayment Amounts for Single and 
Married Borrowers

BILLING CODE 4000-01-P

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[FR Doc. 2012-8225 Filed 4-5-12; 8:45 am]
BILLING CODE 4000-01-C