[Federal Register Volume 77, Number 137 (Tuesday, July 17, 2012)]
[Proposed Rules]
[Pages 42086-42148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15888]
[[Page 42085]]
Vol. 77
Tuesday,
No. 137
July 17, 2012
Part II
Department of Education
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34 CFR Parts 674, 682 and 685
Federal Perkins Loan Program, Federal Family Education Loan Program,
and William D. Ford Federal Direct Loan Program; Proposed Rule
Federal Register / Vol. 77 , No. 137 / Tuesday, July 17, 2012 /
Proposed Rules
[[Page 42086]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 674, 682, and 685
RIN 1840-AD05
[Docket ID ED-2012-OPE-0010]
Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the Federal Perkins Loan
(Perkins Loan) program, Federal Family Education Loan (FFEL) program,
and William D. Ford Federal Direct Loan (Direct Loan) program
regulations. The proposed regulations would implement a new Income
Contingent Repayment (ICR) plan in the Direct Loan program based on the
President's ``Pay As You Earn'' repayment initiative, incorporate
recent statutory changes to the Income Based Repayment (IBR) plan in
the Direct Loan and FFEL programs, and streamline and add clarity to
the total and permanent disability discharge process for borrowers in
the title IV, HEA loan programs. The proposed regulations implementing
a new ICR Plan and the statutory changes to the IBR plan would assist
borrowers in repaying their loans while the proposed changes to the
total and permanent disability discharge process would reduce burden
for borrowers who are disabled and seeking a discharge of their title
IV debt.
DATES: We must receive your comments on or before August 16, 2012.
ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via postal mail, commercial delivery, or hand delivery. We will not
accept comments by fax or by email. To ensure that we do not receive
duplicate copies, please submit your comments only once. In addition,
please include the Docket ID at the top of your comments.
Federal eRulemaking Portal: Go to www.regulations.gov to
submit your comments electronically. Information on using
Regulations.gov, including instructions for accessing agency documents,
submitting comments, and viewing the docket, is available on the site
under ``How To Use This Site.''
Postal Mail, Commercial Delivery, or Hand Delivery: If you
mail or deliver your comments about these proposed regulations, address
them to Jessica Finkel, U.S. Department of Education, 1990 K Street
NW., Room 8031, Washington, DC 20006-8502.
Privacy Note: The Department's policy is to make all comments
received from members of the public available for public viewing in
their entirety on the Federal eRulemaking Portal at
www.regulations.gov. Therefore, commenters should be careful to include
in their comments only information that they wish to make publicly
available.
FOR FURTHER INFORMATION CONTACT: Jessica Finkel, U.S. Department of
Education, 1990 K Street NW., Room 8031, Washington, DC 20006-8502.
Telephone: (202) 502-7647 or by email at: [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, audiotape, or compact
disc) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of This Regulatory Action: The combination of increased
enrollment and rising tuition has contributed to a significant increase
in student loan debt among Americans. The ability of recent college
graduates to find immediate employment with wages adequate enough to
repay this debt has been challenged.
For Federal student loan borrowers who suffer from a total and
permanent disability (TPD), the Department's current disability
discharge process has led to inconsistencies in determining their
eligibility for discharge and created undue hardship.
Based on the results of the negotiated rulemaking process and the
advice and recommendations submitted by individuals and organizations
in public hearing testimony and in written comments submitted to the
Department, the proposed regulations would create a new Income
Contingent Repayment (ICR) plan in the Direct Loan program based on the
President's ``Pay As You Earn'' repayment initiative, incorporate
recent statutory changes to the Income Based Repayment (IBR) plan in
the Direct Loan and FFEL programs, and streamline and add clarity to
the total and permanent disability discharge process for borrowers in
the title IV, HEA loan programs.
Summary of the Major Provisions of This Regulation: Action: The
NPRM proposes regulations that would--
Create a new ICR plan (proposed ICR-A) in the Direct Loan
program based on the President's Pay As You Earn repayment initiative.
The proposed regulations support the administration's goal of making
the statutory improvements made by the SAFRA Act included in the Health
Care and Reconciliation Act of 2010 (Pub. L. 111-152) to the IBR plan
available to some borrowers earlier than July 1, 2014, and make
technical corrections and minor changes to the current ICR plan
regulations, including the addition of provisions related to
notification of income documentation requirements and the ICR loan
forgiveness process.
Incorporate statutory changes to the IBR plan that were
made by the SAFRA Act and add new provisions related to notification of
income documentation requirements, repayment options after leaving the
IBR plan, and the IBR loan forgiveness process.
Revise Perkins Loan and FFEL program regulations to permit
borrowers to apply directly to the Department for a total and permanent
disability discharge. In the Direct Loan program, borrowers would
continue to apply directly to the Department for total and permanent
disability discharges, as they do under the current Direct Loan
regulations.
Modify regulations in the Perkins Loan, FFEL, and Direct
Loan programs to provide more detailed information to borrowers in
letters explaining why a disability discharge has been denied.
Define the term ``borrower's representative'' for purposes
of the disability discharge application process and state that
references to a borrower or a veteran in the total and permanent
disability discharge regulations include a borrower's representative or
a veteran's representative.
Specify that the Department denies a disability discharge
request and collection resumes on the borrower's loans if the borrower
receives a disbursement of a new title IV loan or receives a new TEACH
Grant made on or after the date the physician certified the borrower's
disability discharge application and before the date the Department
makes a decision on the borrower's application for a total and
permanent disability discharge.
Specify that, if a borrower's Perkins Loan, FFEL, or
Direct Loan program loan is reinstated, it returns to the status that
would have existed if the total and permanent disability discharge
application had not been received.
Make corresponding changes to the total and permanent
disability application process based on a certification from the
Department of Veterans Affairs.
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Please refer to the Significant Proposed Regulations section of this
preamble for a fuller discussion of the major provisions contained in
this NPRM.
Chart 1 summarizes the proposed regulations and related benefits,
costs, and transfers that are discussed in more detail in the
Regulatory Impact Analysis of this preamble. The Department estimates
that approximately 1.6 million borrowers could take advantage of the
proposed ICR-A repayment plan with another million borrowers being
affected by the statutory changes to the IBR plan reflected in the
proposed regulations. Significant benefits of these proposed
regulations include a streamlined process for total and permanent
disability discharges, enhanced notifications related to TPD, IBR, and
ICR application and servicing processes, and reduced monthly payments
for borrowers in partial financial hardship (PFH) status as a result of
using a lower PFH threshold of 10 percent. The net budget impact of the
proposed regulations is $2.1 billion over the 2012 to 2021 loan
cohorts.
Chart 1--Summary of the Proposed Regulations
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Issue and key features Benefits Cost/transfers
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Income Contingent Repayment (34 CFR part 685)
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Establishes ICR-A repayment plan Enhanced cash Estimated net
with features of IBR as revised management option budget impact of
by SAFRA for new borrowers on for borrowers. $2.1 billion over
or after 10/1/2007 with a loan the 2012-2021
disbursement made on or after loan cohorts.
10/1/2011. ICR-A retains a cap
on interest capitalization from
current ICR.
Establishes threshold for PFH at Reduced payments
10% for ICR-A borrowers. and shorter
forgiveness
period may
encourage
acknowledgement
and payment of
debt.
Loan forgiveness after 20 years Reduced monthly
of qualifying payments compared payments may
to 25 years under current allow greater
regulations. participation in
the economy.
Retains current ICR program as ICR-B leaves an
ICR-B. income driven
repayment option
available to all
borrowers.
Establishes process for borrower
notification and processing of
loan forgiveness by loan
holders.
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Income Based Repayment (34 CFR part 685)
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Incorporates statutory changes Benefits mirror
from SAFRA. those associated
with proposed ICR
changes.
Threshold for PFH reduced from
15% to 10% for new borrowers
after 7/1/2014.
Loan forgiveness after 20 years
of qualifying payments compared
to 25 years under current
regulations.
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Income Based Repayment (34 CFR part 685, 34 CFR part 682)
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A smaller payment amount made Improved No net budget
under a forbearance can qualify notifications impact from
as the single payment made in around annual proposed
standard repayment plan for recertification regulations.
borrower leaving IBR to select of income may
another repayment plan. reduce number of
borrowers removed
from PFH for
paperwork reasons.
Modified notification and income .................. Estimated
documentation requirements for paperwork
borrowers in IBR. compliance costs
of approximately
$570,000
annually.
Establishes process for borrower
notification and processing of
loan forgiveness by loan
holders.
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Total and Permanent Disability (34 CFR 674.61; 34 CFR 682.402; 34 CFR
685.213)
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Creates single discharge Simplifies process Estimated
application process through the for borrowers. paperwork
Department for all of a compliance burden
borrower's FFEL, Direct Loans, of approximately
and Perkins loans. $725,000.
Specifies that borrower's Departmental
representative will receive all processing should
notifications and can be increase
involved in all aspects of the consistency of
process. TPD
determinations.
Enhanced notifications, Process changes
including more detailed reasons could reduce
for denials and information reinstatements
about options for reapplying. for paperwork
reasons.
Revised treatment of payments
made following a TPD discharge.
Creation of standard form for
reporting income during 3-year
post-discharge monitoring
period.
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Invitation To Comment: As outlined in the Negotiated Rulemaking
section of this notice, significant public participation, through three
public hearings and three negotiated rulemaking sessions, has occurred
in
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developing this notice of proposed rulemaking (NPRM). We invite you to
submit comments regarding these proposed regulations. To ensure that
your comments have maximum effect in developing the final regulations,
we urge you to identify clearly the specific section or sections of the
proposed regulations that each of your comments addresses and to
arrange your comments in the same order as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and 13563 and their overall
requirement of reducing regulatory burden that might result from these
proposed regulations. Please let us know of any further ways we could
reduce potential costs or increase potential benefits while preserving
the effective and efficient administration of the Department's programs
and activities.
During and after the comment period, you may inspect all public
comments about these proposed regulations by accessing Regulations.gov.
You may also inspect the comments in person, in Room 8031, 1990 K
Street NW., Washington, DC, between 8:30 a.m. and 4:00 p.m., Washington
DC time, Monday through Friday of each week except Federal holidays.
Please contact the person listed under FOR FURTHER INFORMATION CONTACT.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of accommodation or auxiliary
aid, please contact the person listed under FOR FURTHER INFORMATION
CONTACT.
Negotiated Rulemaking
Section 492 of the Higher Education Act of 1965, as amended,
requires the Secretary, before publishing any proposed regulations for
programs authorized by title IV of the HEA, to obtain public
involvement in the development of the proposed regulations. After
obtaining advice and recommendations from the public, including
individuals and representatives of groups involved in the Federal
student financial assistance programs, the Secretary must establish a
negotiated rulemaking committee and subject the proposed regulations to
a negotiated rulemaking process. All proposed regulations that the
Department publishes on which the negotiators reached consensus must
conform to final agreements resulting from that process unless the
Secretary reopens the process or provides a written explanation to the
participants stating why the Secretary has decided to depart from the
agreements. Further information on the negotiated rulemaking process
can be found at: www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html.
On May 5, 2011, the Department published a notice in the Federal
Register (76 FR 25650) announcing our intent to establish up to two
negotiated rulemaking committees to prepare proposed regulations. One
committee would focus on issues related to streamlining institutional
reporting requirements and proposed regulations regarding better State
identification of low-performing teacher preparation programs pursuant
to sections 205 and 207 of the HEA through focusing reporting on
improved measures of program quality. A second committee (the ``Loans
Committee'') would address Federal student loan issues. The regulations
considered by the second committee would: Implement changes made by the
SAFRA Act (Pub. L. 111-152), which ended the making of new loans in the
Federal Family Educational Loan (FFEL) program as of July 1, 2010; make
improvements to the income-contingent and income-based repayment plans;
and improve the process for consideration of applications for total and
permanent disability discharges. The notice requested nominations of
individuals for membership on the committees who could represent the
interests of key stakeholder constituencies on each committee.
The Department developed a list of proposed regulatory provisions
from advice and recommendations submitted by individuals and
organizations in testimony submitted to the Department in a series of
three public hearings and a roundtable discussion held on:
May 12, 2011, at Tennessee State University, Nashville,
Tennessee.
May 16, 2011, at Pacific Lutheran University, Tacoma,
Washington.
May 19, 2011, at Loyola University-Lakeshore Campus,
Chicago, Illinois.
May 26, 2011, at College of Charleston, Charleston, South
Carolina.
In addition, the Department accepted written comments on possible
regulatory provisions submitted directly to the Department by
interested parties and organizations. Transcripts of the regional
meetings can be accessed at www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html and is also accessible in the rulemaking
docket on www.regulations.gov.
Staff within the Department also identified issues for discussion
and negotiation.
The Loans Committee included the following members:
Mr. Getachew Kassa, Legislative Director, United States
Student Association and Mr. Abou Amara, Jr. (alternate), President,
Graduate and Professional Student Association, University of Minnesota,
Twin Cities.
Ms. Deanne Loonin, National Consumer Law Center, and Ms.
Radhika Miller (alternate), Program Manager, Educational Debt Relief
and Outreach, Equal Justice Works.
Ms. Jennifer Mishory, Deputy Director, Young Invincibles,
and Ms. Maureen Thompson (alternate), The Hastings Group, LLC.
Ms. Margaret Rodriguez, Senior Associate Director of
Financial Aid, University of Michigan and Chair, National Direct
Student Loan Coalition, and Ms. Elizabeth Hicks (alternate), Executive
Director Student Financial Services, Massachusetts Institute of
Technology.
Mr. David Glezerman, Assistant Vice President and
University Bursar, Temple University, and Ms. Maria Livolsi
(alternate), Student Loan Service Center, State University of New York.
Mr. Robert Perrin, President, Williams & Fudge, Inc.
Mr. Todd Leatherman, Executive Director, Office of
Consumer Protection, Office of the Kentucky Attorney General, and Ms.
Michele Casey (alternate), Assistant Attorney General, Consumer Fraud
Bureau Office of the Illinois Attorney General.
Ms. Cristi Millard, Director of Financial Aid, Salt Lake
Community College, and Mr. Chris Christensen, (alternate) Director of
Financial Aid, Johnson County Community College, Kansas.
Ms. Kris Wright, Director, Office of Student Finance,
University of Minnesota and Executive Council Member and Secretary,
National Direct Student Loan Coalition, and Ms. Elaine Papas-Varas
(alternate), University Director of Student Financial Aid and Director
of the Primary Care Practitioner Loan Redemption Program of New Jersey
University of Medicine and Dentistry of New Jersey.
Ms. Yvonne Gutierrez-Sandoval, Senior Associate Director
of Financial Aid, Pitzer College, and Mr. Jeffrey A. Gall (alternate),
Associate Dean, Office of Student Financial Services, Georgetown
University.
Mr. Tom Sakos, Director of Student Lending and Regulatory
Quality
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Assurance, DeVry Inc., and Mr. Anthony Fragomeni (alternate), Director
of Governmental Affairs, Empire Education Group and Chairman, American
Association of Cosmetology Schools' Government Relations Team.
Ms. Betsy Mayotte, Director, Regulatory Compliance and
Privacy, American Student Assistance, and Mr. Scott Giles (alternate),
Vice President for Operations, Social Marketing and Strategy, Vermont
Student Assistance Corporation.
Mr. Robert Sandlin, Director of Policy and Compliance,
Higher Education Servicing Corporation, and Ms. Vicki Shipley
(alternate), Senior Advisor, National Council of Higher Education Loan
Programs.
Mr. Albert Gray, Executive Director and CEO, Accrediting
Council for Independent Colleges and Schools, and Ms. Sharon Tanner
(alternate), CEO, National League for Nursing Accreditation.
Ms. Pamela Moran and Ms. Gail McLarnon, U.S. Department of
Education.
The Loans Committee met to develop proposed regulations during the
months of January, February, and March of 2012. These proposed
regulations reflect the work of this second committee and proposes
regulations relating to the administration of the Federal student loan
programs, specifically changes governing the ICR and IBR plans, and the
process for making TPD discharge determinations. These proposed
regulations also include certain technical changes to the regulations
that are needed to reflect recent amendments to the HEA and to correct
certain technical errors. These types of changes are not normally
subject to the statutory requirements for negotiated rulemaking and
public notice and comment. However, since those changes affected the
regulations that would be considered by the negotiated rulemaking
committee, the Secretary chose to include those changes in the proposed
regulations to be considered by the committee to ensure that the
committee could evaluate the full scope of changes to those
regulations.
At its first meeting, the Loans Committee reached agreement on its
protocols and proposed agenda. The Committee's protocols provided that,
unless agreed to otherwise, for the committee to be considered to have
reached consensus on the regulations, consensus must be reached on all
of the proposed regulations. Consensus means that there must be no
dissent by any member in order for the Committee to be considered to
have reached agreement.
During its first meeting, the Loans Committee agreed to negotiate
an agenda of 25 student loan related issues. The most significant
issues: Developing regulations necessary to implement the President's
``Pay As You Earn'' repayment initiative; developing regulations to
incorporate statutory changes in the Income-Based Repayment Plan (IBR)
and to address certain problems in the administration of the IBR and
Income-Contingent Repayment plans; to overhaul the total and permanent
disability discharge process; to update the FFEL program regulations to
eliminate obsolete and unnecessary provisions governing loan
origination and disbursement; to revise the Direct Loan program
regulations to eliminate cross reference to the FFEL program
regulations; to revise regulations governing the determination of a
defaulted borrower's reasonable and affordable payment amount for
purposes of rehabilitation of the borrower's defaulted loan; to revise
the regulations governing administrative wage garnishment (AWG) for
defaulted borrowers in the FFEL program; and to provide for consistent
treatment of borrowers requesting forbearance on or after the 270th day
of delinquency. The Department stated its commitment to publishing the
regulations to implement the Pay As You Earn repayment initiative and
to overhaul and improve the total and permanent disability discharge
process for borrowers as soon as possible.
During the development of proposed regulatory language and prior to
the second meeting of the Committee, the Department concluded that the
scope and volume of the likely resulting proposed regulations resulting
from the agenda approved by the Committee would require extensive and
significant changes to regulations. In particular, updating the FFEL
program regulations and major changes to the Direct Loan regulations
involved making changes to the entirety of those program regulations.
The Department determined that it was unlikely that one NPRM reflecting
all of the issues could be published by the deadline established by
section 482(c) of the HEA. To ensure the earliest possible
implementation of the Pay As You Earn repayment initiative and the
revised total and permanent disability discharge regulations, which
will provide significant benefits to student loan borrowers, the
Department determined that two NPRMs would result from the Committee's
work.
During the second meeting of the Committee, the Department
explained to the Committee members that one NPRM would contain proposed
regulations to implement the Pay As You Earn repayment initiative, to
incorporate statutory changes in the IBR plan, to make other changes to
improve the administration of the IBR and ICR plans, and to overhaul
the total and permanent disability discharge process. The second NPRM
would contain all the remaining proposed regulations that were on the
Committee's agenda, including proposed regulations involving
rehabilitation of defaulted loans and AWG in the FFEL program. The
Department also explained that any final regulations published as a
result of the second NPRM would not be published by November 1, 2012,
and therefore would not become effective until July 1, 2014, under the
master calendar provisions of section 482(c)(1) the HEA. The Department
committed, however, to authorize, to the extent possible, early
implementation of the final regulations published as a result of the
second NPRM under the Secretary's authority to designate regulatory
provisions for early implementation by program participants under
section 482(c)(2) of the HEA.
At the final meeting in March 2012, the Loans Committee reached
consensus on the full agenda of loans issues. This document represents
the first of two NPRMs resulting from the Committee's negotiations. It
contains proposed regulations to: Implement the Pay As You Earn
repayment initiative; incorporate statutory changes in the IBR plan;
make certain improvements in the administration of the IBR and ICR
plans; and overhauling the total and permanent disability discharge
process.
More information on the work of the Loans Committee can be found
at: www.ed.gov/policy/highered/reg/hearulemaking/2008/loans.html.
Summary of Proposed Changes
Income Contingent Repayment
The proposed regulations create a new ICR plan (proposed ICR-A)
based on the President's Pay As You Earn repayment initiative and
proposes to make technical corrections and other minor changes to the
current ICR plan (proposed ICR-B). The proposed changes to ICR-B
include the addition of provisions related to notification of income
documentation requirements and the ICR loan forgiveness process.
Under the proposed regulations, ICR-A would be available to a new
borrower who: (1) Did not have an outstanding student loan as of
October 1, 2007, or as of the date he or she received a new loan after
October 1, 2007; and (2) received a disbursement of a Direct
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Subsidized Loan, a Direct Unsubsidized Loan or a student Direct PLUS
Loan on or after October 1, 2011, or receives a Direct Consolidation
Loan based on an application received on or after October 1, 2011,
except if the Direct Consolidation Loan repays a Direct or FFEL loan
made before October 1, 2007. The proposed regulations for the ICR-A
program would incorporate the following provisions from the statutory
amendments to IBR that become effective on July 1, 2014:
A borrower's maximum annual payment amount under the ICR-A
plan would be capped at 10 percent of the difference between the
borrower's AGI and 150 percent of the annual poverty guideline amount
for the borrower's State and family size.
Borrowers who repay under the ICR-A plan would qualify for
forgiveness of any remaining loan balance after 20 years of qualifying
payments and periods of economic hardship deferment.
To qualify for the ICR-A plan and to continue to make
income-contingent payments under that plan, a borrower would be
required to have a partial financial hardship. A borrower would be
considered to have a partial financial hardship if the annual amount
due on all of the borrower's eligible Direct Loan and FFEL Program
loans, as calculated based on a standard repayment plan with a 10-year
repayment period, exceeds 10 percent of the difference between the
borrower's AGI and 150 percent of the annual poverty guideline amount
for the borrower's State and family size.
For married borrowers who file a joint Federal tax return,
the determination of a borrower's partial financial hardship status
would be based on the combined income of both spouses and, if the
spouse also has eligible loans, the combined eligible loan debt of both
individuals. For a married borrower who files an individual Federal tax
return, only the borrower's income and loan debt would be considered.
The ICR-A plan will be available to any borrower who is
repaying a non-defaulted Direct Loan, except for a parent Direct PLUS
loan or a Direct Consolidation loan that repaid a parent Direct or FFEL
PLUS loan. As with IBR, parent Direct PLUS Loans and Direct
Consolidation Loans that repaid parent Direct PLUS Loans or parent
Federal PLUS Loans would not be eligible for repayment under the ICR-A
plan.
Unpaid accrued interest would be capitalized only if a
borrower repaying under the ICR-A plan is determined to no longer have
a partial financial hardship, or if the borrower chooses to leave the
ICR-A plan.
For a borrower whose scheduled payment under the ICR-A
plan is less than the amount of interest that accrues each month, the
Secretary would pay the remaining interest for a period of three
consecutive years from the date the borrower begins repayment under the
ICR-A plan, excluding periods of economic hardship deferment.
A Direct Loan borrower who is not a parent Direct PLUS borrower
will continue to be able to select the ICR-B plan as one of the
available repayment plans. These proposed regulations also incorporate
the proposed IBR regulations regarding the treatment of married
borrowers and borrowers who fail to provide required documentation of
income into the current ICR/ICR-B regulations.
Income Based Repayment
The proposed regulations incorporate statutory changes to the IBR
plan that were included in the SAFRA Act and add new provisions related
to notification of income documentation requirements, repayment options
after leaving the IBR plan, and the IBR loan forgiveness process.
SAFRA changes:
Proposed Sec. 685.221(a)(4) would reflect the statutory definition
of ``new borrower'' for purposes of the changes to the IBR program as
an individual who has no outstanding balance on a Direct Loan or a FFEL
program loan on July 1, 2014, or who has no outstanding balance on such
a loan on the date he or she obtains a loan after July 1, 2014.
The proposed regulations would revise the definition of ``partial
financial hardship'' in Sec. 685.221(a)(5) to reflect the statutory
provision and state that for new borrowers after July 1, 2014, a
borrower is considered to have a partial financial hardship if the
annual amount due on all of the borrower's eligible Direct Loan and
FFEL Program loans, as calculated based on a standard repayment plan
with a 10-year repayment period, exceeds 10 percent of the difference
between the borrower's AGI and 150 percent of the annual poverty
guideline amount for the borrower's family size. The proposed
regulations would revise Sec. 685.221(b)(1) to provide that for a new
borrower after July 1, 2014, the maximum IBR monthly payment amount
during periods of partial financial hardship may not exceed 10 percent
of the amount by which the borrower's AGI exceeds 150 percent of the
poverty guideline amount for the borrower's family size, divided by 12.
Finally, the proposed regulations would revise Sec. 685.221(f) to
provide that a new borrower who has participated in the IBR plan
qualifies for loan forgiveness after 20 years of qualifying payments
and periods of economic hardship deferment.
Provisions that affect all IBR participants:
The proposed IBR regulations would also:
Revise the partial financial hardship (PFH) determination
process and modify notification, income documentation requirements,
rights and responsibilities of borrowers who have been found qualified
for IBR.
Improve notifications requirements for borrowers who are
eligible or approaching eligibility for loan forgiveness.
Revise payment requirements for borrowers who leave IBR. A
borrower who leaves the IBR plan and is placed on the standard
repayment plan may change to a different repayment plan after making
one monthly payment under the standard repayment plan. Under the
proposed regulations, the single payment made under the standard
repayment plan could include a smaller payment amount paid under a
reduced payment forbearance agreement with the loan holder or the
Secretary.
Total and Permanent Disability Discharge
The proposed regulations will revise Perkins and FFEL regulations
to provide for direct application to the Department for total and
permanent disability discharges. They will modify regulations in the
Perkins, FFEL, and Direct Loan program to provide more detailed
information to borrowers in the letters explaining decisions to deny
discharge applications and the proposed regulations would modify the
Perkins, FFEL, and Direct Loan regulations to specify that the
Department will collect income documentation from borrowers during the
post-discharge monitoring period on an OMB-approved form.
The proposed total and permanent disability regulations would:
Revise certain provisions to specify that a borrower's
representative may be involved in any part of the total and permanent
disability total and permanent disability process and must receive all
notifications sent to the borrower.
Extend the loan suspension window to 120 days from 60 days
after a borrower has notified the loan holder(s) of his or her intent
to apply for a discharge.
Extend the deadline to submit an application for total and
permanent
[[Page 42091]]
disability to 90 days after the date of the physician's certification
that a borrower has a total and permanent disability.
Revise the total and permanent disability discharge
application process so that a borrower applies for total and permanent
disability directly to the Department and that the Department directly
notifies the borrower's Perkins and FFEL lenders upon approval of the
application for total and permanent disability discharge.
Revise provisions related to a borrower's responsibilities
to report income annually after a discharge has been granted and
specify that the Department will create an OMB approved form for
reporting earnings during the monitoring period.
Revise provisions to require that payments made by the
borrower after a disability discharge has been granted are returned to
the borrower.
Revise the application process by streamlining the
approval process where the borrower's documentation is for applications
from the Department of Veterans Affairs to ensure consistency.
Update the regulations governing the actions of FFEL
lender and guaranty agencies in the disability discharge process to
reflect the new single application process.
Propose regulations to specify that if the borrower
receives a disbursement of a new title IV loan or receives a new TEACH
Grant made on or after the date the physician certified the borrower's
discharge application and before the date the Secretary grants a total
and permanent disability discharge, the Secretary will deny the
borrower disability discharge application and resume collection on the
borrower's loans.
Revise provisions to require that the loans of a borrower
who is denied a total and permanent disability discharge are reinstated
as if the total and permanent disability application was never
submitted.
Significant Proposed Regulations
We group major issues according to subject, with appropriate
sections of the proposed regulations referenced in parentheses. We
discuss other substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.
Total and Permanent Disability Discharge (34 CFR 674.61, 682.402, and
685.213)
Background: After receiving significant public criticism in
February 2011 that the Department's total and permanent disability
discharge process lacked transparency and was unduly burdensome and
costly for borrowers, the Department undertook a comprehensive review
of the process. Before initiating this review, the Department had
already begun making improvements such as: Streamlining the review
process to ensure that the physician's certification received primary
consideration in discharge decisions, performing outreach to borrowers
to ensure that supplemental information from physicians is received
timely, and improving information flow to help borrowers understand the
process. We made other improvements when the Department designated a
single contractor to manage the total and permanent disability
discharge process in 2012, including the creation of a new Web site
through which borrowers can track the status of their applications,
clearer correspondence with borrowers, and borrower notifications at
regular milestones as the application process progresses.
As a result of the comprehensive review and ongoing efforts to
identify procedural deficiencies, the Department also committed to
considering changes to the regulations governing the total and
permanent disability discharge process. In the Federal Register notice
published on October 28, 2011 (76 FR 66880), announcing our intent to
establish a negotiated rulemaking committee on the Federal student loan
programs, we included three topics for discussion related to loan
discharges based on total and permanent disability:
Establishing a single total and permanent disability
application process;
Improvements to borrower notification of denial; and
Improvements in post-discharge monitoring of employment
earnings.
These proposed regulations would revise Sec. Sec. 674.61,
682.402(c), and 685.213 to require Perkins Loan and FFEL borrowers to
apply directly to the Department for a total and permanent disability
discharge and to provide increased transparency in the notifications a
Perkins Loan, FFEL, and Direct Loan borrower receives when an
application for discharge is denied. Finally, after discussions with
the non-Federal negotiators, the Department committed to the
development of a new Federal form that would assist borrowers in
providing the Department with documentation of the borrower's annual
earnings from employment during the three-year post-discharge
monitoring period. The sections that follow describe in more detail
these changes and other clarifying changes made by the Loans Committee
to improve the total and permanent disability process.
Use of Terms (34 CFR 674.61(b)(1), 682.402(c)(1), and 685.213(a)(4))
Statute: Section 437(a)(1) of the HEA, which is applicable to the
Direct Loan Program under section 455(a)(1) of the HEA, and section
464(c)(1)(F) of the HEA provide for a discharge of a borrower's FFEL,
Perkins Loan, or Direct Loan program loan if the borrower becomes
totally and permanently disabled as determined in accordance with the
Secretary's regulations, or if the borrower is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death
or has lasted, or can be expected to last, for a continuous period of
not less than 60 months.
Current Regulations: Section 682.402(c)(2) of the FFEL program
regulations authorize a borrower's representative to submit a total and
permanent disability discharge application on behalf of a borrower.
Sections 674.61(b)(6), 682.402(c)(6), and 685.213(b)(5) of the Perkins
Loan, FFEL, and Direct Loan program regulations, respectively, provide
that the borrower's representative may assume the borrower's
responsibilities to provide notifications to the Secretary about
address changes and annual earnings after the borrower has received a
discharge based on total and permanent disability. However, current
regulations do not define the term ``borrower's representative.''
Section 682.402(c) of the FFEL program regulations use the terms
``lender'' and ``guaranty agency,'' as those terms are defined in
682.200(b).
Proposed Regulations: The proposed regulations would add new
Sec. Sec. 674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), and 685.213(a)(4) to
the Perkins Loan, FFEL, and Direct Loan program regulations and specify
that a ``borrower's representative'' or a ``veteran's representative''
is any individual, including a member of the borrower's or veteran's
family or an attorney, authorized to act on behalf of the borrower or
the veteran with respect to the borrower's or veteran's application for
a total and permanent disability discharge. Under the proposed
regulations, references to a ``borrower'' or a ``veteran'' in the total
and permanent disability discharge regulations would include a
borrower's representative or a veteran's representative. The proposed
regulations would clarify that a
[[Page 42092]]
representative may act on behalf of the borrower to apply for a
discharge, provide notifications or information to the Secretary in
connection with a discharge application, and to receive notifications
from the Secretary.
The proposed regulations would add a new Sec. 682.402(c)(1)(iv)(B)
to the FFEL regulations to clarify that for purposes of the FFEL total
and permanent disability discharge regulations, the term ``lender''
would include a guaranty agency that holds a borrower's FFEL loan at
the time the borrower applies for a total and permanent disability
discharge. This proposed change would reflect current practice.
Currently, if the guaranty agency is the loan holder at the time the
borrower requests a total and permanent disability discharge, the
guaranty agency carries out the responsibilities of a FFEL lender with
regard to the borrower's discharge request (except for claim filing
requirements).
The proposed regulations would add a new Sec. 682.402(c)(1)(iv)(C)
to the FFEL regulations to clarify that references in the total and
permanent disability discharge regulations to ``the applicable guaranty
agency'' refer to the guaranty agency that guaranteed the loan.
Reasons: The current regulations specifically allow a borrower's
representative to submit a total and permanent disability discharge
application on behalf of the borrower only in the FFEL program. While
discussing the role of the borrower's representative in helping a
borrower apply for discharge of a FFEL loan based on a total and
permanent disability, a non-Federal negotiator requested that the
regulations be amended to clarify that a borrower's representative may
represent the borrower throughout the process, not just during the
initial application stage. Currently, as a matter of practice, the
Department allows representatives to represent borrowers throughout the
total and permanent disability discharge process in all of the title IV
loan programs. However, a non-Federal negotiator argued that the
practice is not consistently followed by loan servicers and others
participating in the title IV loan programs and should be formalized by
including it in the regulations. The non-Federal negotiator was
particularly concerned that borrowers' representatives do not always
receive the notifications that the borrower receives. The non-Federal
negotiator requested that the regulations be amended to specify that
both the borrower and the borrower's representative (if any) receive
notices.
The Department agreed and, for consistency, added a paragraph to
the proposed regulations for all of the title IV student loan programs
stating that the term ``borrower'' includes a borrower's
representative, if applicable. Under the proposed regulations any
notice sent to a borrower must also be sent to the borrower's
representative if the borrower has one. In addition, both the borrower
and the borrower's representative may provide notifications and
information in connection with the borrower's total and permanent
disability discharge.
The Department also agreed to develop a new release form that the
borrower can use to designate a representative to act on behalf of the
borrower with respect to the borrower's request for a disability
discharge.
The non-Federal negotiator also requested that the Department add
language to the proposed regulations specifying that a borrower's
representative could be an attorney. The Department agreed and added
language to the Perkins Loan, FFEL, and Direct Loan program proposed
regulations providing that an attorney could be a borrower's
representative.
Other non-Federal negotiators requested that the proposed
regulations clarify the role of a guaranty agency that holds a
borrower's FFEL loan at the time the borrower applies for a total and
permanent disability discharge. Under current practice, the guaranty
agency carries out the functions of a FFEL lender with regard to the
borrower's discharge request. The Department proposes to reflect this
practice by adding a provision to the regulations specifying that the
term ``lender,'' as used in the FFEL program disability discharge
regulations, means a guaranty agency if the guaranty agency holds the
loan at the time the borrower applies for a total and permanent
disability discharge.
The current total and permanent disability discharge regulations do
not specifically address borrowers with FFEL program loans held by more
than one lender and possibly guaranteed by more than one guaranty
agency. The proposed regulations, as discussed in the next section,
would specifically address how discharge applications from these
borrowers will be handled. Therefore, the proposed regulations use the
term ``the applicable guaranty agency.'' Some non-Federal negotiators
recommended that the proposed regulations specify that the term
``applicable guaranty agency'' means the guaranty agency that
guaranteed the FFEL loan for which the borrower has requested a
discharge. The Department agreed that this change would improve the
clarity of the proposed regulations.
Total and Permanent Disability Discharge Application Process (34 CFR
674.61(b)(2), 682.402(c)(2), and 685.213(b))
Statute: The HEA does not specify the application process for a
borrower applying for a total and permanent disability discharge.
Current Regulations: Currently, a borrower who has title IV loans
held by two or more lenders must apply separately to each lender for a
total and permanent disability discharge. The borrower must provide a
total and permanent disability discharge application certified by a
physician to each lender that holds title IV loans owed by the
borrower. After the application is received, the title IV lender
suspends collection activity on the borrower's Perkins Loan, FFEL, or
Direct Loan program loans, in accordance with Sec. Sec.
674.61(b)(2)(iv), 682.402(c)(7)(i), or 685.213(b)(1). Each loan holder
processes the disability discharge application separately.
Under Sec. 674.61(b)(2)(iv)(A) of the Perkins Loan program
regulations, the institution that awarded the Perkins Loan reviews the
borrower's disability discharge application. If the institution
determines that the application supports the conclusion that the
borrower is totally and permanently disabled, the institution assigns
the loan to the Secretary.
Under Sec. 682.402(c)(7)(ii) of the FFEL regulations, the FFEL
program lender reviews the borrower's disability discharge application.
If the lender determines that the application supports the conclusion
that the borrower is totally and permanently disabled, the lender files
a disability discharge claim with the guaranty agency. The guaranty
agency reviews the application and, if it concurs with the lender's
determination, approves the discharge claim in accordance with Sec.
682.402(c)(7)(iv). After approving the claim, the guaranty agency
assigns the loan to the Secretary in accordance with Sec.
682.402(c)(7)(vi)(A).
Under Sec. 685.213(b)(1) of the Direct Loan regulations, the
borrower applies directly to the Secretary for a total and permanent
disability discharge.
Under Sec. Sec. 674.61(b)(3), 682.402(c)(3), and 685.213(b)(2),
the Secretary makes the final determination of eligibility for a total
and permanent disability discharge in the Perkins Loan, FFEL, and
Direct Loan Programs.
Proposed Regulations: The proposed regulations would revise
Sec. Sec. 674.61(b)(2) and 682.402(c)(2) of the Perkins Loan and FFEL
program regulations to have borrowers submit applications for total
[[Page 42093]]
and permanent disability discharges directly to the Secretary. In the
Direct Loan Program, borrowers would continue to submit applications
directly to the Secretary.
Under the proposed single application process for total and
permanent disability discharges, if a borrower notifies a Perkins loan
school or a FFEL program lender that holds his or her loan and claims
to be totally and permanently disabled, the school or lender would
direct the borrower to notify the Secretary of the borrower's intent to
apply for a discharge and would provide the borrower with the
information necessary to do so.
Under proposed Sec. Sec. 674.61(b)(2)(ii) and 682.402(c)(2)(ii),
after a Perkins Loan or FFEL borrower notifies the Secretary of his or
her intent to apply for a total and permanent disability discharge, the
Secretary would--
Provide the borrower with information needed to apply for
the discharge;
Identify all title IV loans owed by the borrower and
notify the lenders of those loans of the borrower's intent to apply for
the discharge;
Direct the lenders to suspend collection efforts on those
loans for up to 120 days; and
Inform the borrower that collection will resume on the
borrower's title IV loans if the borrower does not submit a total and
permanent disability discharge application within 120 days.
The Secretary would carry out the same actions for Direct Loan
borrowers who notify the Secretary that the borrower claims to be
totally and permanently disabled under proposed Sec. 685.213(b)(1).
Under proposed Sec. Sec. 674.61(b)(2)(iii) and 682.402(c)(2)(iii)
of the Perkins Loan program and FFEL program regulations, Perkins
schools and FFEL lenders will resume collection on the borrower's loans
if the borrower does not submit the total and permanent disability
discharge application within 120 days. The Perkins loan school or FFEL
lender would be deemed to have exercised forbearance during the
suspension period. In the FFEL program, the lender could capitalize
interest that accrued during the suspension period. Under proposed
Sec. 682.402(c)(2)(iii), a guaranty agency, even if it is acting as a
lender for purposes of a total and permanent disability discharge
request, would not be permitted to capitalize accrued interest.
Under proposed Sec. Sec. 674.61(b)(2)(v) through (b)(2)(viii),
682.402(c)(2)(iv) through (c)(2)(viii), and 685.213(b)(3), a Perkins
Loan, FFEL, or Direct Loan borrower must submit the total and permanent
disability discharge application to the Secretary. The application must
include a certification by a physician who is a doctor of medicine or
osteopathy legally authorized to practice in a State, affirming that
the borrower is totally and permanently disabled as described in the
regulations. The borrower must submit the disability discharge
application to the Secretary within 90 days of the date the physician
certified the application.
Generally, the 90-day period for submitting the total and permanent
disability discharge application would overlap with the 120-day
suspension period referenced earlier in this section. The 120-day
suspension period would begin on the date the Secretary notifies the
borrower's title IV lenders of the borrower's intent to apply for a
total and permanent disability discharge. The 90-day period would begin
on the date the physician certifies the total and permanent disability
application.
After receiving the total and permanent disability discharge
application, the Secretary notifies the borrower's title IV loan
holders that the Secretary has received the application. This
notification would direct the borrower's loan holders either to suspend
collection activity or to maintain the suspension of collection
activity on the borrower's title IV loans.
If the application is incomplete, the Secretary requests the
missing information from the borrower or the physician who certified
the application. An application is incomplete if information requested
on the application--such as a borrower's signature, a physician's
signature, or a physician's license number--is not provided.
Under proposed Sec. Sec. 674.61(b)(2)(ix) and 682.402(c)(2)(ix)
after receiving the discharge application, the Secretary would send a
notification to the borrower that would--
State that the application will be reviewed by the
Secretary;
Inform the borrower of the suspension of collection
activity on the borrower's title IV loans while the Secretary reviews
the application; and
Explain the process for the Secretary's review.
The Secretary would send the same notification to Direct Loan
borrowers after receipt of the discharge application.
Reasons: Under the Department's proposed regulations, a borrower
would submit one total and permanent disability discharge application
directly to the Secretary and this would eliminate the need for
borrowers to submit separate discharge applications to each of their
loan holders.
The Department's proposal eliminates the requirement that each of a
borrower's loan holders (and guaranty agencies, in the FFEL program)
review the borrower's total and permanent disability discharge
application. The proposal eliminates redundant reviews of total and
permanent disability discharge applications and reduces administrative
burden on lenders and guaranty agencies in the title IV programs.
The Department believes that the streamlined total and permanent
disability discharge process would provide many benefits to borrowers.
The proposed regulations would--
Simplify the process for the borrower;
Establish a single point of contact provided to the
borrower in the instructions for submitting his or her application;
Reduce the length of time needed to process applications;
Provide more consistency in determinations;
Provide more uniformity in the communications sent to
borrowers throughout the discharge process; and
Ensure that all of a borrower's title IV loans that are
eligible for a total and permanent disability discharge are discharged
at the same time, reducing instances of ``straggler'' loans that the
borrower may forget to include when applying for a discharge.
The non-Federal negotiators supported the Department's goal to
simplify the application process for a total and permanent disability
discharge. However, the non-Federal negotiators raised some concerns
about the proposed single application process. The negotiated language
in these proposed regulations addresses the majority of these concerns.
Under the Department's initial proposal, the first title IV lender
that the borrower contacted would suspend collection activity on the
borrower's loans for up to 90 days. The Secretary would notify the
borrower's other title IV loan holders to suspend collection after the
borrower notified the Secretary of his or her intent to apply for a
total and permanent disability discharge. Non-Federal negotiators were
concerned that beginning the suspension of collection activity on
different dates would be confusing for borrowers. They were also
concerned that the 90-day suspension period would not be sufficient
time for a borrower to obtain the physician certification needed to
apply for the discharge. The negotiators
[[Page 42094]]
stated that it would be preferable for the suspension of collection
activity to last for up to 120 days and for it to begin on the same
date for all of the borrower's title IV loans. The non-Federal
negotiators recommended that the suspension of collection activity not
begin on any of the borrower's title IV loans until after the borrower
contacted the Secretary. The Department agreed and modified the
proposed regulations accordingly.
Some non-Federal negotiators recommended that the suspension of
collection activity also include a suspension of payments collected
from borrowers through administrative wage garnishment (AWG) and the
Treasury Offset Program (TOP). The Department did not agree. Borrowers
applying for total and permanent disability discharges are, by
definition, unable to engage in substantial gainful activity.
Therefore, AWG should not be an issue for these borrowers. With regard
to TOP, the Department reiterated its current policy on stopping TOP
offsets. The submission of a total and permanent disability discharge
application does not, in and of itself, demonstrate that a borrower is
eligible for the discharge. Given the administrative effort and timing
issues associated with stopping TOP, it may not be in the best
interests of the taxpayers or the borrower to suspend TOP based solely
on the filing of the discharge application. If a borrower's loan
account has been certified for TOP, the Secretary or a guaranty agency
is not required to stop TOP offsets while the borrower is preparing to
submit the total and permanent disability discharge application or
during its review. The Secretary or guaranty agency may, however, stop
or reduce TOP offsets during this period if it believes such action is
warranted in the borrower's particular circumstances.
If a determination is made that the borrower is eligible for a
total and permanent disability discharge, the Secretary or guaranty
agency must promptly inactivate TOP offsets on the account. After the
borrower's loan is discharged, all payments on the loan received after
the date of the physician's certification, including payments obtained
through a TOP offset, are refunded to the borrower.
The proposed single application process would be consistent with
the Department's current TOP practices. If the borrower's account is
not certified in TOP at the time the borrower contacts the Secretary to
request a total and permanent disability discharge, the Secretary or
guaranty agency would not take steps to initiate TOP during the
suspension of collection activity under proposed Sec. Sec.
674.61(b)(2)(ii)(C), 682.402(c)(2)(ii)(C), and 685.213(b)(1). However,
if the account is already certified in TOP at the time the borrower
contacts the Department, neither the Department nor the guaranty agency
would be required to stop TOP until the Department determines that the
borrower is eligible for a total and permanent disability discharge.
Non-Federal negotiators representing guaranty agencies expressed
concerns that the proposed changes would limit the role of guaranty
agencies in the total and permanent disability discharge process. Under
the new process, the guaranty agencies would be notified of a
borrower's eligibility for a total and permanent disability discharge
but would not receive copies of the borrower's applications or of any
accompanying medical documentation. These non-Federal negotiators
stated that this lack of information would hinder the agencies' ability
to assist borrowers through the discharge process.
The Department declined to modify the proposed regulations to
require that guaranty agencies receive copies of the total and
permanent disability discharge applications. Under the proposed
regulations, guaranty agencies and lenders would not conduct medical
reviews of disability discharge applications. Therefore, there is no
need for lenders or agencies to receive the applications. The
Department believes that a requirement that disability discharge
applications be provided to guaranty agencies would be contrary to the
goal of streamlining the disability discharge application process. In
addition, the Department notes that nothing prevents a borrower from
voluntarily providing this documentation to a guaranty agency.
Secretary's Review of Total and Permanent Disability Discharge
Applications (34 CFR 674.61(b)(3), 682.402(c)(3), and 685.213(b)(2))
Statute: The HEA does not specify the procedures for the
Secretary's review of total and permanent disability discharge
applications.
Current Regulations: If the Secretary determines that a title IV
borrower qualifies for a total and permanent disability discharge, the
Secretary discharges the loan and, in accordance with Sec. Sec.
674.61(b)(3)(i), 682.402(c)(3)(ii), and 685.213(b)(2)(ii), the
Secretary notifies the borrower that the Secretary has approved the
total and permanent disability discharge request. The notification
explains to the borrower the terms and conditions under which the
Secretary will reinstate the discharged loan.
If the Secretary does not approve the total and permanent
disability discharge request, the Secretary notifies the borrower that
it has denied the disability discharge application and that collection
will resume on the borrower's loan, in accordance with Sec. Sec.
674.61(b)(3)(ii), 682.402(c)(3)(iii), and 685.213(b)(2)(iii).
Proposed Regulations: Under proposed Sec. Sec. 674.61(b)(3)(iii)
and 682.402(c)(3)(iii), if the Secretary determines that the borrower
qualifies for a total and permanent disability discharge, the Secretary
would notify the borrower's Perkins and FFEL lenders that the Secretary
approved the application and would provide the date that the physician
certified the total and permanent disability discharge application.
For Perkins Loan borrowers, the Secretary would direct the
institution to assign the borrower's Perkins Loans to the Department.
Proposed Sec. 674.61(b)(3)(iv) would require the institution to assign
the Perkins Loan to the Secretary within 45 days of receiving the
notification.
For FFEL borrowers, the Secretary would direct the FFEL lender to
submit a disability claim to the applicable guaranty agency.
If the Secretary determines that the borrower does not qualify for
a total and permanent disability discharge, the Secretary notifies the
borrower and the lender that the Secretary denied the total and
permanent disability discharge application under proposed Sec. Sec.
674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv). The
notification would include--
The reason or reasons for the denial;
A statement that the loan is due and payable to the lender
under the terms of the promissory note and that the loan will return to
the status that would have existed had the total and permanent
disability discharge application not been received;
A statement that the lender will notify the borrower of
the date the borrower must resume making payments on the loan or, in
the case of a Direct Loan, the date that the borrower must resume
making payments on the Direct Loan;
An explanation that the borrower is not required to submit
a new total and permanent disability discharge application if the
borrower requests that the Secretary re-evaluate the application for
discharge by providing, within 12 months of the date of the
notification,
[[Page 42095]]
additional information that supports the borrower's eligibility for
discharge; and
An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12
months of the date of the notification, the borrower must submit a new
total and permanent disability discharge application to the Secretary
if the borrower wishes the Secretary to re-evaluate the borrower's
eligibility.
Under proposed Sec. Sec. 674.61(b)(3)(vii), 682.402(c)(3)(vi), and
685.213(b)(4)(v), if the borrower requests re-evaluation of his or her
application or submits a new disability discharge application, the
request must include new information regarding the borrower's disabling
condition that was not available at the time the Secretary reviewed the
borrower's initial application for a total and permanent disability
discharge.
Reasons: The Department is proposing to change the regulations to
reflect its current practice of providing detailed information in the
notifications that are sent to borrowers about their disability
discharge applications. The proposed regulations are based on letters
that are currently available for use for total and permanent disability
discharges but that are not used consistently. The Department believes
that describing the content of these letters would ensure that the
information provided in the notifications is consistent, and would
provide more transparency to borrowers regarding the reasons for the
denial of their application, as well as information on the options the
borrower has to request that the disability discharge request be re-
evaluated.
Treatment of Disbursements of Title IV Loans and Receipt of Title IV
Loans After the Physician Certification Date (34 CFR 674.61(b)(4),
674.61(b)(5), 682.402(c)(4), 682.402(c)(5), 685.213(b)(3), and
685.213(b)(4))
Statute: Sections 437(a)(1), which is applicable to the Direct Loan
program under section 455(a)(1) of the HEA, and section 464(k) of the
HEA authorize the Secretary to develop safeguards to prevent fraud and
abuse in the discharge of title IV loans due to total and permanent
disability.
Current Regulations: Under Sec. 674.61(b)(4), 682.402(c)(4), or
685.213(b)(3) of the Perkins Loan, FEEL, and Direct Loan program
regulations, respectively, if a borrower received a title IV loan or a
TEACH Grant prior to the date of the physician's certification of the
borrower's total and permanent disability discharge application and a
disbursement of that loan or grant occurs while the borrower's
discharge request is being processed, the processing of the discharge
request is suspended, until the borrower returns the full amount of the
disbursement.
Proposed Regulations: The proposed regulations do not change the
current requirements for disbursements of loans made prior to the date
of the physician's certification. The proposed regulations would add
new Sec. Sec. 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) to
specify that if the borrower receives a disbursement of a new title IV
loan or receives a new TEACH Grant made on or after the date the
physician certified the borrower's discharge application and before the
date the Secretary grants a total and permanent disability discharge,
the Secretary will deny the borrower's disability discharge application
and collection will resume on the borrower's loans.
Reasons: The current total and permanent disability discharge
regulations address late disbursements of loans received prior to a
physician's certification of the borrower's disability discharge
application and after a discharge has been granted. However, the
current regulations do not address a situation in which a borrower
receives a disbursement of a new title IV loan or a new TEACH Grant
made on or after the date the physician certified the application, but
before the date the Secretary discharges the loan. The Department is
proposing to provide in the regulations that a borrower is not eligible
for a discharge if the borrower receives a new title IV loan or TEACH
Grant while the Department is reviewing his or her total and permanent
disability discharge application. When a borrower takes out a title IV
loan or receives a TEACH Grant, the borrower makes a commitment either
to repay the loan or to teach for four years. If a borrower actively
seeks a new title IV loan or TEACH Grant shortly after the borrower is
certified as totally and permanently disabled by a physician, it raises
the question of whether the borrower actually intends to repay the loan
or to teach. The proposed regulations would preclude a borrower from
receiving a title IV loan or TEACH Grant, only to have the loan or
teaching obligation discharged a short time later.
The non-Federal negotiators agreed with this proposed change.
However, there was some discussion on how to track receipt of a new
title IV loan or TEACH Grant by a borrower. The Department proposed
using the disbursement date of a new title IV loan or TEACH Grant to
determine receipt and the non-Federal negotiators agreed.
Reinstatement of Loans and Borrower Responsibilities After Discharge
(34 CFR 674.61(b)(6), 674.61(b)(7), 682.402(c)(6), 682.402(c)(7),
685.213(b)(7), and 685.213(b)(8))
Statute: Sections 437(a)(1) of the HEA, which is applicable to the
Direct Loan program under section 455(a)(1) of the HEA, and section
464(k) of the HEA authorize the Secretary to promulgate regulations to
reinstate a borrower's obligation to repay a FFEL, Perkins Loan, or
Direct Loan program loan that was discharged due to a disability if,
after the discharge, the borrower receives another title IV loan or has
earned income in excess of the poverty line, or under other
circumstances that the Secretary determines to be necessary.
Current Regulations: Sections 674.61(b)(5), 682.402(c)(5), and
685.213(b)(4) of the current regulations specify that a Perkins Loan,
FFEL, or Direct Loan program loan that has been discharged due to a
total and permanent disability will be reinstated if, within three
years of the date of the discharge, the borrower--
Has annual earnings from employment that exceed 100
percent of the poverty guideline for a family of two;
Receives a new TEACH Grant or a new title IV loan, except
for a Consolidation Loan; or
Fails to return any disbursement the borrower receives
after the discharge date of a title IV loan or TEACH Grant received
prior to the discharge date.
Under Sec. Sec. 674.61(b)(6), 682.402(c)(6), and 685.213(b)(5),
during the three-year period after the discharge date, a Perkins Loan,
FFEL, or Direct Loan borrower must--
Notify the Secretary of any changes to the borrower's
address or phone number;
Notify the Secretary if the borrower's annual earnings
exceed 100 percent of the poverty line for a family of two; and
Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment.
Current regulations do not specify a format or process for
providing documentation of annual earnings to the Secretary.
Proposed Regulations: The proposed regulations would not change the
conditions for reinstating a loan that has been discharged due to a
total and permanent disability. However, we are proposing to modify
Sec. Sec. 674.61(b)(6)(ii)(B), 682.402(c)(6)(ii)(B), and
685.213(b)(7)(ii)(B) to provide that, if a
[[Page 42096]]
borrower's Perkins Loan, FFEL, or Direct Loan program loan is
reinstated, it returns to the status it would have had if the total and
permanent disability discharge application had not been received.
Current regulations do not address the status of a loan that has been
reinstated.
The proposed regulations would make one change to the regulations
describing the borrower's responsibilities after the borrower has
received a total and permanent disability discharge. Under proposed
Sec. Sec. 674.61(b)(7)(iii), 682.402(c)(7)(iii), and
685.213(b)(8)(iii), a Perkins Loan, FFEL, or Direct Loan borrower would
be required to provide the Secretary, on request, with documentation of
annual earnings from employment on a form provided by the Secretary.
Reasons: Borrowers whose loans have been discharged based on a
disability must provide documentation of their income to the Secretary
for three years after the date of the discharge. It is the Department's
experience that borrowers who are totally and permanently disabled and
who have little or no income are often unsure how to document their
income.
During the negotiations, the Department initially proposed shifting
the three-year period during which the borrower would have to provide
income information to three calendar years (January 1 to December 31)
after the discharge was granted. The Department proposed this approach
because it would allow borrowers to meet the income documentation
requirement by submitting tax returns for each calendar year after the
discharge.
Non-Federal negotiators objected to this proposal. They noted that
it would stretch out the post-discharge review period for borrowers--in
some cases to almost four years instead of three. The non-Federal
negotiators also pointed out that low-income individuals may not be
required to file tax returns, so the proposed solution would not
resolve the problem for the many borrowers who qualify for a discharge
but are not required to file tax returns.
The Department responded by proposing to revise the regulations to
require that a borrower submit income information on a form provided by
the Secretary. The Department intends to develop a form that will be
available by the time these regulations become effective. Borrowers
will be required to submit the form to the Secretary to document their
annual earnings. The form will require the borrower to certify the
borrower's annual earnings from employment and will require the
borrower to submit documentation to support the earnings information,
if the borrower has such documentation. The documentation may include
income tax returns, documentation of eligibility for Social Security
disability benefits, or other documentation that supports the amount
certified by the borrower.
The proposed regulations do not specify the content of the form,
but the form will be made available for public comment before it is
approved for use.
Return of Payments After a Total and Permanent Disability Assignment
(34 CFR 674.61(b)(8), 682.402(c)(8), 682.402(r)(2), 682.402(r)(3), and
685.213(b)(4)(iii))
Statute: The HEA does not specify the treatment of payments
received on a title IV loan after the borrower has received a total and
permanent disability discharge on the loan.
Current Regulations: Sections 674.61(b)(7)(i) and 674.61(b)(7)(iii)
of the Perkins Loan program regulations require an institution that
receives a payment on a Perkins loan after it has assigned the loan to
the Secretary during the disability discharge process to forward the
payment to the Secretary. If the Secretary discharges the loan, the
Secretary returns to the sender any payments made after the date of the
physician's certification of the borrower's discharge application.
Section 682.402(c)(7)(vii) of the FFEL regulations requires a
lender to forward to the guaranty agency any payment received on a FFEL
loan after the lender receives a claim payment from the guaranty
agency.
Section 682.402(r)(2) of the FFEL regulations requires a guaranty
agency that receives a payment on a loan after it has assigned the loan
to the Secretary during the disability discharge process to forward the
payment to the Secretary. At the time the guaranty agency forwards the
payment to the Secretary, it must notify the borrower that there is no
need to continue to make payments on the loan. Under current Sec.
682.402(r)(3), the Secretary returns the payments to the borrower after
the Secretary makes a final determination to discharge the loan due to
a total and permanent disability.
Section 685.213(b)(2)(ii) of the Direct Loan program regulations
requires the Secretary, after discharging a Direct Loan, to return to
the sender any payments received after the date of the physician's
certification of the borrower's discharge application.
Proposed Regulations: Under proposed Sec. 674.61(b)(8), if an
institution receives a payment on a Perkins loan that has been assigned
to the Secretary based on the Secretary's determination of the
borrower's eligibility for a total and permanent disability discharge,
the institution returns the payment to the sender.
Under proposed Sec. 682.402(c)(8)(i)(C), after receiving a
disability discharge claim payment from the guaranty agency, the FFEL
lender must return to the sender any payments it receives after the
date the physician certified the borrower's loan discharge application
and any payments received after claim payment.
Under proposed Sec. 682.402(r)(2), a guaranty agency must return
to the sender any payments it receives on a FFEL loan that has been
assigned to the Secretary based on the Secretary's determination of the
borrower's eligibility for a total and permanent disability discharge.
Under proposed Sec. 682.402(r)(3), after the Secretary discharges
a FFEL loan, the Secretary returns to the sender any payments it
receives on the loan after the date the borrower became totally and
permanently disabled.
Under proposed Sec. 685.213(b)(4)(iii) of the Direct Loan program
regulations, after the Secretary discharges a Direct Loan, the
Secretary returns to the sender any payments received after the date of
the physician's certification of the borrower's discharge application.
Reasons: Under the proposed regulations, the assignment of a
Perkins loan or the filing of a disability claim on a FFEL loan would
not occur until after the Secretary has determined that the borrower
qualifies for a total and permanent disability discharge. Therefore,
there is no reason for payments received after those dates to be
forwarded to the guaranty agency or to the Secretary. The Department is
proposing to have the payments returned to the sender.
Total and Permanent Disability Discharge Application Process for
Applications Based on Documentation From the Department of Veterans
Affairs (34 CFR 674.61(c), 682.402(c)(9), and 685.213(c))
Statute: Sections 437(a)(2), which is applicable to the Direct Loan
program under section 455(a)(1) of the HEA, and section
464(c)(1)(F)(iv) of the HEA provide that a FFEL, Perkins Loan, or
Direct Loan borrower who has been determined by the Department of
Veterans Affairs (VA) to be unemployable due to a service-connected
disability and who provides documentation of that determination to the
Secretary is considered totally and permanently disabled for the
purpose of discharging the borrower's title IV loans. Section 437(a)(2)
further specifies that a
[[Page 42097]]
borrower who provides such documentation shall not be required to
present additional documentation for the purpose of determining
eligibility for a total and permanent disability discharge.
Current Regulations: Sections 674.61(c), 682.402(c)(8), and
685.213(c) of the Perkins Loan, FFEL, and Direct Loan program
regulations describe the process for a veteran who is applying for a
total and permanent disability discharge based on a determination by
the VA that the veteran is unemployable due to a service-connected
disability. The total and permanent disability discharge process based
on VA documentation is similar to the total and permanent disability
discharge process for non-veterans in the three loan programs, with a
few major exceptions.
Sections 674.61(c)(2)(ii), 682.402(c)(8)(i), and 685.213(c)(1) of
the current regulations require the veteran to submit to the Secretary
documentation from the VA demonstrating that the veteran is
unemployable due to a service-connected disability. This documentation
takes the place of the physician's certification of total and permanent
disability required of other borrowers.
The Perkins Loan and FFEL program regulations do not currently
require the institution or guaranty agency to assign the loan to the
Secretary if the institution or guaranty agency determines that the VA
documentation supports the veteran's eligibility for a discharge.
Sections 674.61(c)(2)(iii)(A) and 682.402(c)(8)(ii)(D) specify that the
institution or guaranty agency is only required to submit the total and
permanent disability discharge application and the VA documentation to
the Secretary.
The three-year post-discharge monitoring period that generally
applies to borrowers after the Secretary grants a total and permanent
disability discharge does not apply to loans discharged based on
documentation from the VA. The Secretary does not reinstate a loan that
has been discharged based on documentation from the VA.
Proposed Regulations: The total and permanent disability discharge
application process for veterans who rely on documentation from the VA
in proposed Sec. Sec. 674.61(c), 682.402(c)(9), and 685.213(c) matches
the proposed regulations for total and permanent disability discharge
applications for non-veterans. The exceptions in the current
regulations discussed above are retained in the proposed regulations.
Title IV loans discharged based on documentation from the VA are not
assigned to the Secretary, are not subject to the three-year post
discharge monitoring period, and are not reinstated.
In addition, under proposed Sec. Sec. 674.61(c)(3)(iv)(E),
682.402(c)(9)(xi)(E), and 685.213(c)(2)(ii)(E), the notification to a
veteran whose disability discharge request based on documentation from
the VA has been denied would include information on how the veteran may
apply for a total and permanent disability discharge under the regular
process for non-veterans, if the documentation from the VA indicates
that the veteran might qualify for a total and permanent disability
discharge under that standard.
Reasons: The Department believes that the disability application
process for veterans relying on a certification from the VA should be
similar to the regular disability discharge process. Maintaining
similar processes for both types of disability discharges will create
less administrative burden for participants in the title IV loan
programs and less confusion for borrowers. In addition, the Department
believes that veterans will benefit by applying the changes proposed
for the disability discharge process for non-veterans to the process
for disability discharges based on VA documentation. Therefore, the
Department is proposing to streamline the disability discharge process
for veterans in the same manner that we are proposing to streamline the
regular process.
FFEL Lender and Guaranty Agency Roles (34 CFR 682.402(c)(8),
682.402(g)(1), 682.402(g)(2), 682.402(h)(1), and 682.402(h)(3))
Statute: The HEA does not specify any particular roles for lenders
or guaranty agencies in the processing of total and permanent
disability discharges.
Current Regulations: Under Sec. 682.402(c)(7)(i) of the FFEL
regulations, if a borrower contacts a FFEL lender requesting a total
and permanent disability discharge of a loan, the lender continues
collection activity on the loan until it receives a disability
discharge application certified by a physician or a letter from a
physician asking for additional time to determine if the borrower is
totally and permanently disabled. In the former situation, the lender
suspends collection activity once it receives the application. In the
latter, if the lender does not receive the total and permanent
disability discharge application within 60 days of the physician's
letter, the lender resumes collection activity. The lender also resumes
collection activity on the loan if it receives the total and permanent
disability discharge application and determines that the borrower does
not qualify for a disability discharge. The lender may capitalize
interest that accrued during the suspension of collection activity in
accordance with Sec. 682.402(c)(7)(iii).
If the lender receives the disability discharge application and
determines that the application supports the conclusion that the
borrower is totally and permanently disabled, the lender submits a
disability claim to the guaranty agency, as specified in Sec.
682.402(c)(7)(ii). Sections 682.402(g)(2)(i) and 682.402(g)(1)(iv)
require the lender to submit the disability claim within 60 days of the
date the lender determines that the borrower is totally and permanently
disabled and to include a copy of the physician's certification of
total and permanent disability with the claim.
Section 682.402(h)(1)(i)(B) requires a guaranty agency to pay the
lender's claim within 90 days of the date it was filed, if the guaranty
agency agrees with the determination of the lender. Under Sec.
682.402(h)(3)(ii)(B), the amount payable on an approved disability
discharge claim includes unpaid interest that accrued on the loan
during the period the guaranty agency needed to review and approve the
claim, not to exceed 90 days.
Under Sec. 682.402(c)(7)(viii), the Secretary reimburses the
guaranty agency for the disability claim after the agency pays the
claim to the lender. Section 682.402(c)(7)(ix) requires the guaranty
agency to assign the loan to the Secretary after the guaranty agency
pays the disability claim.
Section 682.402(c)(7)(v) requires a guaranty agency to return the
disability claim to the lender if the guaranty agency does not agree
with the lender's determination that the borrower is totally and
permanently disabled. If the disability claim is returned by the
guaranty agency, the lender notifies the borrower that the application
has been denied.
Proposed Regulations: Proposed Sec. 682.402(c)(2)(ii)(C)
eliminates the option for a physician to submit a letter requesting
additional time to submit the total and permanent disability discharge
application. Under the proposed regulations, the Secretary would direct
all of the borrower's title IV lenders to suspend collection efforts
for up to 120 days after the borrower informs the Secretary that he or
she intends to apply for a total and permanent disability discharge.
[[Page 42098]]
Under proposed Sec. 682.402(g)(1)(iv), a FFEL lender would not
submit a copy of the total and permanent disability discharge
application with the disability discharge claim it files with the
guaranty agency. Instead, the FFEL lender would provide the guaranty
agency with the notification the lender received from the Secretary
directing the lender to submit the disability claim.
Under proposed Sec. 682.402(g)(2), a FFEL lender must file a
disability claim within 60 days of receiving the notice from the
Secretary directing the lender to file the claim. Under proposed Sec.
682.402(h)(3)(iii)(A), the amount of the claim payment by the guaranty
agency includes interest that accrued on the loan for up to 45 days
during which the guaranty agency processed the disability claim. Under
proposed Sec. 682.402(c)(8)(i)(D), the Secretary reimburses the
guaranty agency for the disability claim after the guaranty agency pays
the claim to the lender. Under proposed Sec. 682.402(c)(8)(i)(E), the
guaranty agency assigns the loan to the Secretary within 45 days of the
date the guaranty agency paid the disability claim and receives the
reimbursement payment from the Secretary.
Reasons: The Department is eliminating the option for a physician
to submit a letter requesting more time for the borrower to submit a
total and permanent disability discharge application because we believe
that requiring such a letter would be cumbersome under the new process.
The proposed regulations would provide a uniform period of suspension
of collection activity for all borrowers.
The regulations specify that a FFEL lender may capitalize interest
that accrues during the suspension period if the borrower does not
submit a total and permanent disability discharge request, or if the
request is denied. This provision is the same in the current
regulations.
The proposed reductions in FFEL claim filing periods are intended
to improve the timeliness with which a disability claim is processed in
the FFEL program. Since neither the FFEL lender nor the guaranty agency
would conduct medical reviews of the total and permanent disability
discharge applications under the proposed new process, the Department
believes that the timeframes for processing total and permanent
disability discharge requests can be shortened.
The proposed regulations would specify a timeframe for a guaranty
agency or Perkins school to assign a loan to the Secretary. The
Department believes that specifying a timeframe for assignments will
help to ensure that loans that qualify for a disability discharge are
assigned to the Secretary promptly so the Secretary may complete the
discharge.
Initially the Department proposed that guaranty agencies would be
required to assign a FFEL loan to the Secretary within 30 days of a
claim payment. Non-Federal negotiators representing guaranty agencies
indicated that their current practice is to assign loans after receipt
of the Federal reimbursement payment, not within a set number of days
after a claim payment. In response to their concerns, the Department
revised the proposed regulations to provide that a loan must be
assigned within 45 days after receipt of the Federal reimbursement
payment.
Income-Contingent Repayment Plans
Pay As You Earn Initiative (ICR-A Plan)
Statute: Section 455(d)(1)(D) of the HEA authorizes the Secretary
to offer an income-contingent repayment (ICR) 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. Section 455(e) of the HEA authorizes the Secretary to establish
ICR plan repayment schedules through regulations.
Current Regulations: Under current 34 CFR 685.209, the annual
amount payable by a borrower under the ICR plan may not exceed 20
percent of the borrower's discretionary income, and the maximum ICR
repayment period is 25 years. If a loan has not been repaid at the end
of the 25-year period, the unpaid portion of the loan is forgiven.
Proposed Regulations: In October 2011, President Obama announced
the Pay As You Earn repayment initiative to help student loan borrowers
reduce their monthly payments. The Pay As You Earn initiative reflected
in these proposed regulations would be available to borrowers who: (1)
did not have an outstanding loan under the Direct Loan or FFEL programs
as of October 1, 2007, or as of the date they received a new loan after
October 1, 2007; and (2) receive a disbursement of a Direct Subsidized
Loan, a Direct Unsubsidized Loan or a student Direct PLUS Loan on or
after October 1, 2011, or receive a Direct Consolidation Loan based on
an application received on or after October 1, 2011, unless the Direct
Consolidation Loan repays a Direct or FFEL loan that was outstanding as
of October 1, 2007. The Pay As You Earn initiative reflected in these
proposed regulations will cap a borrower's annual payment amount at 10
percent of the borrower's discretionary income and provide for
forgiveness of any remaining loan balance after 20 years of repayment.
These terms reflect changes to the separate income-based repayment
(IBR) plan that will go into effect for new borrowers on or after July
1, 2014. To offer this repayment relief to borrowers earlier, the
Secretary is using his authority to establish an ICR plan by
regulation. The proposed regulations also make other changes to the ICR
repayment plan to implement the Pay As You Earn initiative. The
Secretary is proposing to implement the Pay As You Earn initiative as a
new ``ICR-A'' plan in Sec. 685.209(a). However, the Secretary realizes
that for a small number of borrowers who would otherwise qualify for
the IBR plan or the proposed ICR-A plan, the current ICR repayment plan
may be more beneficial. Accordingly, the Secretary is proposing to
retain the current ICR repayment plan as the ``ICR-B plan,'' with
certain changes as discussed below, in new Sec. 685.209(b).
The proposed ICR-A plan would generally have the same terms and
conditions as the IBR plan that will be available to new borrowers on
or after July 1, 2014. The terms and conditions of the proposed ICR-A
plan include the following:
A borrower's maximum annual payment amount would be capped
at 10 percent of the difference between the borrower's AGI and 150
percent of the annual poverty guideline amount for the borrower's State
and family size.
Borrowers who repay under the ICR-A plan would qualify for
forgiveness of any remaining loan balance after 20 years of qualifying
payments and periods of economic hardship deferment.
To initially qualify and to continue to make income-
contingent payments under the plan, a borrower would be required to
have a partial financial hardship. A borrower would be considered to
have a partial financial hardship if the annual amount due on all of
the borrower's eligible Direct Loan and FFEL program loans, as
calculated based on a standard repayment plan with a 10-year repayment
period, exceeds 10 percent of the difference between the borrower's AGI
and 150 percent of the annual poverty guideline amount for the
borrower's State and family size.
For married borrowers who file a joint Federal tax return,
the determination of a borrower's partial financial hardship status
would be based on the combined income of both spouses and, if the
spouse also has eligible loans, the combined eligible loan debt of both
individuals. For a
[[Page 42099]]
married borrower who files an individual Federal tax return, only the
borrower's income and loan debt would be considered.
The ICR-A plan will be available to any borrower who is
repaying a non-defaulted Direct Loan, except for a parent Direct PLUS
loan or a Direct Consolidation loan that repaid a parent Direct or FFEL
PLUS loan. As with IBR, parent Direct PLUS Loans and Direct
Consolidation Loans that repaid parent Direct PLUS Loans or parent
Federal PLUS Loans would not be eligible for repayment under the ICR-A
plan.
The term ``eligible loan'' would be defined as including
any outstanding non-defaulted Direct Loan or FFEL program loan, except
for a parent Direct PLUS loan, a parent Federal PLUS Loan, or a Direct
Consolidation Loan or Federal Consolidation Loan that repaid a parent
Direct PLUS Loan or parent Federal PLUS loan. The term ``eligible
loan'' is used in connection with determining whether a borrower has,
or continues to have, a partial financial hardship and, for a borrower
who has eligible loans with more than one loan holder, to determine the
borrower's prorated monthly payment amount under the ICR-A plan.
Unpaid accrued interest would be capitalized only if a
borrower repaying under the ICR-A plan is determined to no longer have
a partial financial hardship, or if the borrower chooses to leave the
ICR-A plan.
For a borrower whose scheduled payment is less than the
amount of interest that accrues each month on a subsidized loan or on
the subsidized portion of a consolidation loan, the Secretary would not
charge the borrower the remaining interest for a period of three
consecutive years from the date the borrower begins repayment under the
ICR-A plan, excluding periods of economic hardship deferment.
The ICR-A plan would also include certain changes that we are
proposing to make to the IBR plan as discussed below under ``Income-
Based Repayment Plan.'' Other terms and conditions of the proposed ICR-
A plan are explained below.
Reasons: To support the Administration's goal of making it easier
for borrowers to repay their Federal student loans, the Secretary is
using his authority under section 455(d)(1)(D) of the HEA to implement
the Pay As You Earn initiative as a second type of ICR plan in the
Direct Loan Program.
Access to the ICR-A Plan
Statute: Under section 455(d)(1)(D) of the HEA, the ICR plan is
available to repay any Direct Loans except for Direct PLUS Loans made
to parent borrowers.
Current Regulations: Current regulations in Sec. 685.208(a)
provide that all Direct Loan borrowers except parent Direct PLUS Loan
borrowers may repay their loans under the ICR plan.
Proposed Regulations: The proposed regulations would amend the
provisions in Sec. 685.208(a) related to borrower eligibility for the
various Direct Loan repayment plans by adding a reference to the ICR-A
plan and by providing that any type of Direct Loan could be repaid
under the ICR-A plan except for a parent Direct PLUS Loan or a Direct
Consolidation Loan that repaid a parent Direct PLUS Loan or a parent
Federal PLUS Loan. In the regulations governing the ICR plan, proposed
Sec. 685.209(a) would provide that the ICR-A plan is available to
borrowers who meet both of the following criteria:
(1) Did not have an outstanding loan under the Direct Loan or FFEL
programs as of October 1, 2007, or as of the date they received a new
loan after October 1, 2007; and
(2) Receive a disbursement of a Direct Subsidized Loan, a Direct
Unsubsidized Loan or a student Direct PLUS Loan on or after October 1,
2011, or receive a Direct Consolidation Loan based on an application
received on or after October 1, 2011, unless that Direct Consolidation
Loan repays a Direct or FFEL loan that was outstanding as of October 1,
2007.
Reasons: The Department is proposing to make the ICR-A plan
available to new borrowers in fiscal year 2008 who receive a new loan
in fiscal year 2012 or later. Fiscal years 2008 and 2012 began on
October 1, 2007, and October 1, 2011, respectively. The proposed
definition of ``eligible new borrower'' in Sec. 685.209(a)(1)(iii) as
an individual who had no outstanding balance on a Direct Loan or FFEL
program loan as of October 1, 2007, or who had no outstanding balance
on such a loan on the date the borrower obtained a loan after October
1, 2007, is consistent with the manner in which eligibility for the
Direct Loan and FFEL teacher loan forgiveness programs is specified
under Sec. Sec. 685.217(a)(1) and 682.216(a)(1), respectively. To
ensure that new borrowers in fiscal year 2008 who are enrolled during
the 2011-2012 academic year can qualify for the ICR-A plan, the
proposed regulations would specify that receipt of a new loan in fiscal
year 2012 or later means receipt of any disbursement of a Direct
Subsidized Loan, a Direct Unsubsidized Loan, or a student Direct PLUS
Loan on or after October 1, 2011. This means, for example, that a new
borrower in 2008 who received the first disbursement of a 2011-2012
academic year loan in August or September 2011 (i.e., in fiscal year
2011) and who will graduate in the spring of 2012 would nonetheless be
eligible for the ICR-A plan if a subsequent disbursement of that loan
is made on or after October 1, 2011, in fiscal year 2012. The
Department believes that offering the ICR-A plan to this population
will provide a significant benefit to a group of student loan borrowers
who are among those most likely to face difficulty repaying their loans
under other repayment plans, while at the same time limiting additional
costs to taxpayers.
The proposed regulations would also allow a borrower to choose the
ICR-A plan if the borrower takes out a Direct Consolidation Loan on or
after October 1, 2011. The Department originally proposed that a
borrower could meet the requirement to receive a new loan in fiscal
year 2012 or later by receiving a Direct Consolidation Loan based on an
application received on or after October 1, 2011. In response to a
request for clarification from a non-federal negotiator, the Department
expanded the original proposal to clarify that an individual who
receives a Direct Consolidation Loan based on an application received
on or after October 1, 2011, is not eligible for the ICR-A plan if the
Direct Consolidation Loan repays a loan that would otherwise make the
borrower ineligible based on the requirement to be a new borrower as of
October 1, 2007. For example, a borrower could not qualify for the ICR-
A plan by obtaining a Direct Consolidation Loan (based on an
application received on or after October 1, 2011) that repays earlier
loans made to the borrower that were owed as of October 1, 2007.
However, a borrower who had no outstanding balance on a Direct Loan or
a FFEL program loan at the time the borrower obtained new loans after
October 1, 2007, could qualify for ICR-A if he or she receives a Direct
Consolidation Loan based on an application received on or after October
1, 2011, that repays the earlier loans made after October 1, 2007.
Interest Capitalization Under the ICR-A Plan
Statute: Section 455(e)(5) of the HEA authorizes the Secretary to
promulgate regulations limiting the amount of interest that may be
capitalized on loans repaid under the ICR plan and specifying the
timing of capitalization under the plan.
Current Regulations: Under Sec. 685.202(b)(4), generally the
Secretary capitalizes unpaid interest annually for borrowers repaying
under the ICR plan.
[[Page 42100]]
Current Sec. 685.209(c)(5) further provides that if a borrower's
monthly payment under the ICR plan is less than the accrued interest,
the unpaid interest is capitalized until the outstanding principal
amount is 10 percent greater than the original principal amount. After
the outstanding principal amount is 10 percent greater than the
original amount, interest continues to accrue but is not capitalized.
Proposed Regulations: Under proposed Sec. 685.209(a)(2)(iv)(A),
for borrowers repaying a Direct Loan under the ICR-A plan, unpaid
accrued interest would be capitalized, as under the IBR plan, when a
borrower is determined to no longer have a partial financial hardship
or when a borrower chooses to leave the ICR-A plan. However, proposed
Sec. 685.209(a)(2)(iv)(B) would limit the amount of interest that is
capitalized while a borrower is repaying under the ICR-A plan to 10
percent of the loan principal balance at the time the borrower entered
the ICR-A plan. For borrowers who remain on the ICR-A plan after the 10
percent limit has been reached, interest would continue to accrue but
would not be capitalized.
Reasons: Some of the non-Federal negotiators asked the Department
to consider a proposal to cap the amount of interest and fees that may
be charged to borrowers under both the ICR plan (including the proposed
ICR-A plan) and the IBR plan at 150 percent of the loan principal
amount. The negotiators suggested that this approach could be
implemented at no additional cost to the taxpayer because it would not
reduce the total amount paid by a borrower under the ICR or IBR plan
but would lower the total loan amount forgiven at the end of the ICR or
IBR repayment period. This would benefit borrowers by reducing the loan
amount that could potentially be treated as taxable income if a
borrower ultimately receives ICR or IBR loan forgiveness.
The Department considered this proposal but determined that the
Secretary does not have the authority under the HEA to stop charging
interest to borrowers under the ICR or IBR plans after the amount of
accrued interest has reached a certain percentage of the loan
principal.
Under the FFEL Program, lenders would have a contractual right to
payment of the interest that would otherwise accrue on a loan but which
would be capped prior to loan forgiveness under the proposal from the
non-Federal negotiators. This would involve making significant Federal
outlays to FFEL lenders that the Secretary does not have the legal
authority to make.
As an alternative, the Department proposed to include in the ICR-A
regulations a provision comparable to the current ICR provision that
limits the amount of interest that may be capitalized to 10 percent of
the original principal amount. Under the proposed regulations for the
ICR-A plan, unpaid accrued interest would be capitalized (as under the
IBR plan) when a borrower is determined to no longer have a partial
financial hardship or chooses to leave the ICR-A plan. However, the
amount of accrued interest that may be capitalized when a borrower is
determined to no longer have a partial financial hardship would be
limited to 10 percent of the original loan principal balance when the
borrower entered repayment under ICR-A. For borrowers who remain on the
ICR-A plan, interest would continue to accrue after the 10 percent
limit on capitalization has been reached, but there would be no further
capitalization. If a borrower chooses to leave the ICR-A plan, the 10
percent limit on capitalization of interest would not apply.
Borrower Options After Leaving the ICR-A Plan
Statute: Section 455(d)(3) of the HEA provides that a Direct Loan
borrower may change repayment plans under such terms and conditions as
may be established by the Secretary.
Current Regulations: Direct Loan borrowers, including borrowers
repaying their loans under the ICR plan, are subject to the
requirements of Sec. 685.210(b) that govern changing repayment plans
in the Direct Loan program. The regulations provide that a borrower may
change his or her repayment plan at any time after the loan enters
repayment by notifying the Secretary but may not change to a repayment
plan that has a maximum repayment period of less than the number of
years the loan has already been in repayment. For example, a borrower
who has paid for 13 years under the extended repayment plan or the ICR
plan cannot then change to the 10-year standard repayment plan.
Borrowers may, however, change to the ICR or IBR plans at any time.
A borrower who is repaying a defaulted loan under the ICR plan may not
change to another repayment plan unless the borrower was required to
and made an ICR payment on the loan in each of the three prior months,
or the borrower was not required to make an ICR payment but made three
reasonable and affordable payments on the loan in each of the three
prior months, and the Secretary approves the borrower's request to
change repayment plans. Current regulations provide that if a borrower
changes to a different repayment plan, the repayment period under the
new plan is calculated from the date the loan initially entered
repayment, except that if a borrower changes to the ICR plan or the IBR
plan, the repayment period is determined in accordance with the
regulations for those repayment plans.
Proposed Regulations: The proposed regulations for the ICR-A plan
in Sec. 685.209(a)(4)(ii), consistent with current ICR regulations,
would provide that a borrower who wishes to leave the ICR-A repayment
plan may change to a different repayment plan in accordance with the
provisions in Sec. 685.210(b) that are described earlier under
``Current Regulations.''
Reasons: As previously explained, the proposed ICR-A plan shares
many of the features of the IBR plan. As a result, the Department
initially proposed requiring borrowers who choose to leave the ICR-A
plan to repay under the standard repayment plan, as IBR borrowers are
required to do under section 493C(b)(8) of the HEA. However, several
non-Federal negotiators pointed out that the ICR plan is not governed
by a statutory requirement comparable to the statutory requirement for
borrowers repaying under the IBR plan. Those negotiators argued that
imposing such a regulatory requirement on ICR-A borrowers would pose a
hardship on borrowers and be an unnecessary impediment to a borrower
being able to leave the ICR-A plan and begin immediate repayment under
another plan that may be better suited to the borrower's individual
circumstances. After further consideration, the Department modified the
proposed ICR-A regulations to reflect the same regulatory approach to
changing repayment plans that applies to borrowers repaying under the
existing ICR plan (the proposed ICR-B plan).
Current ICR Plan (ICR-B Plan)
Borrower Access to the ICR-B Plan
Statute: Section 455(d)(1) of the HEA requires the Secretary to
offer Direct Loan borrowers a variety of repayment plans. The repayment
plans offered include a standard repayment plan, a graduated repayment
plan, an extended repayment plan for certain borrowers, an ICR plan
(except for parent Direct PLUS loan borrowers), and beginning July 1,
2009, an IBR plan (except for parent Direct PLUS Loan borrowers and
borrowers of Direct Consolidation Loans that repaid parent Direct PLUS
Loans or parent Federal PLUS Loans). The ICR plan must provide for the
payment of
[[Page 42101]]
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. Section 455(d)(2) of the HEA authorizes the
Secretary to designate the standard, graduated, or extended repayment
plan for a borrower who fails to choose a repayment plan, and section
455(d)(4) of the HEA authorizes the Secretary to provide, on a case-by-
case basis, an alternative repayment plan if none of the available
repayment plans are adequate to address a borrower's exceptional
circumstances.
Current Regulations: Under Sec. 685.208(a), the existing ICR plan
(referred to in these proposed regulations as the ICR-B plan) is
available to all Direct Loan borrowers except for parent borrowers of
Direct PLUS loans. The Department's regulations do not include any
other limitations on borrower access to the ICR plan. Section
685.209(c)(7)(iv) provides that if a borrower fails to provide consent
for the Secretary to obtain tax return information necessary for the
Secretary to determine the borrower's ICR monthly payment amount, the
Secretary designates the standard repayment plan for the borrower.
Proposed Regulations: Proposed Sec. 685.208(a) would allow a
Direct Loan borrower (other than a parent Direct PLUS borrower) to
continue to be able to select the ICR-B plan as one of the available
repayment plans.
Reasons: The Department initially proposed to limit borrower access
to the ICR-B plan, after implementation of the ICR-A plan, to those
borrowers who would not otherwise have access to any other ``income-
driven'' repayment plan (i.e., the current IBR plan, the IBR plan for
new borrowers on or after July 1, 2014, or the proposed ICR-A plan).
The Department believed that having too many income-driven repayment
plans would be confusing to borrowers and would make it more difficult
for them to determine which plan would best meet their needs. The
Department also believed that offering multiple income-driven plans
with similar terms and conditions would make it more difficult for the
Department to promote these plans and to inform borrowers of the
benefits available under each plan. However, several non-Federal
negotiators stated that maintaining the fullest possible menu of
repayment plan options would be in the best interests of borrowers.
These negotiators felt that some borrowers, even those who qualify for
the IBR or ICR-A plans, may view the ICR-B repayment plan as simpler
and a better fit for them, and therefore full access to the current ICR
plan should be retained. After further consideration of this issue, the
Department decided to retain full borrower access to the ICR-B
repayment plan.
Table 1 summarizes the borrower eligibility requirements for the
current IBR plan, the proposed IBR plan revisions for new borrowers on
or after July 1, 2014, the proposed ICR-A plan, and the current ICR
plan (proposed ICR-B plan):
Table 1--Eligibility for Income-Driven Repayment Plans
----------------------------------------------------------------------------------------------------------------
Proposed revised
IBR (with 07/01/ Current ICR
Current IBR 2014 statutory Proposed ICR-A (proposed ICR-B)
changes)
----------------------------------------------------------------------------------------------------------------
Loan Program and Eligible Direct Direct Direct Direct
Borrowers. Loan Program. Loan Program only. Loan Program only. Loan Program
FFEL Only new Only new only.
Program. borrowers as of borrowers in 2008 FFEL
July 1, 2014:. who receive a borrowers may
[cir] Must have no Direct Loan qualify through
outstanding disbursement in consolidation
Direct Loan or 2012 or later:. into the Direct
FFEL balance as [cir] Must have no Loan Program.
of July 1, 2014 outstanding
or on the date a Direct Loan or
new Direct Loan FFEL balance as
is received after of October 1,
July 1, 2014. 2007 or on the
date a new Direct
Loan or FFEL
Program loan is
received after
October 1, 2007;
and.
[cir] Must receive
a disbursement of
a Direct Loan on/
after October 1,
2011, or receive
a Direct
Consolidation
Loan based on an
application
received on/after
October 1, 2011.
FFEL new
borrowers in 2008
may qualify
through
consolidation
into the Direct
Loan Program.
----------------------------------------------------------------------------------------------------------------
[[Page 42102]]
The Department will make information available to borrowers to
assist them in understanding their repayment plan options and
determining their eligibility for the various income-driven plans.
Treatment of Married Borrowers Under the ICR-B Plan
Statute: Section 455(e)(2) of the HEA provides for an income-
contingent repayment plan with a repayment amount based on the
borrower's AGI or, if the borrower is married and files a joint Federal
income tax return, based on the adjusted gross income (AGI) of the
borrower and the spouse. In accordance with section 455(e)(3) of the
HEA, if the AGI of a borrower repaying under the income-contingent
repayment plan is unavailable or does not reasonably reflect the
borrower's current income, the borrower is required to provide other
documentation of income acceptable to the Secretary, and the Secretary
uses that documentation to determine the repayment amount.
For the IBR plan, section 493C(d) of the HEA provides that if a
married borrower repaying under the IBR plan files a separate Federal
income tax return from his or her spouse, only the borrower's AGI is
used to determine the borrower's IBR payment amount.
Current Regulations: Under current Sec. 685.209(b)(1), if a
married borrower chooses to repay under the income-contingent repayment
plan, the AGI for both spouses is used to calculate the borrower's
monthly payment amount, regardless of whether the borrower and spouse
file a joint Federal income tax return or separate Federal tax returns.
If a married borrower files a separate Federal income tax return from
his or her spouse, the borrower's spouse must provide consent for the
disclosure of the spouse's income.
Proposed Regulations: Proposed Sec. 685.209(b)(2)(i) would provide
that if a married borrower repaying under the ICR-B plan files a
Federal income tax return separately from his or her spouse, only the
borrower's AGI would be used to determine the borrower's monthly ICR-B
payment amount. The joint income of both spouses would be used only if
the borrower files a joint Federal income tax return.
Reasons: The treatment of married borrowers under the current ICR
plan regulations is based on section 455(e)(3) of the HEA, which allows
the Secretary to use other documentation of income provided by the
borrower to determine the ICR payment amount if the borrower's AGI does
not reasonably reflect the borrower's current income. At the time the
current ICR regulations were developed, the Department believed that if
a married borrower filed a separate tax return from his or her spouse,
using only the borrower's AGI would not provide for an accurate
determination of the monthly amount the borrower could afford to repay.
Accordingly, the current ICR regulations provide for consideration
of the combined incomes of both spouses, even when married borrowers
file separate Federal income tax returns. In contrast, the HEA provides
that for a married borrower who chooses to repay under the IBR plan,
the combined income of the borrower and the borrower's spouse is used
to determine the monthly IBR payment amount only if the borrower and
spouse file a joint Federal income tax return. To provide for
consistent treatment of married borrowers in all of the repayment plans
under which the monthly payment amount is based on the borrower's
income, the Department believes it is appropriate to amend the
regulations for the current ICR plan so that if a married borrower
repaying under the ICR-B plan files a Federal income tax return
separately from his or her spouse, only the borrower's AGI would be
used to determine the borrower's monthly ICR-B payment amount. The
joint income of both spouses would be used only if the borrower files a
joint Federal income tax return.
Borrowers Repaying Under the ICR-B Plan Who Fail To Provide Required
Documentation of Income
Statute: The HEA does not address the treatment of borrowers
repaying under the ICR plan who fail to provide the annual income
information required by the Secretary to determine the monthly ICR
payment amount.
Current Regulations: Current Sec. 685.209(c)(7)(iv) provides that
if a borrower selects the ICR plan but fails to provide the required
consent to the disclosure of income information, fails to renew a
previously provided written consent after it has expired, or withdraws
consent and does not select another repayment plan, the Secretary
designates the standard repayment plan for the borrower. For the IBR
plan, current Sec. 685.221(e)(2) provides that, under these same
circumstances, the Secretary recalculates the borrower's monthly
payment and the maximum recalculated amount the borrower is required to
repay is the amount that would be required under a standard repayment
plan with a 10-year repayment period, based on the amount of the
borrower's loans that were outstanding at the time the borrower
selected the IBR plan. In such cases, the repayment period based on the
recalculated payment amount may exceed 10 years.
Proposed Regulations: Under proposed Sec. 685.209(b)(3)(vi)(D), a
borrower currently repaying under the ICR-B plan who fails to provide
the annual income information needed to determine the borrower's
monthly payment amount would be treated the same as a borrower repaying
under the IBR plan who does not provide the required information needed
to determine the IBR payment amount, as described in the prior
discussion of the current regulations and explained in the following
discussion of changes to the IBR plan.
Reasons: Under the current regulations, a borrower repaying under
ICR who does not provide the require consent to disclosure of income
information is required to repay under the standard repayment plan.
However, in some cases, a borrower may have been in repayment under the
ICR plan longer than the maximum repayment period under the standard
repayment plan. Placing the borrower on the standard repayment plan
would thus conflict with the provision in Sec. 685.210(b) that
prohibits a borrower from changing to a repayment plan with a maximum
repayment period of less than the number of years the borrower's loan
has already been in repayment. The proposed regulations address this
issue by conforming the ICR-B regulations with the current IBR
regulations governing the treatment of borrowers who fail to provide
required income documentation and provide greater consistency in the
treatment of borrowers under the various income-driven repayment plans.
Other Changes to the Current ICR Plan (ICR-B Plan)
Statute: The HEA does not address the changes discussed in this
section.
Current Regulations: Final regulations published on October 23,
2008 (73 FR 63232), inadvertently deleted Sec. 685.209(c)(4)(iii),
(iv), and (v) from the ICR plan regulations. Paragraph (c)(4)(iii)
provided that if a borrower repays more than one loan under the ICR
plan, a separate repayment period for each loan begins when that loan
enters repayment. Paragraph (c)(4)(iv) stated that if a borrower has
not repaid a loan in full at the end of the 25-year repayment period,
the Secretary cancels the unpaid portion of the loan. Paragraph
(c)(4)(v) provided that at the beginning of the repayment period under
the ICR plan, a borrower is required to make monthly payments of the
amount of interest that accrues until
[[Page 42103]]
the Secretary calculates the monthly payment amount based on the
borrower's income.
Current Sec. 685.209(c)(2) specifies that the Secretary requires
alternative documentation of income from borrowers in their first and
second years of repayment, when the Secretary believes that the
borrower's reported AGI does not reasonably reflect the borrower's
current income.
Current Sec. 685.209(c)(7) requires a borrower who repays under
the ICR plan to provide written consent to the disclosure of certain
tax return information by the Internal Revenue Service (IRS) to the
Secretary for purposes of determining the borrower's ICR payment
amount. A borrower is required to provide consent for a period of five
years.
Proposed Regulations: The proposed regulations restore the
provisions inadvertently deleted from Sec. 685.209(c)(4)(iii) through
(v) in 2008 and place them in new Sec. Sec. 685.209(b)(1)(x),
(b)(3)(iii)(C), and (b)(3)(iii)(D). The proposed regulation would
remove the current provision in Sec. 685.209(c)(2) related to
alternative documentation of income for borrowers in their first and
second year of repayment. In addition, the proposed regulations would
replace the IRS consent requirement in current Sec. 685.209(c)(7) with
a more general requirement in new Sec. 685.209(b)(3)(vi) for the
borrower to provide acceptable documentation, as determined by the
Secretary, of the borrower's AGI.
Reasons: Restoring the three deleted provisions corrects a
technical error resulting from the October 23, 2008 final regulations.
The Department believes that the current provision in Sec.
685.209(c)(2) is unnecessary, since current Sec. 685.209(c)(1) (to be
retained as proposed Sec. 685.209(b)(3)) already permits the Secretary
to require alternative documentation of income if a borrower's AGI does
not reasonably reflect current income.
The Department is proposing to replace the current IRS consent
requirement with a requirement for the borrower to provide acceptable
documentation of AGI because the existing consent regulations no longer
reflect current operational procedures in the Direct Loan Program. The
consent process described in current Sec. 685.209(c)(7) was developed
in consultation with the IRS at the beginning of the Direct Loan
Program. However, there have been increasing delays in obtaining
information from the IRS. The Secretary now obtains the necessary
income information for most borrowers repaying under ICR through other
means, such as by having borrowers submit copies of their most recently
filed Federal income tax returns. The proposed rules are consistent
with that practice. Further, the proposed regulation is consistent with
efforts the Department is currently undertaking to streamline the
application and income verification process, by working with the IRS,
so that borrowers can more easily enroll and participate in the ICR and
IBR repayment plans.
Income-Based Repayment Plan
Partial Financial Hardship (34 CFR 685.221(a)(5)), Income-Based Payment
Amount (Sec. 685.221(b)(1)), and Loan Forgiveness Period (Sec.
685.221(f))
Statute: Section 493C of the HEA authorized the IBR plan for Direct
Loan and FFEL program borrowers. To initially qualify for the IBR plan
and to continue to make income-based payments under that plan, a
borrower must have a partial financial hardship. Section 493C(a)(3) of
the HEA provides that a borrower has a partial financial hardship if
the annual amount due on all of the borrower's eligible Direct Loan and
FFEL program loans, as calculated based on a standard repayment plan
with a 10-year repayment period, exceeds 15 percent of the difference
between the borrower's adjusted gross income (AGI) and 150 percent of
the annual poverty guideline amount for the borrower's family size and
State. During any period when a borrower who is repaying under the IBR
plan has a partial financial hardship, the borrower's monthly loan
payment may not exceed 15 percent of the difference between the
borrower's AGI and 150 percent of the applicable annual poverty
guideline amount, divided by 12.
Section 493C(b)(7) of the HEA provides that a borrower who has
participated in the IBR plan qualifies for forgiveness of any remaining
loan balance after making qualifying payments (including periods of
economic hardship deferment) over a period of time prescribed by the
Secretary, not to exceed 25 years.
The SAFRA Act included in the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152) made two changes to the
terms and conditions of the IBR plan. First, section 2213 of the SAFRA
Act amended section 493C(a)(3) of the HEA by changing the percentage
used in the formula for determining whether a borrower has a partial
financial hardship and for calculating the maximum IBR payment amount
during periods of partial financial hardship from 15 percent to 10
percent. Second, the maximum repayment period after which a borrower
repaying under the IBR plan qualifies for forgiveness of any remaining
loan balance was changed from 25 years to 20 years. These amendments
apply only to new Direct Loan borrowers on or after July 1, 2014. For
all other borrowers repaying under IBR, the current 15 percent and 25-
year provisions would continue to apply.
Current Regulations: The current IBR plan regulations in Sec.
685.221 reflect the 15 percent standard for determining whether a
borrower has a partial financial hardship and for calculating the
maximum IBR payment amount during periods of financial hardship. In
this preamble, this income-based monthly payment amount that applies
during a period of partial financial hardship is referred to as the
``monthly PFH payment amount.'' The current regulations also provide
that a borrower qualifies for loan forgiveness after making the
equivalent of 25 years of payments through a combination of qualifying
payments and periods of economic hardship deferment.
Proposed regulations: Proposed Sec. 685.221(a)(4) would define
``new borrower'' for purposes of the changes to the IBR plan as an
individual who has no outstanding balance on a Direct Loan or FFEL
program loan on July 1, 2014, or who has no outstanding balance on such
a loan on the date he or she obtains a loan after July 1, 2014. This is
consistent with the definition of ``new borrower'' as used for purposes
of teacher loan forgiveness under Sec. 685.217(a)(1).
The proposed regulations would revise the definition of ``partial
financial hardship'' in Sec. 685.221(a)(5) to reflect the statutory
provision and state that for new borrowers after July 1, 2014, a
borrower is considered to have a partial financial hardship if the
annual amount due on all of the borrower's eligible Direct Loan and
FFEL Program loans, as calculated based on a standard repayment plan
with a 10-year repayment period, exceeds 10 percent of the difference
between the borrower's AGI and 150 percent of the annual poverty
guideline amount for the borrower's family size. The proposed
regulations would revise Sec. 685.221(b)(1) to provide that for a new
borrower after July 1, 2014, the maximum IBR monthly payment amount
during periods of partial financial hardship may not exceed 10 percent
of the amount by which the borrower's AGI exceeds 150 percent of the
poverty guideline amount for the borrower's family size, divided by 12.
[[Page 42104]]
Finally, the proposed regulations would revise Sec. 685.221(f) to
reflect the statutory changes made by the SAFRA Act and provide that a
new borrower who has participated in the IBR plan qualifies for loan
forgiveness after 20 years of qualifying payments and periods of
economic hardship deferment.
Reasons: The proposed regulations implement statutory provisions
that were added to the HEA by the SAFRA Act. Because the changes to the
IBR plan made by the SAFRA Act apply only to new borrowers on or after
July 1, 2014, and because the SAFRA Act ended the authority of lenders
to make new loans under the FFEL Program effective July 1, 2010, the
proposed changes apply only in the Direct Loan Program regulations.
In response to a request for clarification from one of the non-
Federal negotiators, the Department clarified that qualifying payments
made during the 25-year or 20-year (as applicable) IBR repayment period
do not have to be consecutive payments. Unless the regulations
specifically state that payments must be consecutive to meet the
requirements of a particular provision, it is intended that the
payments need not be consecutive.
Repayment of Loans Under the IBR Plan
Statute: The HEA does not address the changes discussed in this
section.
Current Regulations: For the Direct Loan Program, current Sec.
685.208(a)(4) requires that all of a borrower's Direct Loans be repaid
under the same repayment plan unless a loan is not eligible for
repayment under that plan. For the FFEL Program, current Sec.
682.215(b)(3) provides that if a borrower selects the IBR plan, the
loan holder must require that all of the borrower's eligible loans owed
to that holder be repaid under the IBR plan, unless the borrower
requests otherwise.
Proposed Regulations: Proposed Sec. 682.215(b)(3) would require a
borrower who chooses the IBR plan to repay all of his or her loans
under the IBR plan, unless some of the borrower's loans are not
eligible for repayment under IBR. As a result of this change, a
borrower who chooses the IBR plan would no longer be able to request
that one or more IBR-eligible loans be excluded from that plan.
Reasons: The Department is proposing this change to provide
consistency with the Direct Loan Program regulations.
Annual IBR Partial Financial Hardship Assessment
Statute: Section 493C(c) of the HEA provides for the Secretary to
establish procedures for annually determining a borrower's eligibility
to make income-based payments (i.e., to determine each year whether a
borrower who initially qualified for the IBR plan continues to have a
partial financial hardship). These procedures include verifying the
borrower's annual income, verifying the annual amount due on the
borrower's eligible loans, and any other procedures necessary to
implement the IBR plan.
Under section 493C(b)(6) of the HEA, if a borrower repaying under
the IBR plan is determined to no longer have a partial financial
hardship or chooses to no longer make income-based payments, the
borrower's monthly payment amount is recalculated and is no longer
based on the borrower's income. In this situation, proposed Sec.
682.215(e)(8)(ii) provides the maximum recalculated monthly payment
amount the borrower would pay on the borrower's eligible loans under a
standard repayment plan with a 10-year payment period, based on the
loan amount owed at the time the borrower selected the IBR plan. The
repayment period based on the recalculated payment amount may exceed 10
years. In accordance with section 493C(b)(3)(B) of the HEA, unpaid
interest is capitalized if a borrower is determined to no longer have a
partial financial hardship or chooses to stop making income-based
payments.
Current Regulations: Under current Sec. 685.221(e)(1) and Sec.
682.215(e)(1), the Secretary or the FFEL loan holder determines whether
a borrower has a partial financial hardship for the year the borrower
selects the plan and for each subsequent year that the borrower remains
on the plan. To make this determination, the Secretary or the loan
holder requires the borrower to provide documentation of his or her
income and to annually certify the borrower's family size.
Under current Sec. 685.221(e)(1)(i) and Sec. 682.215(e)(1)(i),
the Secretary or the FFEL loan holder determines whether a borrower has
a partial financial hardship by requiring the borrower to provide
written consent to the disclosure of AGI by the IRS. If the borrower's
AGI is unavailable or the Secretary or loan holder believes that the
borrower's reported AGI does not reasonably reflect current income, the
Secretary or the loan holder may use other documentation provided by
the borrower to verify income (``alternative documentation of
income''). In subregulatory guidance issued in a June 12, 2009,
electronic announcement posted on the Department's Information for
Financial Aid Professionals Web site, the Department authorized FFEL
loan holders to accept a signed copy of the borrower's most recently
filed Federal income tax return as an alternative to requiring the
borrower to provide written consent to the disclosure of AGI by the
IRS. The Department adopted this same practice in the Direct Loan
Program.
In accordance with current Sec. 685.221(e)(2) and Sec.
682.215(e)(2), if a borrower who is repaying under the IBR plan fails
to renew the required consent to disclosure of AGI by the IRS, or
withdraws consent and does not select another payment plan, the
borrower's monthly payment amount is recalculated in accordance with
Sec. 685.221(d)(1) or Sec. 682.215(d)(1). In addition, unpaid
interest is capitalized in accordance with Sec. 685.221(b)(4) and
Sec. 682.215(b)(5). The same treatment applies if a borrower fails to
provide a copy of his or her most recently filed Federal tax return (if
used as an alternative to written consent to disclosure of AGI) or
fails to provide alternative documentation of income if required to do
so by the Secretary or the loan holder.
Sections 685.221(d)(1) and 682.215(d)(1) reflect the statutory
requirement in section 493C(b)(6) of the HEA for the recalculation of a
borrower's monthly payment amount if a borrower repaying under the IBR
plan is determined to no longer have a partial financial hardship or
chooses to stop making income-based payments. If a borrower fails to
provide the required income documentation needed by the Secretary or
the loan holder to determine whether the borrower continues to have a
partial financial hardship, the borrower is considered to no longer
have a partial financial hardship. The maximum recalculated monthly
payment amount for a borrower who is determined to no longer have a
partial financial hardship is the amount the borrower would be required
to pay under a standard repayment plan with a 10-year payment period,
based on the amount owed on the borrower's loans at the time the
borrower selected the IBR plan. In this preamble, this recalculated
payment amount is referred to as the ``permanent standard amount.''
Proposed Regulations: The proposed regulations would add several
new written notifications to borrowers and other provisions related to
the initial and annual determination of partial financial hardship
status and the
[[Page 42105]]
consequences if a borrower fails to provide documentation of income or
other information required for the annual partial financial hardship
assessment. The proposed regulations would also modify the income
documentation requirements and, for the FFEL Program, add a requirement
for some married borrowers to provide the loan holder with information
related to the eligible loan debt of the borrower's spouse. Finally,
the proposed regulations would clarify the treatment of borrowers who
request a change from another repayment plan to the IBR plan but who do
not provide the information required to determine eligibility for the
IBR plan.
Under proposed Sec. 685.221(e)(2) and Sec. 682.215(e)(2), the
Secretary or the FFEL loan holder, after making a determination that a
borrower has a partial financial hardship to qualify for the IBR plan
for the year the borrower initially selects the plan and for any
subsequent year that the borrower has a partial financial hardship,
would send the borrower a written notification that would include the
following information:
The borrower's scheduled monthly PFH payment amount and
the time period during which that monthly PFH payment amount will would
apply (``annual payment period'');
Information about the requirement for the borrower to
annually provide income information; in some cases for married FFEL
Program borrowers, to provide information about the eligible loans of
the borrower's spouse; and to certify family size, if the borrower
chooses to remain on the IBR plan after the borrower's first year on
the plan;
An explanation that the borrower would be notified in
advance of the date by which the Secretary or loan holder must receive
this information;
An explanation of the consequences if the borrower does
not provide the required information each year;
An explanation of the consequences if the borrower no
longer wishes to repay under IBR; and
Information about the borrower's option to request, at any
time during the borrower's current annual payment period, that the
Secretary or the loan holder recalculate the borrower's monthly PFH
payment amount if the borrower's financial circumstances have changed
and the income amount that was used to calculate the borrower's current
monthly PFH payment amount no longer reflects the borrower's current
income. If the monthly PFH payment amount is recalculated based on the
borrower's request, the Secretary or the loan holder would send the
borrower a written notification that includes the borrower's new
calculated monthly PFH payment amount, new annual payment period, and
the other information just described.
Under proposed new Sec. 685.221(e)(3) and Sec. 682.215(e)(3), for
each subsequent year that a borrower repaying under the IBR plan has a
partial financial hardship, the Secretary or the loan holder would
establish the date by which the income information and other
documentation required for the annual partial financial hardship
assessment must be received (``annual deadline''), and would send the
borrower a written notification in advance of the annual deadline
informing the borrower of the annual documentation requirement. The
proposed regulations would provide for the Secretary or the loan holder
to send advance notification of the annual documentation requirement to
the borrower no later than 60 days and no earlier than 90 days before
the annual deadline. The annual deadline established by the Secretary
or the loan holder for receipt of the required documentation could not
be earlier than 35 days before the end of the borrower's current annual
payment period. The notification of the annual documentation
requirement would have to include the following information:
The annual deadline by which the Secretary or the loan
holder must receive the required information; and
The consequences if the Secretary or the loan holder does
not receive the required information within 10 days following the
annual deadline, including the borrower's recalculated permanent
standard monthly payment amount, the effective date for the
recalculated monthly payment, and an explanation that unpaid accrued
interest will be capitalized at the end of the borrower's current
annual payment period.
Proposed Sec. 685.221(e)(4) and Sec. 682.215(e)(4) would provide
that each time the Secretary or the loan holder makes a determination
that a borrower no longer has a partial financial hardship for a
subsequent year that the borrower remains on the IBR plan, the
Secretary or the loan holder would send the borrower a written
notification that includes the following information:
The borrower's recalculated permanent standard payment
amount;
An explanation that unpaid interest will be capitalized;
and
Information about the borrower's option to request, at any
time, that the Secretary or the loan holder make a new determination of
whether the borrower has a partial financial hardship, if the
borrower's financial circumstances have changed and the income amount
used to determine that the borrower no longer has a partial financial
hardship does not reflect the borrower's current income, and an
explanation that the borrower will be notified annually of this option.
If the Secretary or the loan holder determines that the borrower
again has a partial financial hardship based on a borrower's request
for redetermination, the Secretary or the loan holder would determine
the borrower's new monthly PFH payment amount and send the borrower a
written notification including the same information that is provided to
a borrower when he or she is determined to have a partial financial
hardship to initially qualify for the IBR plan and again for any
subsequent year that a borrower who has a partial financial hardship
remains on the plan.
Under proposed Sec. 685.221(e)(5) and Sec. 682.215(e)(5), for
each subsequent year that a borrower who does not have a partial
financial hardship remains on the IBR plan, the Secretary or the loan
holder would send a written notification to the borrower that includes
information on the borrower's option to request, at any time, that the
Secretary or the loan holder make a new determination of whether the
borrower has a partial financial hardship, as described in the
discussion of Sec. 685.221(e)(4) and Sec. 682.215(e)(4).
Proposed Sec. 685.221(e)(6) and Sec. 682.215(e)(6) would clarify
that if a borrower who is currently repaying under another repayment
plan selects the IBR plan but does not provide the information required
by the Secretary or the loan holder to determine the borrower's
eligibility for the IBR plan, the borrower would remain on his or her
current repayment plan.
Under proposed Sec. 685.221(e)(7) and Sec. 682.215(e)(7), the
Secretary or the loan holder would require a borrower to pay the
permanent standard amount if a borrower currently repaying a monthly
PFH payment amount remains on the plan for a subsequent year, but the
Secretary or the loan holder does not receive the information required
for the annual partial financial hardship assessment within 10 days of
the annual deadline previously provided to the borrower, unless the
Secretary or the loan holder is able to determine the borrower's new
monthly PFH payment amount before the end of the annual payment period.
Proposed Sec. 682.215(e)(8)(i) would require a loan holder to
promptly determine a borrower's new monthly payment amount if the loan
holder receives the information required for the annual partial
financial hardship assessment within 10 days of the annual
[[Page 42106]]
deadline provided to the borrower. If the information is received
within 10 days of the annual deadline, but the loan holder does not
determine the borrower's new monthly payment amount by the end of the
borrower's current annual payment period, the proposed regulations
would prohibit the loan holder from converting the borrower's monthly
payment to the permanent standard amount and would require the loan
holder to maintain the borrower's current scheduled monthly PFH payment
amount until the new monthly payment amount is calculated.
Under proposed Sec. 682.215(e)(8)(ii), if the loan holder
calculates a new monthly PFH payment that is less than the borrower's
previously calculated monthly PFH payment amount, the loan holder would
be required to make the appropriate adjustment to the borrower's
account to reflect the additional amounts resulting from any payments
at the previously calculated monthly PFH payment amount that the
borrower made after the end of the most recent annual payment period.
Unless the borrower requests otherwise, the loan holder would not apply
the additional amounts to future monthly payments.
The proposed regulations would require the loan holder to apply any
excess payment amounts made after the end of the most recent annual
payment period in accordance with the IBR payment application rules in
Sec. 682.215(c)(1). The excess payment amounts would be applied in the
following order: Accrued interest; collection costs; late charges; loan
principal. Appropriate adjustments would also include, but are not
limited to, adjustments to the lender's interest subsidy and special
allowance billings based upon the new monthly PFH payment amount, and
establishing a new annual payment period beginning on the day after the
prior annual payment period ended to ensure that the annual date for
determining whether a borrower continues to have a partial financial
hardship remains the same.
Under proposed Sec. 682.215(e)(8)(iii), if the new monthly payment
amount is equal to or greater than the borrower's previously calculated
monthly PFH payment amount, the loan holder would not make any
adjustments to the borrower's account to make up the difference between
a prior lower monthly PFH payment amount that the borrower continued to
make after the end of the previous annual payment period and the
borrower's new higher monthly payment. Proposed Sec. 685.221(e)(8)
would establish requirements in the Direct Loan Program comparable to
the FFEL Program requirements in proposed Sec. 682.215(e)(8)(i)
through (iii).
Proposed Sec. 682.215(e)(9) would provide that if a loan holder
receives the information required for the annual partial financial
hardship assessment more than 10 days after the specified annual
deadline provided to the borrower and the borrower's monthly payment
amount is converted to the permanent standard amount, the loan holder
may grant forbearance with respect to any payments that are overdue or
that would be due at the time the new calculated monthly PFH payment
amount is determined, but only if the new calculated monthly PFH
payment amount is zero or is less than the borrower's previously
calculated monthly PFH payment amount.
If forbearance is granted, capitalization of interest at the end of
the forbearance period would be limited to the interest accrued during
the portion of the forbearance covering past-due payments before the
end of the prior annual payment period that was capitalized at the time
of conversion of the borrower's payment to the permanent standard
amount. Interest that accrues during the portion of the forbearance
period that covers payments that are overdue after the end of the prior
annual repayment period would not be capitalized.
Proposed Sec. 685.221(e)(9)(i) would establish the same
requirements in the Direct Loan Program. In addition, proposed Sec.
685.221(e)(9)(ii) would specify that any payments a borrower continued
to make at the previously calculated monthly PFH payment amount after
the end of the prior annual payment period and before the new monthly
PFH payment amount is calculated are considered to be qualifying
payments for purposes of the public service loan forgiveness program
under Sec. 685.219, provided that the payments otherwise meet the
eligibility requirements of that program. These payments would also
count for purposes of IBR loan forgiveness.
With regard to documentation of income, proposed Sec.
685.221(e)(1)(i) and Sec. 682.215(e)(1)(i) would amend current
regulations by replacing the requirement that a borrower provide
consent to the disclosure of AGI by the IRS with a general requirement
for the borrower to provide documentation, acceptable to the Secretary
or to the loan holder, of the borrower's AGI. Proposed Sec.
685.221(e)(1)(ii) and Sec. 682.215(e)(1)(ii) would retain the current
provision requiring a borrower to provide other documentation of income
if the borrower's AGI is not available or if the borrower's AGI does
not reasonably reflect the borrower's current income.
Proposed Sec. 682.215(e)(1)(iii) would specify that if the spouse
of a married borrower who files a joint Federal income tax return has
eligible loans and the loan holder does not hold at least one of the
spouse's eligible loans, either the borrower's spouse must provide
consent for the loan holder to access information about the spouse's
eligible loans in the National Student Loan Data System (NSLDS), or the
borrower must provide other documentation, acceptable to the loan
holder, of the spouse's eligible loan information.
The proposed changes described in this section would also be
incorporated, where applicable, in the proposed regulations for the
ICR-A plan and the ICR-B plan.
Reasons: The Department's current regulations do not require that
borrowers be notified each year in advance of the annual requirement to
provide income information and certify family size, nor do current
regulations specify a deadline by which the borrower must provide this
information before the borrower's current monthly PFH payment amount is
converted to the permanent standard amount. During the public comment
period prior to the beginning of the formal negotiated rulemaking
sessions, the Department received numerous comments suggesting that not
all loan holders currently notify borrowers in advance of the annual
documentation requirement, and that there are inconsistencies among
loan holders in the amount of time that borrowers are given to provide
the required income information. As a result, some borrowers who
continue to have a partial financial hardship have their payments
converted to the permanent standard amount because they were not aware
that it was time for their annual partial financial hardship
assessment, or because they were not given sufficient time to provide
the required income information.
During the negotiated rulemaking sessions, some non-Federal
negotiators recommended that the proposed regulations include an
explicit requirement for loan holders to promptly determine whether a
borrower continues to have a partial financial hardship upon receipt of
the required income documentation from the borrower. The borrower
notification requirements included in these proposed regulations are
intended to address these concerns. They ensure that a borrower would
be notified of the annual documentation requirement, and of the
consequences if the borrower does not comply, at the time he or she
[[Page 42107]]
is initially determined eligible for the IBR plan. A borrower who
remains on the IBR plan and currently has a partial financial hardship
would be notified of the annual documentation requirement in advance of
the annual deadline for providing the required information needed to
determine whether he or she continues to have a partial financial
hardship. The proposed regulations for the FFEL Program would also
require loan holders to promptly determine a borrower's new monthly
payment amount after receiving the required income information from the
borrower. The Secretary would apply the same requirement in the Direct
Loan program.
The proposed regulations would also provide for more consistent
treatment of borrowers by specifying the earliest date that may be
established as the annual deadline for a borrower to provide the annual
documentation and by specifying the latest and earliest dates prior to
the annual deadline that a borrower may be notified of the requirement
to provide the documentation.
The Department initially proposed that the annual notification
reminding borrowers of the upcoming deadline for submitting income
documentation could be sent no later than 60 days before the annual
deadline established by the Secretary or the loan holder. Some of the
non-Federal negotiators, while supportive of this notification
requirement, expressed concerns that this would allow for the
notification to be sent too far in advance of the annual deadline for
it to be effective. The Department agreed that it would be appropriate
to place a limit on how early the notification may be sent and modified
the proposed regulatory language to specify that the notification may
be sent no later than 60 days and no earlier than 90 days before the
annual deadline.
During the first negotiated rulemaking session, some of the non-
Federal negotiators recommended that the proposed regulations provide a
borrower with a three-month ``grace period'' following the end of the
borrower's current annual repayment period during which the borrower
could provide the required income documentation without being subject
to conversion to the permanent standard payment amount and
capitalization of unpaid interest. A borrower who submitted the
required documentation during the grace period would continue making
his or her existing monthly PFH payment amount until the loan holder
calculated the new payment amount. Once the loan holder calculated the
new payment amount, the borrower's account would be adjusted if the
borrower was determined to continue to have a partial financial
hardship. Specifically, the recommendation from the non-Federal
negotiators provided for reimbursement to the borrower if, during the
grace period, the borrower had continued to make payments at the
previously scheduled amount that were greater than the new payment
amount. The recommendation also provided that any underpayment during
the grace period (if the borrower continued to make payments at the
previously scheduled monthly PFH payment amount that were less than the
new monthly PFH payment amount) would be distributed evenly across the
borrower's payments for the current annual payment period.
At the second negotiated rulemaking session, the Department
presented proposed regulatory language that provided borrowers with a
60-day grace period following the end of the borrower's current annual
payment period to submit the required income documentation to the
Secretary or the loan holder. Under this proposal, a borrower's
previously scheduled monthly PFH payment amount would have been
continued during the grace period, with no conversion to the permanent
standard amount unless the borrower did not provide the required
documentation until after the end of the 60-day grace period. The
Department's proposal did not provide for any adjustments to the
borrower's account once the borrower's new monthly payment had been
calculated.
Some non-Federal negotiators representing loan holders and
servicers indicated that the proposed regulations providing for a grace
period could be difficult to implement, since most loan holders'
systems are set up to automatically convert a borrower's scheduled
monthly PFH payment amount to the permanent standard payment amount at
the end of the borrower's current 12-month annual payment period, if
the borrower's new scheduled monthly PFH payment amount has not been
calculated prior to that date. In addition, the same non-Federal
negotiators noted that the proposed grace period approach would cause
the ending date of the borrower's current annual payment period to
shift every year if the previously scheduled monthly PFH payment amount
had to be maintained for up to an additional 60 days after the end of
original annual payment period, potentially causing confusion for
borrowers and requiring loan holders to make significant systems
changes.
These non-Federal negotiators presented an alternative proposal
that provided for loan holders to notify borrowers of the deadline by
which the loan holder must receive the required information for the
annual partial financial hardship assessment. If the loan holder
received the required information by the deadline and the borrower was
determined to continue to have a partial financial hardship, the loan
holder would be required either to prevent the conversion of the
borrower's monthly payment to the permanent standard amount or
remediate the consequences of such a conversion for the borrower. The
proposal did not specify what would constitute remediation of a
conversion to the permanent standard payment amount.
This proposal from the loan holders and servicers further provided
that a loan holder could grant forbearance with respect to any payments
that were overdue or would be due upon the loan holder's determination
that a borrower continued to have a partial financial hardship, if the
determination resulted in a new monthly PFH payment amount of zero. In
addition, the proposal allowed for loan holders to grant forbearance to
borrowers who were not more than 120 days delinquent, if the loan
holder received the required income documentation after a borrower's
monthly payment had been converted to the permanent standard amount and
the loan holder determined that the borrower qualified for a new period
of partial financial hardship with a monthly PFH payment amount greater
than zero.
The Department agreed with the proposal from the negotiators
representing loan holders and servicers to require that borrowers be
notified of the deadline by which the loan holder must receive the
documentation required for the annual partial financial hardship
assessment to avoid conversion to the permanent standard payment
amount. We included a provision for such a deadline in revised
regulatory language presented at the third negotiated rulemaking
session. The language proposed by the Department at the beginning of
the third session allowed for the annual deadline to be established by
the Secretary or the loan holder, without any limitation on how far in
advance of the end of the borrower's current annual repayment period
the deadline could be set. However, some non-Federal negotiators
representing borrowers expressed concerns that having the deadline date
determined at the discretion of the loan holder would continue to allow
for inconsistent treatment of borrowers,
[[Page 42108]]
since the date might differ significantly among loan holders.
The same negotiators were also concerned that leaving the
determination of the deadline date to the discretion of individual loan
holders would allow for the date to be different each year and result
in confusion for borrowers. In response to these concerns, the
Department modified the proposed regulatory language to specify that
the annual deadline may be no earlier than 35 days before the end of
the borrower's current annual payment period. The 35-day period was
discussed and agreed to by all of the non-Federal negotiators.
Some non-Federal negotiators representing borrowers, noting the
potentially serious consequences for borrowers who do not provide the
required information by the deadline, urged the Department to provide
some flexibility in the regulations so that borrowers would not be
subject to conversion to permanent standard and interest capitalization
for being as little as one day late. These negotiators also objected to
the proposed requirement for the loan holder to receive the
documentation by the specified deadline and stated that the regulations
should simply require the borrower to submit the documentation by the
deadline. They noted that the proposed regulations did not require loan
holders to notify borrowers that their documentation had been received,
with the result that borrowers would have no way of proving that the
information they sent was received by the deadline.
These negotiators also argued that requiring borrowers to submit
the information by the deadline would allow for proof that the borrower
was in compliance with the submission deadline by means of the postmark
on documentation submitted by mail. Other non-Federal negotiators,
however, noted that the United States Postal Service no longer
routinely adds postmarks to mail and said that the only way for a
borrower to prove that a document had been mailed and received would be
for the borrower to request confirmation of receipt. The negotiators
further noted that requiring loan holders to track postmark dates would
be unduly burdensome. The negotiators for loan holders and servicers
suggested that the Department retain the requirement for the income
information to be ``received'' by the annual deadline provided to the
borrower, but add a five-day ``grace period'' to the deadline. After
further discussion, the Department and the non-Federal negotiators
agreed that information submitted by a borrower should be considered to
have been received by the deadline if it is received by the loan holder
or the Secretary within 10 days after the deadline date.
Some non-Federal negotiators for borrowers asked the Department to
consider limiting the amount of interest that is capitalized if a
borrower repaying under the IBR plan fails to provide required income
information within 10 days after the annual deadline. The Department
declined to consider this recommendation, noting that it may result in
significant costs to the Federal government. However, the Department is
continuing to examine these likely costs and invites further comments
on this proposal.
Some non-Federal negotiators representing borrowers also noted that
under the statute and current regulations, if a borrower who is
repaying under the IBR plan is determined to no longer have a partial
financial hardship or chooses to stop making income-based payments, the
``maximum'' monthly amount the borrower is required to pay is the
monthly amount that would be required under a standard repayment plan
with a 10-year payment period, calculated based on the amount of the
borrower's eligible loans that were outstanding at the time the
borrower selected the IBR plan (``permanent standard amount''). Because
the law and regulations provide that the permanent standard amount is
the maximum amount a borrower is required to pay, the non-Federal
negotiators asked the Department to consider amending the regulations
to allow for a smaller permanent standard payment amount, as the
conversion to a 10-year standard plan monthly payment amount may
present a hardship for some borrowers.
The Department declined to consider this proposal, noting that the
Department interprets the statutory reference to the ``maximum''
required payment amount, which is also reflected in current
regulations, as a protection to ensure that a borrower's monthly
payment amount under the IBR plan never exceeds the amount that would
be required under a standard repayment plan with a 10-year repayment
period. Accordingly, the permanent standard payment amount is the
monthly payment amount that would be required under a 10-year standard
repayment plan, calculated based on the amount of the borrower's
eligible loan debt at the time the borrower selected the IBR plan.
Without this provision, the formula used to calculate the required
monthly payment during periods of partial financial hardship could
result in a monthly payment that exceeds the amount that would be
required under a 10-year standard repayment plan.
The Department further noted that since a borrower loses partial
financial hardship status at the point the partial financial hardship
payment formula results in a monthly payment that equals or exceeds the
payment amount that would be required under a standard repayment plan
with a 10-year repayment period, providing a permanent standard payment
amount lower than that amount would mean that some borrowers who no
longer have a partial financial hardship could have a lower monthly
payment amount than some borrowers in a partial financial hardship
status. This result would be contrary to the intent of the IBR plan.
The Department disagreed with the proposal from some non-Federal
negotiators representing loan holders and servicers that would have
required loan holders either to prevent the conversion of borrower's
payment amount to the permanent standard amount or remediate the
consequences of such a conversion if the loan holder received the
required information by the deadline provided to the borrower and the
borrower was determined to continue to have a partial financial
hardship. Some of the other non-Federal negotiators also expressed
concerns about this approach, noting in particular that the proposal
did not explain what would constitute ``remediation.''
The Department believes that if the information a borrower is
required to provide is received within 10 days after the annual
deadline, the loan holder must ensure that the borrower's monthly
payment amount is not converted to the permanent standard amount and
that unpaid interest is not capitalized. The proposed regulations
reflect this approach. The proposed regulations also provide that if
the new calculated monthly PFH payment amount is less than the
borrower's previously calculated monthly PFH payment amount, the loan
holder must apply any excess payment amount resulting from payments
that the borrower continued to make at the higher monthly PFH payment
amount in accordance with the normal IBR payment application rules,
unless the borrower requests that the excess amount be applied to
future payments. This requirement would ensure that any excess payment
is not applied as a pre-payment to advance the next monthly payment due
date (unless that is what the borrower requests), as that would
lengthen the period before the borrower becomes eligible for public
service loan forgiveness under Sec. 685.219.
[[Page 42109]]
The Department believes that the proposal from the non-Federal
negotiators to allow loan holders to grant forbearance to cover a
borrower's past due payments under certain circumstances was more
complex than necessary and overly broad. The proposal would have
allowed for forbearance to be granted to any borrower who was
delinquent in making payments at the time the loan holder made a
determination that resulted in a monthly PFH payment amount of zero,
regardless of whether the borrower's income information was received by
the annual deadline.
However, the Department believes it is appropriate to allow
forbearance under limited circumstances for borrowers whose income
information is not received until more than 10 days after the annual
deadline and who are delinquent at the time the new monthly PFH payment
amount is determined, if the new monthly PFH payment amount is zero or
is less than the borrower's previously scheduled monthly PFH payment
amount. This may indicate that the borrower's financial circumstances
have worsened, which may have contributed to the borrower's delinquency
and may have caused the borrower's failure to provide the required
information in a timely manner.
The Department also believes it is appropriate under these
circumstances to limit capitalization of interest accrued during
forbearance to the interest that had been previously capitalized at the
end of the prior annual payment period. For example, if a forbearance
is granted to cover a five-month period of delinquency that began three
months before the end of the borrower's prior annual payment period and
continued for two months after the end of that annual payment period,
the interest that accrued during the first three months of the
forbearance period (i.e., prior to the conversion of the borrower's
payment to the permanent standard amount) would remain capitalized.
The proposed regulations for the Direct Loan Program also clarify
that if a borrower continues to make payments at the previously
scheduled monthly PFH payment amount after the borrower's payment has
been converted to the permanent standard amount as a result of the
borrower's income information being received more than 10 days after
the annual deadline date, those payments would continue to count as
qualifying payments for purposes of the public service loan forgiveness
program under Sec. 685.219, provided that the payments otherwise meet
the public service loan forgiveness program eligibility requirements.
Without this provision, payments that the borrower continued to make at
the previously calculated monthly PFH payment amount might not qualify
for public service loan forgiveness purposes because they were for less
than the scheduled permanent standard payment amount.
Some of the non-Federal negotiators suggested that many issues
related to current processes for submission of income documentation
could be addressed by allowing borrowers to submit documentation
electronically, or by establishing an electronic process for loan
holders to obtain the necessary income information directly from the
IRS. The Department agreed to explore such options in the future but
noted that privacy issues associated with the electronic submission of
documents and restrictions on the release of information by the IRS to
FFEL Program loan holders would have to be addressed.
Some of the non-Federal negotiators requested that the Department
modify the current IBR requirement for borrowers to provide written
consent for the IRS to disclose the borrower's AGI to the loan holder
by listing other options for providing income information and
emphasizing those other options as preferable. The negotiators noted
that although the Department previously provided guidance allowing loan
holders to accept a signed copy of the borrower's most recently filed
tax return as an alternative to the borrower's written consent, current
regulations continue to require borrowers to submit written consent,
and there are often lengthy delays in getting the borrower's income
information from the IRS.
The non-Federal negotiators also asked the Department to reconsider
its policy guidance that a copy of the borrower's most recently filed
Federal income tax return submitted to support the borrower's PHF
determination must include the borrower' signature. The non-Federal
negotiators noted that many borrowers file electronic tax returns that
do not include a signature, and they said that failure to include a
signature on the copy of the tax return that a borrower sends to his or
her loan holder is a frequent reason for delays in processing a
borrower's income information.
Finally, the non-Federal negotiators recommended that the
regulations related to documentation of income be revised to allow loan
holders to require borrowers to provide alternative documentation of
income (that is, documentation other than the borrower's AGI) at any
time, rather than only in circumstances when the borrower's AGI is
unavailable or does not reasonably reflect the borrower's current
income.
The Department agreed that the income documentation requirements
could be simplified by amending the regulations to require borrowers to
provide documentation, acceptable to the Secretary or the loan holder,
of the borrower's AGI. Moreover, the Department noted that the IRS
consent process is no longer used for Direct Loan borrowers repaying
under the IBR or ICR plans, as discussed under the section ``Other
Changes to the ICR-B Plan.'' Acceptable documentation of a borrower's
AGI could include a copy of the borrower's most recently filed Federal
income tax return or a tax transcript obtained from the IRS by the
borrower.
In addition, the Department agreed that a copy of the borrower's
most recently filed tax return need not include the borrower's
signature. The Department announced this change in an electronic
announcement posted on the Department's Information for Financial Aid
Professionals Web site on April 13, 2012.
The Department disagreed with the recommendation that the
regulations be amended to allow loan holders to disregard AGI and
require borrowers to provide alternative documentation of income under
any circumstances. Section 493C(a)(3) of the HEA specifically provides
that the determination of a borrower's partial financial hardship
status is based, in part, on the borrower's AGI. The Department
believes that the greater flexibility in the proposed regulations
related to income documentation would eliminate some of the issues loan
holders are currently experiencing with documenting a borrower's AGI.
Some non-Federal negotiators representing loan holders and
servicers asked the Department to add a requirement for a married
borrower, under certain circumstances, either to provide the FFEL
Program loan holder with the spouse's authorization for the loan holder
to access information in NSLDS concerning the eligible loans of the
borrower's spouse or to provide other acceptable documentation of the
spouse's eligible loans. Under the terms and conditions of the IBR
plan, if a borrower is married and files a joint Federal income tax
return, and if the borrower's spouse has loans that are eligible for
repayment under the IBR plan, the combined eligible loan debt of the
borrower and spouse is used to determine whether a borrower has a
[[Page 42110]]
partial financial hardship. However, this additional information would
be required only from married borrowers who both have eligible loans
and who file joint tax returns, and only if the loan holder does not
hold at least one of the spouse's eligible loans. If a loan holder does
not hold at least one of the spouse's eligible loans, the loan holder
may not access NSLDS to obtain information about the spouse's loans
without the spouse's authorization. The loan holders noted that this
spousal authorization is included on the IBR request form that
borrowers must complete to request the IBR plan but stated that the
requirement for spousal loan information should be included in the
regulations to make it clear that for certain married borrowers,
eligibility for the IBR plan cannot be determined without information
about the spouse's eligible loans. The Department agreed with the non-
Federal negotiators' recommendation and modified the proposed FFEL
Program IBR regulations accordingly.
Proposed regulations in Sec. 682.215 require written notification
to a borrower regarding information for subsequent periods of a
borrower's partial financial hardship and forgiveness eligibility. A
non-Federal negotiator representing loan servicers requested that the
language be revised to reflect that the notification may be provided
either electronically or in writing to enable servicers to use
electronic practices to communicate the notification requirements to
borrowers. Some negotiators asked the Department to clarify the extent
of the loan holder's flexibility to electronically provide
notifications to borrowers to ensure that servicers were not limited
solely to using electronic communication for borrowers that provide
affirmative consent in accordance with the E-Sign Act, but may also use
electronic communication for borrowers who have agreed to the use of
email communication. The Federal negotiators responded that a revision
of the proposed regulations was unnecessary because the Department has
previously interpreted (including in previous regulatory preambles) the
term ``in writing'' to include through electronic means. The Department
acknowledged that servicers may use electronic methods to provide the
notifications under Sec. 682.215. The Department follows the same
practice in the Direct Loan Program.
IBR Loan Forgiveness Notifications
Statute: Section 493C(b)(7) provides that the Secretary will cancel
the outstanding remaining balance on a borrower's loan if the borrower
has participated in the IBR plan and met other requirements during a
repayment period not to exceed 25 years.
Current Regulations: Current regulations in Sec. 685.221(f) and
Sec. 682.215(f) reflect the IBR loan forgiveness provision in section
493C(b)(7) of the HEA. Under current Sec. 682.215(g)(4), after a FFEL
Program loan holder is notified by the guaranty agency that a borrower
qualifies for IBR loan forgiveness, the loan holder must inform the
borrower of that determination and provide the borrower with
information on the required handling of the forgiveness amount. The
current Direct Loan Program regulations do not include a provision in
Sec. 685.221 comparable to the FFEL Program provision in Sec.
682.215(g)(4).
Proposed Regulations: The proposed regulations would make the
following changes in Sec. 685.221(f) and Sec. 682.215(g):
In both the Direct Loan and FFEL programs, the regulations
would clarify that the Secretary or the loan holder determines when a
borrower has met the requirements for loan forgiveness and that the
borrower is not required to submit a request for loan forgiveness.
The proposed regulations would provide for the Secretary
or the loan holder to send the borrower a written notice no later than
six months prior to the anticipated date that the borrower will meet
the loan forgiveness requirements. This notice would explain that the
borrower is approaching the date he or she is expected to qualify for
loan forgiveness, would remind the borrower that he or she must
continue to make scheduled monthly payments, and would provide general
information on the current treatment of the forgiveness amount for tax
purposes, including instructions to contact the IRS for more
information.
Current Sec. 682.215(g)(4) would be redesignated as
(g)(5) and would be revised to clarify that when a loan holder notifies
a borrower that the borrower has been determined eligible for loan
forgiveness, the borrower must be provided with information on the
current treatment of the forgiveness amount for tax purposes and
directed to the IRS for more information.
A provision comparable to the current FFEL provision in
Sec. 682.215(g)(4), with the changes just described, would be added to
the Direct Loan Program regulations in Sec. 685.221(f). A provision
comparable to the current FFEL provision in Sec. 682.215(g)(7) would
also be added. Proposed Sec. 685.221(f)(5)(iii)(C) would state that
the Secretary returns to the sender any payment received on a loan
after loan forgiveness has been granted.
The changes just described would also be incorporated in the
proposed regulations for the ICR-A and ICR-B repayment plans.
Reasons: Some of the non-Federal negotiators asked the Department
to clarify in the regulations that the loan holder or the Secretary
determines when a borrower qualifies for loan forgiveness and that the
borrower is not required to track his or her own progress toward
meeting the loan forgiveness requirement or submit an application for
forgiveness. The non-Federal negotiators also stated it would be
helpful to borrowers to give them advance notice that they are
approaching the date when they will qualify for loan forgiveness and
that borrowers should be made aware in advance of the current treatment
of the loan forgiveness amount for tax purposes. The Department agreed
with the non-Federal negotiators and modified the proposed regulations
accordingly.
Borrowers Who Leave the IBR Plan
Statute: Section 493C(b)(8) of the HEA provides that a borrower who
is repaying a Direct Loan or an FFEL program loan under the IBR plan
may elect at any time to terminate repayment under the plan and repay
the loan under the standard repayment plan.
Current Regulations: Section 685.221(d)(2) of the Direct Loan
program regulations and Sec. 682.215(d)(2) of the FFEL program
regulations provide that if a borrower repaying under the IBR plan
elects to leave the plan, the borrower must pay under the standard
repayment plan. The regulations specify that the borrower's monthly
repayment amount will be recalculated based on the time remaining under
the maximum 10-year repayment period using the outstanding amount of
the borrower's loans when the borrower discontinues paying under the
IBR plan or, for Direct Consolidation and Federal Consolidation Loan
borrowers, based on the time remaining under the applicable repayment
period for the amount of the consolidation loan and the balance of
other student loans that is outstanding at the time the borrower stops
paying under the IBR plan.
Proposed Regulations: Proposed Sec. 685.221(d)(2)(i)(A) would
clarify that the time remaining under the maximum 10-year repayment
plan applies to Direct Subsidized, Direct Unsubsidized, and Direct PLUS
loans. Proposed Sec. 685.221(d)(2)(i)(B) and Sec. 682.215(d)(2)(ii)
would also clarify that a Consolidation Loan borrower's
[[Page 42111]]
recalculated payment when the borrower elects to leave the IBR plan is
based on the time remaining under the applicable repayment period that
was initially determined when the Consolidation Loan was made.
Sections 685.221(d)(2)(ii) and 682.215(d)(3) of the proposed
regulations would provide that a borrower who leaves the IBR plan and
is placed on the standard repayment plan may change to a different
repayment plan after making one monthly payment under the standard
repayment plan. Under the proposed regulations, the single payment made
under the standard repayment plan could include a smaller payment
amount paid under a reduced payment forbearance agreement with the loan
holder or the Secretary.
Reasons: The statutory maximum 10-year repayment period applies
only to Direct Subsidized, Direct Unsubsidized and Direct PLUS Loans.
The initial applicable repayment period for a Consolidation Loan is
based on the total amount of the loans consolidated plus other student
loans that were not consolidated but which the borrower asked be
considered in establishing the consolidation loan repayment period. As
a result, the reference in current regulations to ``the balance of
other student loans'' being a factor in establishing the recalculated
payment of an existing Consolidation Loan is incorrect and has been
deleted. During the negotiated rulemaking sessions, the Department
explained that this change is a technical correction that was submitted
to the Department prior to the negotiated rulemaking process.
With regard to borrower options for changing to a different
repayment plan after leaving the IBR plan and being placed on the
standard repayment plan, the Department initially proposed to
incorporate into regulations its current policy that a borrower leaving
the IBR plan must make one full monthly payment under the 10-year
standard repayment plan or the standard consolidation repayment plan,
as applicable, before the borrower would be permitted to select another
repayment plan. Some non-Federal negotiators argued that the
requirement for one full standard repayment amount could represent a
hardship to a borrower that could precipitate a delinquency or impede
the borrower's ability to enter another, more flexible repayment plan,
such as the extended repayment plan. In response to these concerns, the
Department has proposed regulations that would require the borrower to
make one monthly payment while under a standard repayment plan, but
allow for that payment to be for a lesser amount than the full
scheduled monthly payment amount under a reduced payment forbearance
agreement with the Secretary or the loan holder.
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
this regulatory action is ``significant'' and, therefore, subject to
the requirements of the Executive order and subject to review by the
Office of Management and Budget (OMB). Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as an action likely
to result in a rule that may--
(1) Have an annual effect on the economy of $100 million or more,
or adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local or
Tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule);
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
Executive order.
This proposed regulatory action would have an annual effect on the
economy of more than $100 million because the availability of the ICR-A
repayment plan is estimated to cost approximately $2.1 billion over 10
years. Therefore, this proposed action is economically significant and
subject to review by OMB under section 3(f) of Executive Order 12866.
Notwithstanding this determination, we have assessed the potential
costs and benefits--both quantitative and qualitative--of this
regulatory action. The agency believes that the benefits justify the
costs.
We have also reviewed these regulations pursuant to Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires that an agency--
(1) Propose or adopt regulations only upon a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor their regulations to impose the least burden on society,
consistent with obtaining regulatory objectives, taking into account,
among other things, and to the extent practicable, the costs of
cumulative regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather
than specifying the behavior or manner of compliance that regulated
entities must adopt; and
(5) Identify and assess available alternatives to direct
regulation, including providing economic incentives to encourage the
desired behavior, such as user fees or marketable permits, or providing
information upon which choices can be made by the public.
We emphasize as well that Executive Order 13563 requires agencies
``to use the best available techniques to quantify anticipated present
and future benefits and costs as accurately as possible.'' In its
February 2, 2011, memorandum (M-11-10) on Executive Order 13563, the
Office of Information and Regulatory Affairs within the Office of
Management and Budget emphasized that such techniques may include
``identifying changing future compliance costs that might result from
technological innovation or anticipated behavioral changes.''
We are issuing these proposed regulations only upon a reasoned
determination that their benefits justify their costs. In choosing
among alternative regulatory approaches, we selected those approaches
that maximize net benefits. Based on the analysis below, the Department
believes that these proposed regulations are consistent with the
principles in Executive Order 13563.
We also have determined that this regulatory action would not
unduly interfere with State, local, and Tribal governments in the
exercise of their governmental functions.
In this regulatory impact analysis we discuss the need for
regulatory action, the potential costs and benefits, net budget
impacts, assumptions, limitations, and data sources, as well as
regulatory alternatives we considered. Elsewhere in this section under
Paperwork Reduction Act of 1995, we identify and explain burdens
specifically associated with information collection requirements.
[[Page 42112]]
The Need for Regulatory Action
The Department is responsible for administration of the Federal
student loan programs authorized by title IV of the HEA. Federal
student loans are a crucial element in providing important
opportunities for Americans seeking to expand their skills and earn
postsecondary degrees and certificates. One of the Department's goals
is to ensure that its regulations promote a transparent and consistent
administration of title IV programs. Borrowers should be able to easily
understand their rights, responsibilities, and options. Sometimes
statutory revisions or Administration priorities require the Department
to revise its policies and regulations. With these proposed
regulations, the Department seeks to enhance the income-driven
repayment options available to borrowers so student loan debt would be
manageable and students would continue to pursue postsecondary
education that makes sense for them. In addition, the Department hopes
to improve the total and permanent disability process to increase
efficiency and consistency in the treatment of borrowers.
The passage of the SAFRA Act (Pub. L. 111-152) ended the
origination of new FFEL program loans and amended the statutory
provisions governing the IBR plan so that the discretionary income caps
and loan forgiveness eligibility periods would be reduced effective
July 1, 2014, for new borrowers who choose the IBR repayment plan.
Student loan indebtedness and unrelenting increases in tuition
costs have become major issues not only in the media but at the kitchen
table in millions of American households. In light of recent economic
conditions, many Americans remain worried that postsecondary education
is becoming, or has become, unaffordable for themselves and their
children. Recognizing that fear of unmanageable student loan
indebtedness may discourage potential students from seeking
postsecondary education, Congress enacted, as part of SAFRA, President
Obama's proposal to lower IBR student loan payment caps and offer
forgiveness after 20 years of qualifying payments for new borrowers in
2014.
Concerned about those students now graduating and entering the
workforce, President Obama proposed the Pay As You Earn initiative.
This proposal would revise the ICR repayment plan in the Direct Loan
program to reflect the statutory changes made to IBR by SAFRA. Eligible
borrowers (new borrowers on or after October 1, 2007, with new loans in
2012) would be able to take advantage of the 10 percent income caps in
the fall of 2012 instead of waiting until 2014 for the statutory
changes to IBR.
In order to achieve the goals of the President's Pay As You Earn
initiative and provide maximum benefit to borrowers, the Secretary is
proposing to make improvements to the ICR repayment plan while
implementing the statutory IBR changes. The proposed revisions would
offer eligible borrowers lower payments and loan forgiveness after 20
years of qualifying payments. As discussed earlier in this section,
income-based repayment options may encourage higher borrowing and
potentially introduce an unintended moral hazard, especially for
borrowers enrolled at schools with high tuitions and with low expected
income streams, but the proposed changes should not substantially
increase the potential moral hazard when compared to existing IBR or
ICR plans. Table 2 summarizes the differences in eligibility between
the existing and proposed IBR and ICR programs.
Table 2--Summary of Existing and Proposed IBR and ICR Plans
----------------------------------------------------------------------------------------------------------------
Proposed revised IBR
Current IBR (with 07/01/2014 Proposed ICR-A Current ICR
statutory changes) (proposed ICR-B)
----------------------------------------------------------------------------------------------------------------
Loan Program and Direct Loan Direct Loan Direct Loan Direct Loan
Eligible Borrowers Program. Program only. Program only. Program only.
FFEL Program Only new Only new FFEL new
borrowers as of July borrowers in 2008 borrowers in 2008
1, 2014: who receive a may qualify through
[cir] Must have no Direct Loan consolidation into
outstanding Direct disbursement in the Direct Loan
Loan or FFEL balance 2012 or later: Program.
as of July 1, 2014 [cir] Must have no
or on the date a new outstanding Direct
Direct Loan is Loan or FFEL
received after July balance as of
1, 2014. October 1, 2007 or
on the date a new
Direct Loan or FFEL
Program loan is
received after
October 1, 2007;
and.
[cir] Must
receive a
disbursement of
a Direct Loan on/
after October 1,
2011, or receive
a Direct
Consolidation
Loan based on an
application
received on/
after October 1,
2011.
FFEL
borrowers may
qualify through
consolidation into
the Direct Loan
Program.
Graduate/Professional Yes.................. Yes.................. Yes................. Yes.
PLUS Loans eligible
[[Page 42113]]
Parent PLUS Loans No................... No................... No.................. No.
eligible?
Consolidation Loans No................... No................... No.................. Yes.
that repaid Parent
PLUS Loans eligible
Partial Financial Yes.................. Yes.................. Yes................. No.
Hardship Required
Partial Financial 10-year standard 10-year standard 10-year standard N/A.
Hardship Definition payment amount on payment amount on payment amount on
eligible loans eligible loans eligible loans
(annual amount owed) (annual amount owed) (annual amount
exceeds 15% of exceeds 10% of owed) exceeds 10%
difference between difference between of difference
AGI and 150% of AGI and 150% of between AGI and
poverty line amount. poverty line amount. 150% of poverty
line amount.
Forgiveness Period 25 years of 20 years of 20 years of 25 years of
qualifying payments/ qualifying payments/ qualifying payments/ qualifying payments/
months of economic months of economic months of economic months of economic
hardship deferment. hardship deferment. hardship deferment. hardship deferment.
Estimated Borrowers 1.53................. 1.03................. 1.67................ 0.39.
Eligible for
Participation (2012-
2021 cohorts in
millions) *
----------------------------------------------------------------------------------------------------------------
* Note: While the figures represent the 2012-2021 cohorts, the numbers only apply to those cohorts eligible for
the particular program. For example, the 1.03 million for the Proposed Revised IBR only includes eligible new
borrowers after July 1, 2014.
The Department's current process for considering applications for
total and permanent disability discharges on student loans has also
been reviewed for efficiencies and improved consistency in response to
concerns raised by the Department and external parties. Borrowers and
advocates particularly have cited the application process and
monitoring period requirements as problematic. The proposed revisions
would address these problems by requiring borrowers to submit
applications for disability discharges to the Secretary, ensuring
rejected applicants receive a thorough explanation of the reasons for
their rejection and adequate information about their options, and
simplifying the income verification process during the three-year
monitoring period. The proposed regulations would also eliminate the
necessity for FFEL lenders and guaranty agencies to evaluate disability
discharge applications and ensure that the disability discharge
application process is expedited for veterans as well.
Beyond those details, Executive Order 12866 emphasizes that
``Federal agencies should promulgate only such regulations as are
required by law, are necessary to interpret the law, or are made
necessary by compelling public need, such as material failures of
private markets to protect or improve the health and safety of the
public, the environment, or the well-being of the American people.'' In
this case, there is indeed a compelling public need for regulation. The
Secretary recognizes the growth in the number of students enrolled in
college, the ongoing rise in tuition, the resulting increased need for
student loans, and the increased difficulty in repaying them. The
Secretary's goal in regulating is to provide borrowers with maximum
repayment options to support debt management and improve the process
for considering applications for disability discharges on Federal
student loans.
The steep increase in the cost of tuition in America has been well
documented. According to data collected by the Department's National
Center for Education Statistics (NCES), the cost of tuition, room and
board for full-time students at America's 4-year public and private
non-profit institutions rose by over 500 percent between 1980 and 2010.
Even if controlled for inflation, there was still a 140 percent
increase.\1\ As chart 1A shows, this is a steep increase in a short
amount of time. The average published tuition and fees at 4-year public
universities increased by 8.3 percent between the 2010-2011 and 2011-
2012 academic years, according to College Board.\2\ The tuition pinch
is not limited to undergraduate studies. Chart 1B shows that the
average price of tuition and required fees at graduate and professional
schools has doubled since 1988, even when adjusted for inflation.\3\
(Note: Disaggregated data for private, for-profit institutions
was not available for any year prior to 2006 so it was not included
in the charts).
\1\ This percentage was calculated by the Department using data
collected from Thomas D. Snyder and Sally A. Dillow, Digest of
Education Statistics 2010, (pgs. 493-495) Education (U.S. Department
of Education, April 2011), http://nces.ed.gov/pubs2011/2011015.pdf.
\2\ Trends in College Pricing 2011, Table 4A: Average Tuition
and Fees in Current Dollars, 1981-82 to 2011-12 (College Board
Advocacy and Policy Center, nd.), http://trends.collegeboard.org/college_pricing/report_findings/indicator/Tuition_Fees_Over_Time.
\3\ Snyder and Dillow, Digest of Education Statistics 2010, page
498.
---------------------------------------------------------------------------
Despite the increasing cost of tuition, enrollment at universities
has continued to climb. A large and growing percentage of jobs in the
U.S. economy now require a college degree. As a result, more students
are enrolling in college each year with hopes of building a career, and
there has been a large influx of non-traditional students as older
workers return to school to learn new skills or change careers.
BILLING CODE 4000-01-P
[[Page 42114]]
[GRAPHIC] [TIFF OMITTED] TP17JY12.000
[[Page 42115]]
[GRAPHIC] [TIFF OMITTED] TP17JY12.001
BILLING CODE 4001-01-C
The combination of increased enrollment and rising tuition has
contributed to a significant increase of student loan debt in America.
This outstanding debt has grown as more and more students seek the
benefits of postsecondary education and as students increasingly rely
on Federal student loans. According to data collected by NCES, 34.9
percent of all undergraduates took out a Federal student loan in the
2007-2008 academic year \4\ compared to 19.9 percent in the 1992-1993
academic year.\5\
---------------------------------------------------------------------------
\4\ Thomas D. Snyder and Sally A. Dillow, Digest of Education
Statistics: 2010, (United States Department of Education, National
Center for Education Statistics, April, 2011), http://nces.ed.gov/programs/digest/d10/tables/xls/tabn354.xls.
\5\ Thomas D. Snyder, Digest of Education Statistics: 1995
(United States Department of Education, National Center for
Education Statistics, October, 1995), http://nces.ed.gov/programs/digest/d95/dtab309.asp.
---------------------------------------------------------------------------
While higher levels of student loan debt are indicative of
troubling trends with respect to the cost of college, these higher
levels simultaneously reflect increased levels of investment in the
nation's human capital. These investments yield significant and
demonstrable benefits not only for individuals but for the nation as
well. For example, bachelor degree holders earn over 80 percent more
than do high school graduates over the course of a lifetime. This
difference can amount to about $1 million for an individual worker.\6\
Moreover, college graduates also experience lower levels of
unemployment, and shorter durations of unemployment, than those without
a college degree. Additionally, students who complete college have
substantially lower unemployment rates than high school graduates.
According to May 2012 data from the Bureau of Labor Statistics, adult
high school graduates have an unemployment rate of 8.1 percent compared
to 3.9 percent for adults with a bachelor's degree. For the Nation,
higher levels of educational attainment increase economic productivity
and raise gross domestic product, among many other benefits.
---------------------------------------------------------------------------
\6\ Anthony P. Carnevale, Stephen J. Rose and Ban Cheah, The
College Payoff: Education, Occupations, Lifetime Earnings, pg. 3
(Georgetown University, The Georgetown University Center on
Education and the Workforce), http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/collegepayoff-complete.pdf.
---------------------------------------------------------------------------
For recent graduates with college degrees, their hard-earned
diplomas will undoubtedly yield long-term benefits. However, even
though the economy has begun to strengthen, many recent graduates are
finding it challenging to obtain employment and garner wages at or near
average levels. A March 2011 letter published by the Federal Reserve
Bank of San Francisco, for example, highlighted that the unemployment
rate of recent graduates has doubled over the past few years.\7\ Even
for recent graduates who obtain employment, prior research has shown
that it can take several years for those entering the workforce during
a recession to reach normal wage levels.\8\ For these graduates and for
borrowers who do not complete a degree, the need to begin repayment on
their student loans can be especially daunting.
---------------------------------------------------------------------------
\7\ Bart Hobijn, Colin Gardiner, and Theodor Wiles, Recent
College Graduates and the Labor Market, March 21, 2011, http://www.frbsf.org/publications/economics/letter/2011/el2011-09.html.
\8\ Philip Oreopoulos, Till von Wachter, and Andrew Heisz, The
Short- and Long-Term Career Effects of Graduating in a Recession:
Hysteresis and Heterogeneity in the Market for College Graduates,
Economic (The National Bureau of Economic Research, April 2006),
http://www.nber.org/papers/w12159.
---------------------------------------------------------------------------
The proposed ICR and IBR plans would provide borrowers with
improved income related payment management options. They would also
encourage borrowers to honor their debt commitments by offering loan
forgiveness after 20 years of qualifying payments in an income-related
payment plan.
[[Page 42116]]
In addition to implementing statutory changes in the IBR plan and
revising the ICR plan, the proposed regulations would also seek to
solve well-documented problems with the process for evaluating
discharge applications. The current process by which borrowers apply
for a discharge has led to inconsistencies in determining eligibility
and created hardships for eligible borrowers who are unable to fulfill
their monitoring period requirements. Currently, borrowers who have
suffered a total and permanent disability that leaves them unable to
fulfill their loan obligation contact the holders of their loans and
apply for a discharge. Lenders have different processes and this has
led to discrepancies in the way loan holders are processing and
assessing borrowers' eligibility for total and permanent disability.
Also, the current reporting requirements during the monitoring period
have proved to be strenuous on borrowers with disabilities and many who
may meet all other eligibility requirements are having their loans
reinstated due to failure to meet the current reporting requirements.
The Secretary is proposing to revise the regulations governing
disability discharges in the different title IV student loan programs
to standardize the process. Under the proposed regulations, all
discharge applications would be submitted directly to the Secretary.
The Department's proposal eliminates the requirement that each of a
borrower's loan holders (and guaranty agencies, in the FFEL program)
review the borrower's disability discharge application. Through this
process, the Secretary would ensure consistency in the administration
of the disability discharge process. A more detailed analysis of these
changes is provided in the Significant Proposed Regulations section of
this preamble.
Executive Order 13563, Section 4, notes that ``Where relevant,
feasible, and consistent with regulatory objectives, and to the extent
permitted by law, each agency shall identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public. These approaches include warnings, appropriate
default rules, and disclosure requirements as well as provision of
information to the public in a form that is clear and intelligible.''
Consistent with this section of the Executive order, the Department is
enhancing the information available to prospective and enrolled
students, providing better guidance, and offering more feasible loan
repayment options through these proposed regulations.
Discussion of Costs, Benefits, and Transfers
Consistent with the principles of Executive Orders 12866 and 13563,
the Department has analyzed the impact of these regulations on
students, businesses, the Federal government, and State and local
governments. The analysis rests on the projected impact of the
regulations. The benefits and costs are discussed below.
Income Contingent Repayment
The proposed revisions to the Income Contingent Repayment plan
would cap payments for eligible borrowers at 10 percent of
discretionary income divided by 12. This is a reduction from the
current 15 percent cap and would be consistent with the statutory
changes to IBR that become effective in 2014. Proposed ICR (ICR-A)
would be available to eligible borrowers in the fall of 2012. A
detailed breakdown of the proposed qualifications needed for
participation in either plan is provided earlier in Table 2.
Accurately predicting or forecasting transfers or costs from the
proposed ICR changes is difficult because they will depend heavily on
borrower trends and participation. Traditionally, there has been low
participation in ICR, and many participants were forced into ICR in
order to consolidate defaulted loans. ICR-A may see an enrollment push,
however, as a result of the publicity it could receive as part of the
President's Pay As You Earn repayment initiative. Economic recovery
will also play a large role. If the economy shows significant
improvement and wage levels begin to rise, then borrowers whose
salaries have increased significantly may opt to leave ICR for another
repayment plan, particularly if they no longer qualify for partial
financial hardship. The following examples and discussion will analyze
the difference in payments for borrowers under ICR-B and ICR-A. ICR-B
payments are calculated using the lesser amount of the amount borrowers
would pay if you they repaid their loan in 12 years multiplied by an
income percentage factor that varies with their adjusted gross income
(AGI), or the difference between AGI and the applicable HHS poverty
guideline amount, divided by 12. Borrowers can calculate what their
payments would be under ICR-B on the Federal Student Aid Web site at
(http://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp). ICR-A payments are calculated using 10 percent
of the difference between the subject's AGI and 150 percent of the
applicable HHS poverty guidelines amount, divided by 12 (ICR-A would
require PFH for initial qualification so first year calculations will
assume PFH).
Example 1: Susan is a single borrower living in Ohio with no
dependents. She has an (AGI) of $28,000 and $25,000 in student loan
debt. Susan currently has an interest rate of 6.8 percent. Under
proposed ICR-B (the current ICR) calculations, Susan's monthly payment
(first year) would be more than $190 a month. Under ICR-A, Susan's
payments would be roughly $94 a month, almost $97 less. In total in the
first year, Susan would pay $1,162 less, as illustrated in Chart 2A.
Example 1 illustrates the change in monthly payments possible for a
borrower with Susan's income and family size. If we assume that her
discretionary income and family size remains the same over the life of
the loan and she stays in ICR-A and makes twenty years of qualifying
payments, she would pay $22,560 and would have a balance of $39,493
forgiven. This simplified example demonstrates one possible outcome for
a hypothetical borrower and actual outcomes would depend on the
borrower's income growth, family size, and repayment plan decisions.
Across the pool of ICR-A borrowers, some would receive forgiveness and
others would pay in full, and the combined effect of these outcomes
leads to the estimated $2.1 billion cost of the proposal as described
in the Net Budget Impacts section of this RIA.
Example 2: Jim also lives in Ohio but is married, the head of
household and has two dependents. Jim has an AGI of $48,000, $25,000 in
student loan debt and a 6.8 percent interest rate. Under ICR-A, Jim's
first year payments would be almost $112 less per month than under
proposed ICR-B (the current ICR), as displayed in Chart 2B below.
[[Page 42117]]
----------------------------------------------------------------------------------------------------------------
Chart 2A. Susan's first year payments under ICR-A and ICR-B (All figures Chart 2B. Jim's first year
rounded to nearest dollar) payments under ICR-A and ICR-
--------------------------------------------------------------------------------- B (All figures rounded to
nearest dollar)
First year -------------------------------
Plan Monthly total First year
Monthly total
----------------------------------------------------------------------------------------------------------------
Current ICR (ICR-B)............................. $191 $2,287 $251 $3,009
ICR-A........................................... 94 1,125 112 1,343
Difference...................................... 97 1,162 139 1,666
----------------------------------------------------------------------------------------------------------------
Example 3: In 2011, the average student finished undergraduate
studies with around $23,000 in student loan debt. Chart 2C looks at how
that borrower's first-year payments would measure under ICR-A and ICR-B
if they started at different salary levels.
Chart 2C--First Year Payments Under ICR-A & ICR-B
[$23,000 Debt, 6.8 percent interest rate, single]
----------------------------------------------------------------------------------------------------------------
AGI $20,000 $25,000 $30,000 $35,000 $40,000 $45,000
----------------------------------------------------------------------------------------------------------------
Standard Repayment............................ $265 $265 $265 $265 $265 $265
ICR-B......................................... 147 164 183 197 210 223
ICR-A......................................... 27 69 110 152 194 235
Difference (ICR-B vs. ICR-A).................. 120 95 73 45 16 (12)
----------------------------------------------------------------------------------------------------------------
Chart 2C shows that the difference between ICR-B and ICR-A payments
in the first year is more drastic at lower salary levels. A borrower
entering into repayment with $23,000 worth of loans and a 6.8 percent
interest rate would have lower monthly payments under ICR-A up to the
$45,000 salary level. A borrower who leaves school with $23,000 in
student loans and takes a job making $25,000 would have monthly
payments that are $95 cheaper under ICR-A than ICR-B.
ICR-A would also offer loan forgiveness after 20 years of payments;
the current ICR plan (proposed ICR-B) offers forgiveness after 25
years. Consequently, eligible borrowers may have five fewer years of
payments under proposed ICR-A. The effects of this change would also
depend on borrower trends, enrollment, and possibly the economy.
As mentioned earlier, the ability of recent graduates to find
suitable employment may play a large role in determining the
participation rate of ICR. The job struggles of new graduates have been
well documented. However, 2011 graduates who were able to find
employment saw an average starting salary of $51,171 according to the
National Association of Colleges and Employers' fall 2011 Salary
Survey.\9\ The average single borrower entering repayment with a
$50,000 salary and 6.8 percent interest rate would not qualify for ICR-
A unless the borrower had around $24,500 or more in eligible debt.
However, those borrowers who enter into lower paying jobs or struggle
to find employment may benefit from participating in ICR-A.
---------------------------------------------------------------------------
\9\ National Association of Colleges and Employers, Fall 2011
Salary Survey, http://www.naceweb.org/Press/Releases/Average_Salary_Offer_Rises_6_Percent_for_the_Class_of_2011.aspx.
---------------------------------------------------------------------------
Leaving ICR-B open to direct and eligible consolidation loan
borrowers ensures that the majority of borrowers would have an income-
driven payment option. This may be particularly important for borrowers
employed in jobs eligible for public sector loan forgiveness after 10
years but who do not qualify for IBR or ICR-A. This would allow
borrowers to choose which repayment plan is the best option for them.
The formulas and calculators for the standard and fixed payment plans
can be found at (http://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp).
Chart 2D--First Year Monthly Payments Under ICR-B, Standard and Extended Fixed Repayment Plans
[$35,000 Debt, 6.8 percent interest rate, single]
----------------------------------------------------------------------------------------------------------------
AGI $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000
----------------------------------------------------------------------------------------------------------------
Standard............................. $403 $403 $403 $403 $403 $403 $403
Extended fixed (25 years)............ 243 243 243 243 243 243 243
ICR-B................................ 300 319 339 356 356 359 377
----------------------------------------------------------------------------------------------------------------
For a single borrower with $35,000 in debt, a 6.8 percent interest
rate, and an annual salary under $65,000, Chart 2D shows that ICR-B
would provide for lower monthly payments during the first year of
repayment than would the standard repayment plan but higher payments
than the extended fixed repayment amounts. The annual recalculation of
payments under current ICR (proposed ICR-B) takes current debt amounts
into consideration and the payments would more than likely adjust.
All of the examples used above are only estimates. While these
examples are able to paint a relatively clear picture of how the
proposed regulations would affect individual borrowers' payments in a
given year, they lack the scalability required to show an exact link to
the overall budget impact because of the uniqueness of any borrower's
circumstances. Initial
[[Page 42118]]
payments and payments over time would vary based on borrower behavior.
ICR Borrowers may see their payments fluctuate because of marriage, pay
raises, or children. As in IBR, under ICR-A borrowers are re-evaluated
annually and payments may rise based on family size and AGI to the
point they trigger a 10-year standard payment amount that, depending on
the amount of the debt, may result in the borrower either repaying the
debt in full before 20 years and receiving no forgiveness or leaving
the plan entirely and receiving no forgiveness. Those borrowers who end
up with lower payments would have more disposable income and possibly
have a net positive impact on the economy. However, some borrowers
would pay more money overall in order to have smaller payments up
front.
There would also be other small costs and transfers associated with
ICR-A. For those borrowers under partial financial hardship (PFH) with
calculated payments less than $5 would not have to pay at all, while
there is a $5 minimum payment under current ICR (proposed ICR-B).
Borrowers qualified for PFH would have $10 monthly payments if
their calculated payments are greater than $5 but less than $10. There
is no PFH determination under current ICR (proposed ICR-B).
Interest would be capped at 10 percent of the original principal
balance at the time borrower enters proposed ICR-A compared to current
ICR (proposed ICR-B) in which interest is capped at 10 percent of the
original principal amount at the time the borrower entered repayment.
This may or may not mean lower total loan debts. For married borrowers,
joint AGI and eligible loan debt would be used only if the couple files
a joint tax return under proposed ICR-A. Current ICR (proposed ICR-B)
uses joint AGI and eligible loan debt regardless of filing status.
Income Based Repayment
The statutory changes to the Income Based Repayment Plan reduce the
discretionary income payment cap to 10 percent and loan forgiveness
period to 20 years for eligible borrowers, effective July 1, 2014. IBR
participants may have lower payments as a result and may be able to
take advantage of loan forgiveness. The PFH definition changes from
when the 10-year standard payment amount on eligible loans (annual
amount owed) exceeds 15 percent of the difference between AGI and 150
percent of the poverty line amount to 10 percent.
Accurately predicting or forecasting the transfers from these
changes is particularly difficult because most of them would heavily
depend on borrower trends. Economic recovery would also play a large
role. If the economy shows significant improvement and wage levels
begin to rise, then borrowers whose salaries have increased
significantly may opt to leave IBR for another one of the repayment
plans, particularly if they no longer qualify for partial financial
hardship.
The following examples and discussion will analyze possible
transfers for new borrowers under the 2014 implementation of the IBR
revisions. Currently IBR payments are calculated by using 15 percent of
the difference between 150 percent of the applicable HHS poverty
guidelines and the borrower's AGI, divided by 12.\10\ The proposed IBR
repayment plan would use 10 percent of the difference between 150
percent of the applicable HHS poverty guidelines and the borrower's
AGI, divided by 12.
---------------------------------------------------------------------------
\10\ Repayment Plans and Calculators, Government, n.d., http://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp.
---------------------------------------------------------------------------
Example 1: Susan is a single borrower living in Ohio with no
dependents. She has an Adjusted Gross Income (AGI) of $28,000 and
$25,000 in student loan debt. Susan currently has an interest rate of
6.8 percent. Under the current IBR calculations, Susan's monthly
payment would be $141 a month in her first year. Under the proposed IBR
calculations, Susan's first-year payments would be $94 a month, $47
less. Over the course of the year, Susan would pay $562 less, as
displayed in Chart 3A.
Example 2: Jim also lives in Ohio but is married, the head of a
household, and he has two dependents. Jim has an AGI of $48,000, and
$25,000 in student loan debt with a 6.8 percent interest rate. Under
the proposed IBR, Jim's first year payments would be almost $56 less
per month, as displayed in Chart 3B below.
----------------------------------------------------------------------------------------------------------------
Chart 3A. Susan's payments under current and revised IBR (All figures rounded Chart 3B. Jim's payments under
to nearest dollar) current and revised IBR (All
--------------------------------------------------------------------------------- figures rounded to nearest
dollar)
First year -------------------------------
Plan Monthly total First year
Monthly total
----------------------------------------------------------------------------------------------------------------
IBR (current)................................... $141 $1,687 $168 $2,014
IBR (revised)................................... 94 1,125 112 1,343
Difference...................................... 47 562 56 671
----------------------------------------------------------------------------------------------------------------
Proposed IBR would also offer loan forgiveness after 20 years of
repayment. Currently, forgiveness is given after 25 years. Eligible
borrowers may have five fewer years of payments. The effects of this
change would also depend on borrower trends, enrollment, and possibly
the economy. The following discussion will look at how this change may
affect a borrower.
Example 3: Jesse finishes college with $40,000 in student loan debt
and a 6.8 percent interest rate. Jesse's loan would be repaid under an
IBR plan based on partial financial hardship. Five years after entering
repayment, Jesse gets married and has a daughter. He adds a second
child after the seventh year in repayment. The charts and graph below
demonstrates Jesse's payments under current and proposed IBR.
Chart 3C--Jesse's Payments Under Current and Revised IBR
----------------------------------------------------------------------------------------------------------------
Year(s) of repayment 1 2 3 4 5 6
----------------------------------------------------------------------------------------------------------------
Salary............................ $22,000 $22,000 $23,000 $23,000 $30,000 $30,000
Current IBR....................... 66 66 78 78 17 17
Revised IBR....................... 44 44 52 52 11 11
Monthly Payment Reduction......... 22 22 26 26 6 6
[[Page 42119]]
Annual Payment Reduction.......... 262 262 312 312 68 68
Family Size....................... 1 1 1 1 3 3
Married/HOH....................... No No No No Yes Yes
----------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year(s) of repayment 7 8 9 10 11 12 13
--------------------------------------------------------------------------------------------------------------------------------------------------------
Salary....................................................... $40,000 $41,000 $41,000 $41,000 $45,000 $45,000 $47,000
Current IBR.................................................. 68 80 80 80 130 130 155
Revised IBR.................................................. 45 54 54 54 87 87 104
Monthly Payment Reduction.................................... 23 26 27 27 43 43 52
Annual Payment Reduction..................................... 271 321 321 321 521 521 621
Family Size.................................................. 4 4 4 4 4 4 4
Married/HOH.................................................. Yes Yes Yes Yes Yes Yes Yes
--------------------------------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Year(s) of repayment 14 15 16 17 18 19
----------------------------------------------------------------------------------------------------------------
Salary............................ $47,000 $50,000 $51,000 $55,000 $55,000 $55,000
Current IBR....................... 155 193 205 255 255 255
Revised IBR....................... 104 129 137 170 170 170
Monthly Payment Reduction......... 52 64 68 85 85 85
Annual Payment Reduction.......... 621 771 821 1,021 1,021 1,021
Family Size....................... 4 4 4 4 4 4
Married/HOH....................... Yes Yes Yes Yes Yes Yes
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Year(s) of repayment 20 21 22 23 24 25
----------------------------------------------------------------------------------------------------------------
Salary............................ $57,000 $57,000 $57,000 $60,000 $60,000 $60,000
Current IBR....................... 280 280 280 318 318 318
Revised IBR....................... 187 ........... ........... ........... ........... ...........
Monthly Payment Reduction......... 93 280 280 318 318 318
Annual Payment Reduction.......... 1,121 3,364 3,364 3,814 3,814 3,814
Family Size....................... 4 4 4 4 4 4
Married/HOH....................... Yes Yes Yes Yes Yes Yes
----------------------------------------------------------------------------------------------------------------
[[Page 42120]]
[GRAPHIC] [TIFF OMITTED] TP17JY12.003
As demonstrated, Jesse would have substantially smaller payments
under the proposed IBR plan, particularly as his income rises. The
five-year difference in the forgiveness period alone would mean $18,000
less in payments. Overall, Jesse would pay back $28,000 less under the
proposed IBR plan than the current one. This example assumes that Jesse
remains qualified for PFH. Jesse's example is based on assumptions
about a particular borrower and cannot be used to make large scale
projections. Monthly payments would vary over the life of a loan based
on many factors. If Jesse did not get married or have children, his
payments would have been different.
Overall, the proposed IBR revisions would offer many benefits.
Reduced income caps, PFH payment qualifications, and loan forgiveness
periods may encourage more borrowers to acknowledge their loan debt and
could possibly decrease the default rate. The savings that eligible
borrowers could acquire via reduced payment amounts and loan
forgiveness periods would allow borrowers to have more disposable
income and would have a net positive impact on the economy. Some
borrowers may initially pay more money overall however, in order to
have lower payments up front.
The examples used above are all based on certain assumptions about
particular borrowers and cannot accurately be expanded to project
market level transfers or costs. As mentioned earlier, borrowers who no
longer qualify for PFH may very well opt to leave IBR for another
payment plan. The proposed regulations would allow a borrower to use
forbearance and pay less than the standard payment when leaving IBR.
Total and Permanent Disability Discharge
The Department believes that the proposed streamlined total and
permanent disability discharge process would provide many benefits to
borrowers. The proposed regulations would--
Simplify the process for the borrower;
Establish a single point of contact for the borrower
throughout the disability discharge process;
Reduce the time needed to process applications;
Provide more consistency in eligibility determinations;
Provide more uniformity in the communications sent to
borrowers throughout the process; and
Ensure that all of a borrower's title IV loans that are
eligible for a total and permanent disability discharge are discharged
at the same time, reducing instances of ``straggler'' loans that the
borrower may forget to include when applying for discharge of the
borrower's other title IV loans.
By ensuring that denied applicants have adequate information about
the reasons for their denial and their future options, borrowers would
be able to make better informed decisions and possibly correct their
applications if denial is a result of applicant error. This may reduce
the number of technically eligible borrowers who fail to have their
loans discharged. Increasing the number of discharged loans could lead
to an increased transfer of funds to borrowers as they would not be
required to make loan payments.
By developing an OMB approved form for income reporting purposes,
the Secretary will simplify the post-discharge monitoring process and
possibly reduce the number of otherwise eligible borrowers with
disabilities who have their loans reinstated. Currently, a large
proportion of discharged borrowers end up with their loans reinstated
because of failure to submit adequate information during the post-
discharge monitoring period. By reducing the number of borrowers with
disabilities who have their loans
[[Page 42121]]
reinstated for failure to provide income information, but who may be
otherwise eligible, the Secretary would provide economic relief for
many of the country's most vulnerable citizens.
In 2011, approximately 78,000 borrowers applied for a total and
permanent disability discharge of 179,454 loans across the Direct,
FFEL, and Perkins loan programs. The proposed total and permanent
disability process will offer many benefits to borrowers with
disabilities and possibly reduce the number of reinstatements. The
surplus in applications and discharges that could occur as an incentive
of the simplified process, would lead to a transfer of funds from the
Federal government to borrowers by the way of debt elimination. Also,
by allowing direct application to the Secretary, all applications would
be held to the same standard. The chances for inconsistency in the
review process would be drastically reduced. The elimination of
multiple medical evaluations would relieve administrative burden on
title IV providers and reduce the application review time.
Also, the Department believes that veterans would benefit if the
changes proposed to the non-veterans total and permanent disability
discharge also applied to the process for disability discharges based
on VA documentation.
Borrowers with disabilities would benefit from the elimination of
the requirement that a physician provide a letter requesting more time
for the borrower to submit a total and permanent disability discharge
application.
As noted, while the Department does believe that the proposed
revisions would ultimately benefit truly eligible borrowers, it cannot
accurately predict applicant behavior as a result.
Net Budget Impacts
The proposed regulations are estimated to have a net budget impact
of $2.1 billion in subsidy cost over the 2012 to 2021 loan cohorts.
Consistent with the requirements of the Credit Reform Act of 1990
(CRA), budget cost estimates for the student loan programs reflect the
estimated net present value of all future non-administrative Federal
costs associated with a cohort of loans. A cohort reflects all loans
originated in a given fiscal year.
These estimates were developed using the Office of Management and
Budget's (OMB) Credit Subsidy Calculator. The OMB calculator takes
projected future cash flows from the Department's student loan cost
estimation model and produces discounted subsidy rates reflecting the
net present value of all future Federal costs associated with awards
made in a given fiscal year. Values are calculated using a ``basket of
zeros'' methodology under which each cash flow is discounted using the
interest rate of a zero-coupon Treasury bond with the same maturity as
that cash flow. To ensure comparability across programs, this
methodology is incorporated into the calculator and used Government-
wide to develop estimates of the Federal cost of credit programs.
Accordingly, the Department believes it is the appropriate methodology
to use in developing estimates for these regulations. That said, in
developing the following Accounting Statement, the Department consulted
with OMB on how to integrate our discounting methodology with the
discounting methodology traditionally used in developing regulatory
impact analyses.
Absent evidence of the impact of these regulations on student
behavior, budget cost estimates were based on behavior as reflected in
various Department data sets and longitudinal surveys listed under
Assumptions, Limitations, and Data Sources. Program cost estimates were
generated by running projected cash flows related to each provision
through the Department's student loan cost estimation model. Student
loan cost estimates are developed across five risk categories: for-
profit institutions (less than 2-year), 2-year institutions, freshmen/
sophomores at 4-year institutions, juniors/seniors at 4-year
institutions, and graduate students. Risk categories have separate
assumptions based on the historical pattern of behavior of borrowers in
each category--for example, the likelihood of default or the likelihood
to use statutory deferment or discharge benefits.
Income Contingent Repayment
The budget impact in this package of regulations is related to the
changes in the ICR plan. These proposed regulations, based on the
President's Pay As You Earn initiative, create ICR-A, a new income-
contingent option that mirrors the changes made to the IBR repayment
plan by SAFRA. ICR-A allows new borrowers in FY 2008 or later with a
new loan in FY 2012 or later who demonstrate a partial financial
hardship to use an income contingent repayment plan based on 10 percent
of their discretionary income and a 20-year forgiveness period. The
terms and conditions of ICR-A are based on IBR, including the treatment
of married borrowers and the timing of interest capitalization, except
ICR-A maintains the cap on interest capitalization from existing ICR.
The existing ICR plan which has a threshold based on the lesser of the
12-year amortization of the loan multiplied by an income percentage
factor or 20 percent of discretionary income and a 25-year forgiveness
period would remain available for those borrowers who do not qualify or
choose ICR-A or IBR option because of timing, not qualifying for
partial financial hardship, or individual preference. The availability
of ICR-A, with its reduced income percentage and shorter forgiveness
period, is estimated to cost $2.1 billion over the 2012 to 2021 loan
cohorts.
To establish the baseline and to evaluate proposals related to the
ICR and IBR plans, the Department uses a micro-simulation model
consisting of borrower level data based on an extract of Direct Loan
borrowers in ICR. Income and family size is projected for each borrower
for 25 years using imputations developed by analyzing yearly changes in
income and family size from the Current Population Survey. Interest and
principal payments are calculated according to the regulations
governing the ICR and IBR programs, and the payments are adjusted for
the likelihood of deferment or forbearance; default and subsequent
collection; prepayment through consolidation; death, disability, or
bankruptcy; or Public Service Loan Forgiveness. The adjusted payment
flows are aggregated by population and cohort and loaded into the
Student Loan Model (SLM). The SLM combines the adjusted payment flows
with the expected volume of loans in income-contingent repayment to
generate estimates of Federal costs.
In evaluating the proposed changes to the ICR and IBR programs, the
Department assumes that, if possible, income-contingent borrowers would
elect the ICR-A plan given its more generous income and forgiveness
provisions. Based on this, the Department estimates that between 2012
and 2021 approximately 1.67 million borrowers not already eligible for
SAFRA IBR would be estimated to choose ICR-A. The availability of the
ICR-A repayment plan results in an estimated average savings of $4,250
per borrower. Assuming all those in ICR-A remained in the plan, the
Department estimates that approximately 13 percent would receive public
sector loan forgiveness, 39 percent would receive forgiveness after
twenty years of qualifying payments, and 48 percent would pay-off their
balances. (Note: the budget estimate of $2.1 billion takes into account
prepayment through consolidation, defaults, and death/
[[Page 42122]]
disability/bankruptcy discharges that lead to borrowers exiting the ICR
program early). The actual number of borrowers receiving forgiveness
will be significantly less than would be obtained by multiplying the
1.7 million borrowers estimate to take ICR by the above percentages
since not all borrowers will remain in ICR. Currently, the Department
estimates that approximately 400,000 borrowers from cohorts 2012
through 2021 would ultimately receive forgiveness. In general, those
borrowers receiving forgiveness have higher balances as payments based
on income are more likely to cover lower balances. Those receiving
forgiveness have an average original balance of approximately $39,500
and receive forgiveness of approximately $41,000 as their payments tend
to cover interest owed so they end up with balances forgiven close to
the original debt.
As discussed above, when the assumption for loan forgiveness is
increased as a result of a policy the cash flow impact is a reduction
in principal and interest payments. The subsidy cost is derived from
comparing the baseline payments to the policy payments (on a Net
Present Value basis) and comparing the two resulting subsidy rates. The
outlays are calculated by subtracting the new subsidy rate with the
policy cash flows from the baseline subsidy rate and multiplying by the
volume for the cohort. As stated above, compared to the baseline, the
availability of the ICR-A repayment plan is estimated to cost
approximately $2.1 billion for the cohorts from 2012 to 2021 as shown
in Table 3.
Table 3--Estimated Outlays for Cohorts 2012-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cohorts 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Budget Authority..................................... 134 199 208 255 235 253 239 249 224 177 2,173
Outlays.............................................. 114 191 208 253 235 246 234 254 218 178 2,132
--------------------------------------------------------------------------------------------------------------------------------------------------------
Income Based Repayment
The proposed changes to the IBR program that implement the
statutory changes in SAFRA are not expected to have a budgetary impact
because they were incorporated into the budget baseline by SAFRA. The
Department estimates that approximately one million new borrowers from
the 2014 to 2021 cohorts would benefit from the changes to IBR made by
SAFRA. The proposed regulations also include process clarifications
related to the ultimate loan forgiveness and the timing of notices and
annual certification. These changes are expected to improve the
servicing for IBR borrowers and provide guidance before the first set
of eligible borrowers reach the forgiveness point, but are not expected
to have a budgetary impact.
Total and Permanent Disability
The proposed regulations would establish a single application
process through the Department for borrowers seeking a total and
permanent disability discharge of their Federal loans, specify
requirements for more detailed information in total and permanent
disability discharge denial letters, and modify the process and
documentation requirements for the post-discharge monitoring period.
This should simplify the point of contact for borrowers or the
borrower's representative, eliminate straggler loans that do not
receive a discharge along with the borrower's other loans because they
are in a different program or with a different loan holder and the
borrower does not apply for or receive a discharge, and improve
consistency in eligibility determinations. Because the proposed
regulations do not change the standard for determining disability or
expand the pool of borrowers potentially eligible for discharge, there
is no expected effect on the Federal student loan budget. The
Department would continue to closely monitor the total and permanent
disability discharge process and any significant changes in the
frequency or magnitude of disability discharges would be reflected in
future budget estimates.
Accounting Statement
As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in the
following table we have prepared an accounting statement showing the
classification of the expenditures associated with the provisions of
these proposed regulations. This table provides our best estimate of
the costs, benefits, and changes in annual monetized transfers as a
result of the revisions to the ICR repayment plan as reflected in these
proposed regulations. As discussed in the Net Budget Impacts section of
this preamble, costs for policies affecting Federal student loans are
calculated under credit reform scoring and reflect the estimated net
present value of all future non-administrative Federal costs associated
with a cohort of loans. Under this approach, costs for a cohort are
discounted at OMB provided rates to the cohort year of disbursement
with the resulting outlays shown in Table 3. To generate the required
single annualized cost, the Department then discounted those costs from
the cohort years to 2012 at 7 percent and 3 percent, resulting in the
$214 million and $216 million annualized figures presented in the
following accounting statement. Expenditures are classified as
transfers from the Federal Government to borrowers in the revised ICR
repayment plan.
Accounting Statement Classification of Estimated Expenditures at 3
Percent and 7 Percent Discount Rates
[In millions]
------------------------------------------------------------------------
Category Costs
------------------------------------------------------------------------
Costs of compliance with paperwork requirements......... $1.40 (7%)
1.41 (3%)
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized reduced payments to Federal Government from $214 (7%)
borrowers in ICR-A repayment plan......................
216 (3%)
------------------------------------------------------------------------
Clarity of the Regulations
Executive Order 12866 and the Presidential memorandum ``Plain
Language in Government Writing'' requires each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them
[[Page 42123]]
into more (but shorter) sections? (A ``section'' is preceded by the
symbol ``Sec. '' and a numbered heading; for example, Sec. 682.209
Repayment of a loan.)
Could the description of the proposed regulations in the
``Supplementary Information'' section of this preamble be more helpful
in making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
To send any comments that concern how the Department could make
these proposed regulations easier to understand, see the instructions
in the ADDRESSES section of this preamble.
Alternatives Considered
In the spirit of good governance, the Department carefully
considers any regulatory action or revision to ensure that the final
decision represents what the Department believes is the best feasible
option. First and foremost, the Department considered whether or not
negotiated rulemaking was necessary in this instance and concluded that
the magnitude of the statutory and regulatory revisions to ICR, IBR,
and the TPD process would require stakeholder input. Many of the
regulatory alternatives proposed by non-federal negotiators and
considered by the Department but ultimately rejected, were done so
because of budgetary constraints. For example, non-Federal negotiators
requested that the Department open ICR-A to all borrowers eligible for
current ICR, but the Department declined because of the proposal's
significant cost but did agree to retain full borrower access to the
ICR-B plan so that all borrowers would have access to a ``income-
driven'' repayment plan. Nonetheless, the Department carefully worked
with the non-federal negotiators on every issue to address all concerns
possible and was able to gain consensus from the non-federal
negotiators the proposed regulations. A more in-depth analysis of these
discussions and decisions are documented preamble and a brief summary
of the major discussions is listed below.
The Department originally proposed requiring borrowers who
choose to leave the ICR-A plan to make at least one payment under the
standard repayment plan before selecting a different repayment plan, as
IBR borrowers are required to do under Sec. section 493C(b)(8) of the
HEA but after further discussion and deliberation, the Department
modified the proposed ICR-A regulations to reflect the same regulatory
approach to changing repayment plans that applies to borrowers repaying
under the existing ICR plan (the proposed ICR-B).
The Department considered a proposal to cap the amount of
interest and fees that may be charged to borrowers under both the ICR
plans (including the proposed ICR-A plan) and IBR at 150 percent of the
loan principal amount but determined that the Secretary does not have
the authority under the HEA to stop charging interest to borrowers
under the ICR or IBR plans after the amount of accrued interest has
reached a certain percentage of the loan principal.
Some of the non-Federal negotiators suggested that many
issues related to the current processes for submission of income
documentation could be addressed by allowing borrowers to submit
documentation electronically, or by establishing an electronic process
for loan holders to obtain the necessary income information directly
from the IRS. The Department agreed to explore such options in the
future but noted that privacy issues associated with electronic
submission of documents and restrictions on the release of information
by the IRS to FFEL Program loan holders would have to be addressed.
After a lengthy discussion about AGI verification in
regards to IBR, the Department agreed that the income documentation
requirements could be simplified by amending the regulations to require
borrowers to provide documentation, acceptable to the Secretary or the
loan holder, of the borrower's AGI. Acceptable documentation of a
borrower's AGI could include a copy of the borrower's most recently
filed Federal income tax return or a tax transcript obtained from the
IRS by the borrower. In addition, the Department agreed that a copy of
the borrower's most recently filed tax return need not include the
borrower's signature. The Department disagreed with the recommendation
that the regulations be amended to allow loan holders to disregard AGI
and require borrowers to provide alternative documentation of income
under any circumstances. Section 493C(a)(3) of the HEA specifically
provides that the determination of a borrower's partial financial
hardship status is based, in part, on the borrower's AGI.
The Department initially proposed to incorporate into
regulations its current policy that a borrower leaving the IBR plan
must make one full monthly payment under the 10-year standard repayment
plan or the standard consolidation repayment plan, as applicable,
before the borrower would be permitted to select another repayment
plan. After a lengthy discussion with non-Federal negotiators and
internal debate, the Department proposed regulations that require the
borrower to make one monthly payment while under a standard repayment
plan but allow for that payment to be for a lesser amount than the full
scheduled monthly payment amount under a reduced payment forbearance
agreement with the Secretary or the loan holder. The non-Federal
negotiators agreed with this proposal.
After non-Federal negotiators voiced their concerns about
borrower's representatives not being included in the full TPD process,
the Department added a paragraph to the proposed regulations for all of
the Title IV student loan programs stating that the term ``borrower''
includes a borrower's representative, if applicable. Under the proposed
regulations, any notice sent to a borrower must also be sent to the
borrower's representative if the borrower has one. In addition, both
the borrower and the borrower's representative may provide
notifications and information in connection with the borrower's total
and permanent disability discharge. The Department also added language
to the Perkins Loan, FFEL, and Direct Loan program regulations
providing that an attorney could be a borrower's representative.
Some non-Federal negotiators recommended that the
suspension of collection activity also include a suspension of payments
collected from borrowers through administrative wage garnishment (AWG)
and the Treasury Offset Program (TOP). The Department did not agree.
Borrowers applying for total and permanent disability discharges are,
by definition, unable to work and earn money. Therefore, AWG would not
be an issue for these borrowers. With regard to TOP, the Department
reiterated its current policy on stopping TOP offsets. The submission
of a total and permanent disability discharge application does not, in
and of itself, demonstrate that a borrower is eligible for a total and
permanent disability discharge. The Department or guaranty agency may,
however, stop or reduce TOP offsets during this period if it believes
such action is warranted in the borrower's particular circumstances.
The Department declined a proposal from non-Federal
negotiators representing guaranty agencies that would require that
guaranty agencies receive copies of the total and permanent disability
discharge applications. Under the proposed regulations, guaranty
agencies and
[[Page 42124]]
lenders would not conduct medical reviews of disability discharge
applications. Therefore, there is no need for lenders or agencies to
receive the applications.
Initially, the Department proposed shifting the three-year
period during which the borrower would have to provide income
information to three calendar years (January 1st to December 31st)
after the discharge was granted. The Department proposed this approach
because it would allow borrowers to meet the income documentation
requirement by submitting tax returns for each calendar year after the
discharge but after non-federal negotiators objected to this proposal
on the grounds that it would lengthen the post-discharge monitoring
period, the Department abandoned this proposal.
Non-Federal negotiators proposed that the Department tie
the definition of ``permanent and total disability'' to the Social
Security standard and accept a statement of Social Security disability
or SSI payments as proof that borrowers meet the reinstatement period
requirements. The Department rejected the request to tie the
Department's total and permanent disability definition to the Social
Security standard but amended the language to allow for the submission
of documentation of eligibility for Social Security disability benefits
as supporting documentation for the OMB approved form that the
Department will be developing for earnings verification during the
three year monitoring period.
Regulatory Flexibility Act Certification
Initial Regulatory Flexibility Analysis
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations are concerned with the
relationship between certain Federal student loan borrowers and the
Federal government, with some of the provisions modifying the servicing
and collections activities of guaranty agencies and other parties. The
Department believes that the entities affected by these proposed
regulations do not fall within the definition of a small entity. The
U.S. Small Business Administration Size Standards define ``for-profit
institutions'' as ``small businesses'' if they are independently owned
and operated and not dominant in their field of operation with total
annual revenue below $7,000,000, and defines ``non-profit
institutions'' as small organizations if they are independently owned
and operated and not dominant in their field of operation, or as small
entities if they are institutions controlled by governmental entities
with populations below 50,000. The Secretary invites comments from
small entities as to whether they believe the proposed changes would
have a significant economic impact on them and, if so, requests
evidence to support that belief.
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
burden, the Department conducts a preclearance consultation program to
provide the general public and Federal agencies with an opportunity to
comment on proposed and continuing collections of information in
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.
3506(c)(2)(A)). This helps ensure that: The public understands the
Department's collection instructions, respondents can provide the
requested data in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the Department can properly assess the impact of
collection requirements on respondents.
Sections 674.61, 682.215, 682.402, and 685.213 contain information
collection requirements. Under the PRA, the Department has submitted a
copy of these sections to OMB for its review.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with, or is subject to penalty for
failure to comply with, a collection of information if the collection
instrument does not display a currently valid OMB control number.
In the final regulations, we will display the control numbers
assigned by OMB to any information collection requirements proposed in
this NPRM and adopted in the final regulations.
Discussion
Proposed Sec. Sec. 674.61, 682.215, 682.402, and 685.213 contain
information collection requirements. Under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted
a copy of these sections to the Office of Management and Budget (OMB)
for its review.
Total and Permanent Disability Discharge Application Process Based on a
Physician's Certification (Sec. Sec. 674.61(b)(2), 682.402(c)(2) and
685.213(b))
The proposed regulations would revise Sec. Sec. 674.61(b)(2) and
682.402(c)(2) of the Perkins Loan and FFEL program regulations to
require Perkins Loan and FFEL borrowers to apply directly to the
Department for total and permanent disability discharges. In the Direct
Loan program, borrowers would continue to apply directly to the
Department for total and permanent disability discharges, as they do
under the current Direct Loan program regulations.
Under the proposed total and permanent disability discharge
process, if a Perkins Loan program school or FFEL lender is contacted
by a borrower intending to apply for a total and permanent disability
discharge, the school or lender would provide the borrower with the
information needed to apply to the Department for the discharge. Under
the current regulations, when a borrower has loans held by two or more
loan holders, the borrower must complete and submit a separate total
and permanent disability application for each holder. Under the
proposed streamlined process, a borrower would submit one total and
permanent disability discharge application to the Department,
eliminating the need for borrowers to submit separate discharge
applications to each of their loan holders. We determined that in 2011
the number of total and permanent disability applications was as
follows:
----------------------------------------------------------------------------------------------------------------
Number of Number of
Year Program borrowers loans
----------------------------------------------------------------------------------------------------------------
2011.......................................... Direct Loans.......................... 29,777 65,823
2011.......................................... FFEL Loans............................ 48,518 114,040
2011.......................................... Perkins Loans......................... 95 95
-------------------------
78,390 179,958
----------------------------------------------------------------------------------------------------------------
[[Page 42125]]
Under currently approved OMB 1845-0065--Discharge Application:
Total and Permanent Disability, the average amount of time for the
borrower to complete and submit an application is estimated to be 30
minutes (0.5 hours) per application. The proposed regulations provide
that a borrower with a single loan holder must still provide the
Secretary with a single total and permanent disability discharge
application for all the affected title IV, HEA program loans held by
that holder. However, under the proposed regulations, borrowers with
multiple loan holders would no longer have to complete and submit
multiple total and permanent disability discharge applications to each
separate loan holder, but instead will submit a single application to
the Secretary. Under currently approved OMB 1845-0065, there are 30,000
respondents annually with 30,000 responses (applications) annually
times 0.5 hours to yield a total burden of 15,000 hours to borrowers.
Information from the 2011 award year indicates that the number of
borrowers applying for total and permanent disability discharges has
increased to 78,390 borrowers on 179,958 title IV, HEA loans. Using the
2011 number of loan applications, the burden would have expanded to
89,979 hours (179,958 times 0.5 hours equal 89,979 hours).
The burden analysis for these proposed regulations estimates the
incremental increase from the previous annual rate of 30,000 borrowers
and 30,000 affected loans to the 2011 basis of 78,390 borrowers and
179,958 affected loans, or an incremental increase of 48,390 borrowers
(78,390 borrowers in 2011 less 30,000 borrowers already accounted for
in the annual estimate) and 149,958 loans (179,958 loans in 2011 less
30,000 loans already accounted for in the annual estimate).
We estimate that half or 24,195 of the borrowers (48,390 divided by
2) have all of their 24,195 title IV, HEA loans held by single holders.
Therefore, the burden associated with the group of borrowers with
single holders is an increase of 12,098 burden hours (24,195 times 0.5
hours per application). We estimate that the other half of the
borrowers or 24,195 (48,390 divided by 2) have multiple holders for
their 125,763 title IV, HEA loans (179,958 affected loans in 2011 less
the 30,000 already accounted for in the annual estimate, less 24,195
held by single holders). The proposed regulations require borrowers
requesting a total and permanent disability discharge to submit a
single TPD application to the Department even when the borrower has
multiple loans from multiple loan holders. Therefore, the total
remaining number of loans with multiple holders would be 24,195 (78,390
borrowers less 30,000 borrowers (respondents) in the currently approved
information collection (OMB 1845-0065.v.4, less 24,195 borrowers with
single holders) times 0.5 hours per application equal 12,097 hours of
burden associated with the loans held by multiple holders. As a result,
the overall annual burden would increase from 15,000 hours to 39,195
hours, a net increase of 24,195 burden hours, that is due primarily to
the fact that over time the population of borrowers seeking total and
permanent disability discharges has grown from 15,000 to 78,390 per
year. This significant increase in application volume increases the
total burden. The effect of the single application portion of the
proposal kept the burden from increasing from 15,000 burden hours
(currently approved amount) to 89,979 hours of burden, preventing an
additional 50,784 hours of burden to individuals (179,958 applications
times 0.5 hours equals 89,979 less 39,195 hours, the revised new amount
of burden).
Under the proposed regulations, lenders and guaranty agencies would
no longer perform a number of functions in the total and permanent
disability discharge process. Lenders and guaranty agencies would no
longer: distribute the Discharge Application: Total and Permanent
Disability application, receive the completed and submitted total and
permanent disability applications, review the completed and submitted
total and permanent disability application forms, evaluate the
application forms, request additional information necessary to complete
or resolve open issues regarding the applications, review and evaluate
supplemental information provided by the applicants, as well as make a
determination whether the application supports the conclusion that the
borrower is totally and permanently disabled.
Proposed Sec. Sec. 674.61(b)(2) and 682.402(c)(2) would require
institutions that participate in the Perkins Loan program and FFEL
program loan holders to provide borrowers seeking a total and permanent
disability discharge with information needed for the borrower to notify
the Secretary. Since this is likely to be a highly automated process,
we estimate that the average amount of time to provide a borrower with
the required referral information to take 0.03 hours (2 minutes) per
request. Under the currently approved burden analysis in OMB 1845-0019
for the Perkins Loan program, there are 31 hours of burden attributed
to this regulation (62 respondents with 62 responses times 0.5 hours
per response). Information from the 2011 award year indicates that the
current annual number of Perkins Loan borrowers applying for total and
permanent disability discharge has increased from an average of 62 to
95 borrowers. Under the proposed regulations, we estimate that the
required information to notify the Secretary would take 0.03 hours (2
minutes) per borrower request. At the current burden rate that would
have been 48 hours of burden, however, at the estimated notification
rate of 0.03 hours per borrower the total burden is 3 hours (95
borrowers times 0.03 hours). While the number of affected Perkins Loan
borrowers increased, this is a reduction in burden of 28 hours under
OMB Control Number 1845-0019.
Section 682.402 does not contain any burden attributed to the
regulation for the total and permanent disability discharge collection
of information, nor is there burden attributable to the application
process other than that which impacts the borrower completing the
application. In the 2011 award year, our data indicate that there were
48,518 FFEL borrowers who applied for total and permanent disability
discharges on 114,040 loans. Of the total 48,518 borrowers, 18,078
borrowers applied for discharge of 38,742 FFEL loans that were held by
the Department, and 30,440 borrowers applied for discharge of 75,298
FFEL loans that were not held by the Department.
Under the current regulations, we estimate that providing the total
permanent disability discharge application and all the other related
review and determination processes would take 0.5 hours per
application, thus creating 15,220 hours of burden.
Under proposed Sec. 682.402(c)(2), the holder only provides
information to the borrower telling the borrower how to notify the
Secretary. Under the proposed regulations, we estimate that the
required information to notify the Secretary would take 0.03 hours (2
minutes) per borrower request. At the current burden rate that would
have been 15,220 hours of burden, however, at the estimated
notification rate of 0.03 hours per borrower the total burden is 913
hours (30,440 borrowers times 0.03 hours). While the burden on non-
Federal holders was not previously estimated, we have established that
the estimate would have been 15,220 hours (30,440 times 0.5 hours per
total and permanent disability discharge application). Under the
proposed process the burden is reduced to 913 burden hours, an
abatement of 14,307
[[Page 42126]]
burden hours; however, this is not a burden reduction since the current
burden had not been previously established. Instead, an increase of 913
hours would be added to OMB Control Number 1845-0020.
As noted earlier, the proposed regulations would revise Sec. Sec.
674.61(b)(2) and 682.402(c)(2) of the Perkins Loan and FFEL regulations
to require Perkins and FFEL borrowers to apply directly to the
Department for total and permanent disability discharges. In the Direct
Loan Program, borrowers would continue to apply directly to the
Department for total and permanent disability discharges, as they do
under the current Direct Loan regulations.
Under proposed Sec. Sec. 674.61(b)(2)(v)-(viii),
682.402(c)(2)(iv)-(viii), and 685.213(b)(3), a Perkins Loan, FFEL, or
Direct Loan borrower must submit the total and permanent disability
discharge application certified by a physician to the Department within
90 days of the date of the physician's certification. After receiving
the total and permanent disability discharge application, the
Department notifies the borrower's title IV loan holders that the
Department has received the application. This notification directs the
borrower's loan holders to either suspend collection activity or to
maintain the suspension of collection activity on the borrower's title
IV loans. If the application is incomplete, the Department requests the
missing information from the borrower or the physician who certified
the application.
The proposed changes would not constitute a change in burden for
the borrowers because the application process remains virtually the
same. However, since the borrower is directed to obtain the application
form approved by the Secretary from the Department rather than from the
institution in the case of a Perkins loan, or the lender in the case of
a FFEL loan, the burden associated with the streamlined total and
permanent disability discharge application process is transferred to
the Department.
Changes to the Total and Permanent Disability Discharge Application
form would need to be made. The Total and Permanent Disability
Discharge Application form currently in use would expire on February
28, 2015. Final regulations implementing these provisions would be
effective July 1, 2013. A revised Total and Permanent Disability
Discharge Application form associated with OMB Control Number 1845-0065
will be submitted for OMB review by November 1, 2012, thereby ensuring
that the public has an opportunity to provide comment upon the newly
revised form that will be available for use on or about the effective
date of the final regulations.
Under proposed Sec. Sec. 674.61(b)(7)(iii), 682.402(c)(7)(iii),
and 685.213(b)(8)(iii), during the three-year period following a
discharge of a title IV loan based on total and permanent disability,
the borrower must provide the Secretary, upon request, with
documentation of the borrower's annual earnings from employment on an
OMB approved form that would be available by the time that these
regulations become effective. The form would require a certification
from the borrower, and would require the borrower to submit
documentation to support the certification available to the borrower.
The documentation may include income tax returns, documentation of
eligibility for Social Security disability benefits, or other
documentation that supports the borrower certification.
The proposed regulations do not specify the content of the form
but, as with all OMB-approved forms, the form would be made available
for public comment as part of the OMB forms clearance process.
Collectively, the proposed regulatory changes reflected in
Sec. Sec. 674.61 and 682.402 would increase burden by 40,080 hours.
The burden in OMB Control Number 1845-0065 would increase from 15,000
to 39,195. The burden in OMB Control Number 1845-0019 would decrease by
28 hours from 31 hours to 3 hours. The burden in OMB Control Number
1845-0020 would increase by 913 hours.
Income-Based Repayment Plan
Proposed Sec. Sec. 682.215(e)(2) and 685.221(e)(2)--Eligibility
documentation, verification, and notifications.
Under proposed Sec. 682.215(e)(2), a FFEL loan holder, after
making a determination that a borrower has a partial financial hardship
to qualify for the IBR plan for the year the borrower initially selects
the plan and for any subsequent year that the borrower has a partial
financial hardship, would send the borrower a written notification that
would include the following information: the borrower's scheduled
monthly payment amount, and the time period during which that monthly
payment amount will apply (annual payment period); information about
the requirement for the borrower to annually provide income information
(and, in some cases for married FFEL program borrowers, information
about the eligible loans of the borrower's spouse) and certify family
size, if the borrower chooses to remain on the IBR plan after the
initial year on the plan, an explanation that the borrower will be
notified in advance of the date by which the loan holder must receive
this information; an explanation of the consequences if the borrower
does not annually provide the required information; and information
about the borrower's option to request, at any time during the
borrower's current annual payment period, that the loan holder
recalculate the borrower's monthly payment amount if the borrower's
financial circumstances have changed and the income amount that was
used to calculate the borrower's current monthly payment no longer
reflects the borrower's current income. If the monthly payment amount
is recalculated based on the borrower's request, the loan holder would
send the borrower a written notification that includes the borrower's
new calculated monthly payment amount and the other information
described above.
Using the most recent monthly reports on IBR applications, we
examined the number of loans being repaid under IBR that are serviced
by the Title IV Additional Servicers (TIVAS). We determined that 71
percent of all of the non-defaulted FFEL loans are held by the
Department (and serviced by the TIVAS), with the remaining 29 percent
being held by commercial for-profit and not-for-profit holders.
Applying these same percentages to the IBR participation data we
obtained from the Department's TIVAS, we estimated that the annualized
estimated number of commercially held loans being repaid under IBR as
290,268 for the basis of this burden assessment. However, our data does
not allow us to further disaggregate this number into the affected
entities grouped under Public entities, Private-Not for Profit
entities, and Proprietary entities. We estimate that the required
notifications above would be highly automated and thus projected an
average of 0.08 hours (5 minutes) of burden per IBR applicant, thus
23,221 hours of burden (290,268 times 0.08 hours) of increased burden
are added as a new information collection under OMB Control Number
1845-NEWA.
Additional proposals under Sec. 682.215(e) place further
notification requirements on loan holders for subsequent years which
are outside the scope of this burden analysis and would require future
burden analysis.
Loan Forgiveness Processing and Payment
Proposed Sec. 682.215(g) under the FFEL program, would clarify
that the loan holder determines when a borrower has
[[Page 42127]]
met the requirements for loan forgiveness and that the borrower is not
required to submit a request for loan forgiveness.
The proposed regulations provide for the loan holder to send the
borrower a written notice no later than six months prior to the
anticipated date that the borrower would meet the loan forgiveness
requirements. This notice would explain that the borrower is
approaching the date he or she is expected to qualify for loan
forgiveness, would remind the borrower that he or she must continue to
make scheduled monthly payments, and would provide general information
on the current treatment of the forgiveness amount for tax purposes,
including instructions to contact the IRS for more information.
Current Sec. 682.215(g)(4) (redesignated as Sec. 682.215(g)(5))
would be revised to clarify that when a loan holder notifies a borrower
that the borrower has been determined eligible for loan forgiveness,
the borrower must be provided with information on the current treatment
of the forgiveness amount for tax purposes and directed to the IRS for
more information.
The loan holder determines when a borrower qualifies for loan
forgiveness and does not require the borrower to track his or her own
progress toward meeting the loan forgiveness requirement and then
submit an application for forgiveness. In this section, we are required
to analyze and publish the estimated amount of burden that proposed
regulations place on affected entities (other than the Federal
government) as of the effective date of the implementation of the
proposed regulation, (assuming that it would occur in the initial year
that the final regulations are effective). However, since these
additional proposed notification requirements occur 24.5 years after
the first income-based repayment loans were placed into repayment (on
or around 2031), they are outside the scope of this burden analysis.
Consistent with the discussions above, the following chart
describes the sections of the proposed regulations involving
information collections, the information being collected, the
collections the Department will submit to the OMB for approval and
public comment under the Paperwork Reduction Act, and the estimated
costs associated with the information collections. The monetized cost
of the additional burden on loan holders, using wage data developed
using BLS data, available at www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is
$593,249, as shown in Chart 4. This cost was based on an hourly rate of
$24.61. The monetized cost of the additional burden on students is
$700,807 based on an hourly rate of $17.88.
Chart 4--Summary of Estimated Paperwork Burden
------------------------------------------------------------------------
OMB control
Information number and Estimated
Regulatory section collection estimated change cost
in the burden
------------------------------------------------------------------------
674.61............ This proposed OMB 1845-0019... -$689
regulatory section The burden would
would require decrease by 28
Perkins borrowers to hours to 3
apply directly to hours.
the Department for
total and permanent
disability
discharges. Under
the proposed
regulations
institutions would
no longer distribute
the Total and
Permanent Disability
Discharge
Application, receive
the completed form,
review and evaluate
the request, request
supplemental
information where
indicated, evaluate
the supplemental
application, and
make a determination
whether the
application supports
the conclusion that
the borrower is
totally and
permanently disabled.
674.61, 682.102, These proposed OMB 1845-0065... 700,407
and 685.213. regulations would A separate 60-
require borrowers day Federal
who request an Register notice
application for a will be
total and permanent published to
disability discharge solicit public
of their title IV, comment. The
HEA loans to request burden would
the application from increase by
the Department. 39,195 hours.
Borrowers with
multiple loans at
multiple loan
holders would only
complete and submit
a single TPD
application to the
Department.
682.215........... This proposed OMB 1845-NEWA... 571,469
regulation would This would be a
require FFEL loan new collection.
holders, after A separate 60-
making a day Federal
determination that a Register notice
borrower has a will be
partial financial published to
hardship to qualify solicit public
for the IBR plan, to comment. The
send the borrower burden would
for the initial year increase by
or any subsequent 23,221 hours.
year, written
information to
include the
scheduled monthly
payment amount, the
time period during
which the monthly
payment will apply,
and other
information.
682.402........... This proposed section OMB 1845-0020... 22,469
would require FFEL The burden would
loan holders to increase by 913
provide information hours.
to the borrower to
notify the Secretary
about their interest
in applying for a
total and permanent
disability discharge.
------------------------------------------------------------------------
If you want to comment on the proposed information collection
requirements, please send your comments to the Office of Information
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S.
Department of Education. Send these comments by email to [email protected] or by fax to (202) 395-6974. You may also send a
copy of these comments to the Department contact named in the ADDRESSES
section of this preamble.
We have prepared an Information Collection Request (ICR) for OMB
1845-0019, OMB 1845-0020. In preparing your comments you may want to
review the ICR, which we maintain in the Education Department
Information Collection System (EDICS) at http://edicsweb.ed.gov. Click
on ``Browse Pending Collections.'' We will prepare separate 60 day
Federal Register notices for the proposed collection OMB 1845-0065 and
a new information collection under OMB 1845-NEWA.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques.
Under 5 CFR 1320.13 we have requested OMB to conduct its review of
these collections of information on an
[[Page 42128]]
emergency basis. We have asked OMB to approve the collections of
information within 30 days after publication of these proposed
regulations in the Federal Register. Therefore, to ensure that OMB
gives your comments full consideration, it is important that OMB
receives your comments by August 6, 2012. This does not affect the
deadline for your comments to us on the proposed regulations.
Intergovernmental Review
This program is subject to Executive Order 12372 and the
regulations in 34 CFR part 79. One of the objectives of the Executive
Order is to foster an intergovernmental partnership and a strengthened
federalism. The Executive Order relies on processes developed by State
and local governments for coordination and review of proposed Federal
financial assistance.
This document provides early notification of our specific plans and
actions for this program.
Assessment of Educational Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether these proposed regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Accessible Format: Individuals with disabilities can obtain this
document in an accessible format (e.g., braille, large print,
audiotape, or compact disc) on request to the program contact person
listed under FOR FURTHER INFORMATION CONTACT.
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. (Catalog of Federal Domestic Assistance Numbers:
84.032 Federal Family Education Loan Program; 84.038 Federal Perkins
Loan Program; 84.268 William D. Ford Federal Direct Loan Program)
List of Subjects in 34 CFR Parts 674, 682, and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: June 25, 2012.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend 34 of the Code of Federal Regulations chapter VI as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
1. The authority citation for part 674 continues to read as
follows:
Authority: 20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise
noted.
2. Section 674.61 is amended by:
A. Revising paragraph (b).
B. Revising paragraph (c).
C. Revising paragraph (d).
The revisions read as follows:
Sec. 674.61 Discharge for death or disability.
* * * * *
(b) Total and permanent disability as defined in Sec.
674.51(aa)(1). (1) General. (i) A borrower's Defense, NDSL, or Perkins
loan is discharged if the borrower becomes totally and permanently
disabled, as defined in Sec. 674.51(aa)(1), and satisfies the
additional eligibility requirements in this section.
(ii) For purposes of Sec. 674.61(b), a borrower's representative
or a veteran's representative is a member of the borrower's family, the
borrower's attorney, or another individual authorized to act on behalf
of the borrower in connection with the borrower's total and permanent
disability discharge application. References to a ``borrower'' or a
``veteran'' include, if applicable, the borrower's representative or
the veteran's representative for purposes of applying for a total and
permanent disability discharge, providing notifications or information
to the Secretary, and receiving notifications from the Secretary.
(2) Discharge application process for borrowers who have a total
and permanent disability as defined in Sec. 674.51(aa)(1). (i) If the
borrower notifies the institution that the borrower claims to be
totally and permanently disabled as defined in Sec. 674.51(aa)(1), the
institution must direct the borrower to notify the Secretary of the
borrower's intent to submit an application for total and permanent
disability discharge and provide the borrower with the information
needed for the borrower to notify Secretary.
(ii) If the borrower notifies the Secretary of the borrower's
intent to apply for a total and permanent disability discharge, the
Secretary--
(A) Provides the borrower with the information needed for the
borrower to apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the borrower and notifies
the lenders of the borrower's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
borrower for a period not to exceed 120 days; and
(D) Informs the borrower that the suspension of collection activity
described in paragraph (b)(2)(ii)(C) of this section will end after 120
days and the collection will resume on the loans if the borrower does
not submit a total and permanent disability discharge application to
the Secretary within that time.
(iii) If the borrower fails to submit an application for a total
and permanent disability discharge to the Secretary within 120 days,
collection resumes on the borrower's title IV loans.
(iv) The borrower must submit to the Secretary an application for
total and permanent disability discharge on a form approved by the
Secretary. The application must contain a certification by a physician,
who is a doctor of medicine or osteopathy legally authorized to
practice in a State, that the borrower is totally and permanently
disabled as defined in Sec. 674.51(aa)(1).
(v) The borrower must submit the application described in paragraph
(b)(2)(iv) of this section to the Secretary within 90 days of the date
the physician certifies the application.
(vi) After the Secretary receives the application described in
paragraph (b)(2)(iv) of this section, the Secretary notifies the
holders of the borrower's title IV loans that the Secretary has
received a total and permanent disability discharge application from
the borrower.
(vii) If the application is incomplete, the Secretary notifies the
borrower of the missing information and requests the missing
information from the borrower, the borrower's representative, or the
physician who provided the certification, as appropriate. The
[[Page 42129]]
Secretary does not make a determination of eligibility until the
application is complete.
(viii) The lender notification described in paragraph (b)(2)(vi) of
this section directs the borrower's loan holders to suspend collection
activity or maintain the suspension of collection activity on the
borrower's title IV loans.
(ix) After the Secretary receives a disability discharge
application, the Secretary sends a notice to the borrower that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the borrower that the borrower's lenders will suspend
collection activity or maintain the suspension of collection activity
on the borrower's title IV loans while the Secretary reviews the
borrower's application for discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(3) Secretary's review of the total and permanent disability
discharge application. (i) If, after reviewing the borrower's completed
application, the Secretary determines that the physician's
certification supports the conclusion that the borrower is totally and
permanently disabled as defined in Sec. 674.51(aa)(1), the borrower is
considered totally and permanently disabled as of the date the
physician certified the borrower's application.
(ii) The Secretary may require the borrower to submit additional
medical evidence if the Secretary determines that the borrower's
application does not conclusively prove that the borrower is totally
and permanently disabled as defined in Sec. 674.51(aa)(1). As part of
the Secretary's review of the borrower's discharge application, the
Secretary may require and arrange for an additional review of the
borrower's condition by an independent physician at no expense to the
borrower.
(iii) After determining that the borrower is totally and
permanently disabled as defined in Sec. 674.51(aa)(1), the Secretary
notifies the borrower and the borrower's lenders that the application
for a disability discharge has been approved. With this notification,
the Secretary provides the date the physician certified the borrower's
loan discharge application and directs each institution holding a
Defense, NDSL, or Perkins Loan made to the borrower to assign the loan
to the Secretary.
(iv) The institution must assign the loan to the Secretary within
45 days of the date of the notice described in paragraph (b)(3)(iii) of
this section.
(v) After the loan is assigned, the Secretary discharges the
borrower's obligation to make further payments on the loan and notifies
the borrower and the institution that the loan has been discharged. The
notification to the borrower explains the terms and conditions under
which the borrower's obligation to repay the loan will be reinstated,
as specified in paragraph (b)(6) of this section. Any payments received
after the date the physician certified the borrower's loan discharge
application are returned to the person who made the payments on the
loan in accordance with paragraph (b)(8) of this section.
(vi) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower is
totally and permanently disabled as defined in Sec. 674.51(aa)(1), the
Secretary notifies the borrower and the institution that the
application for a disability discharge has been denied. The
notification includes--
(A) The reason or reasons for the denial;
(B) A statement that the loan is due and payable to the institution
under the terms of the promissory note and that the loan will return to
the status that would have existed had the total and permanent
disability discharge application not been received;
(C) A statement that the institution will notify the borrower of
the date the borrower must resume making payments on the loan;
(D) An explanation that the borrower is not required to submit a
new total and permanent disability discharge application if the
borrower requests that the Secretary re-evaluate the application for
discharge by providing, within 12 months of the date of the
notification, additional information that supports the borrower's
eligibility for discharge; and
(E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12
months of the date of the notification, the borrower must submit a new
total and permanent disability discharge application to the Secretary
if the borrower wishes the Secretary to re-evaluate the borrower's
eligibility for a total and permanent disability discharge.
(vii) If the borrower requests re-evaluation in accordance with
paragraph (b)(3)(vi)(D) of this section or submits a new total and
permanent disability discharge application in accordance with paragraph
(b)(3)(vi)(E) of this section, the request must include new information
regarding the borrower's disabling condition that was not available at
the time the Secretary reviewed the borrower's initial application for
a total and permanent disability discharge.
(4) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a title IV loan or TEACH Grant before the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge application will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
(5) Receipt of new title IV loans or TEACH Grants after the date of
the physician's certification. If a borrower receives a disbursement of
a new title IV loan or receives a new TEACH Grant made on or after the
date the physician certified the borrower's discharge application and
before the date the Secretary grants a discharge under this section,
the Secretary denies the borrower's discharge request and collection
resumes on the borrower's loans.
(6) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates the
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (b)(3)(v) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty guideline for a family of two, as published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2);
(B) Receives a new TEACH Grant or a new loan under the Perkins or
Direct Loan programs, except for a Direct Consolidation Loan that
includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made is returned to the loan holder or to the Secretary, as
applicable, within 120 days of the disbursement date.
(ii) If the borrower's obligation to repay a loan is reinstated,
the Secretary--
(A) Notifies the borrower that the borrower's obligation to repay
the loan has been reinstated;
[[Page 42130]]
(B) Returns the loan to the status that would have existed had the
total and permanent disability discharge application not been received;
and
(C) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
borrower's obligation to repay the loan was reinstated.
(iii) The Secretary's notification under paragraph (b)(6)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(7) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (b)(6)(i) of this section, the borrower must--
(i) Promptly notify the Secretary of any changes in the borrower's
address or phone number;
(ii) Promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(6)(i)(A) of this section; and
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment on a form approved by
the Secretary.
(8) Payments received after the physician's certification of total
and permanent disability. (i) If the institution receives any payments
from or on behalf of the borrower on or attributable to a loan that has
been assigned to the Secretary based on the Secretary's determination
of eligibility for a total and permanent disability discharge, the
institution must return the payments to the sender.
(ii) At the same time that the institution returns the payments, it
must notify the borrower that there is no obligation to make payments
on the loan after it has been discharged due to a total and permanent
disability unless the loan is reinstated in accordance with Sec.
674.61(b)(6), or the Secretary directs the borrower otherwise.
(iii) When the Secretary discharges the loan, the Secretary returns
to the sender any payments received on the loan after the date the
borrower became totally and permanently disabled.
(c) Total and permanent disability discharges for veterans. (1)
General. A veteran's Defense, NDSL, or Perkins loan will be discharged
if the veteran is totally and permanently disabled, as defined in Sec.
674.51(aa)(2).
(2) Discharge application process for veterans who have a total and
permanent disability as defined in Sec. 674.51(aa)(2). (i) If a
veteran notifies the institution that the veteran claims to be totally
and permanently disabled as defined in Sec. 674.51(aa)(2), the
institution must direct the veteran to notify the Secretary of the
veteran's intent to submit an application for a total and permanent
disability discharge to the Secretary; and provide the veteran with the
information needed for the veteran to apply for a total and permanent
disability discharge to the Secretary.
(ii) If the veteran notifies the Secretary of the veteran's intent
to apply for a total and permanent disability discharge, the
Secretary--
(A) Provides the veteran with the information needed for the
veteran to apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the veteran and notifies
the lenders of the veteran's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
borrower for a period not to exceed 120 days; and
(D) Informs the veteran that the suspension of collection activity
described in paragraph (c)(2)(ii)(C) of this section will end after 120
days and collection will resume on the veteran's title IV loans if the
veteran does not submit a total and permanent disability discharge
application to the Secretary within that time.
(iii) If the veteran fails to submit an application for a total and
permanent discharge to the Secretary within 120 days, collection
resumes on the veteran's title IV loans.
(iv) The veteran must submit to the Secretary an application for
total and permanent disability discharge on a form approved by the
Secretary.
(v) The application must be accompanied by documentation from the
Department of Veteran Affairs showing that the Department of Veteran
Affairs has determined that the veteran is unemployable due to a
service-connected disability. The veteran will not be required to
provide any additional documentation related to the veteran's
disability.
(vi) After the Secretary receives the application and supporting
documentation described in paragraphs (c)(2)(iv) and (c)(2)(v) of this
section, the Secretary notifies the holders of the veteran's title IV
loans that the Secretary has received a total and permanent disability
discharge application from the veteran.
(vii) If the application is incomplete, the Secretary notifies the
veteran of the missing information and requests the missing information
from the veteran or the veteran's representative. The Secretary does
not make a determination of eligibility until the application is
complete.
(viii) The lender notification described in paragraph (c)(2)(vi) of
this section directs the lenders to suspend collection activity or
maintain the suspension of collection activity on the borrower's title
IV loans.
(ix) After the Secretary receives the disability discharge
application, the Secretary sends a notice to the veteran that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the veteran that the veteran's lenders will suspend
collection activity on the veteran's title IV loans while the Secretary
reviews the borrower's application for a discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(3) Secretary's review of the total and permanent disability
discharge application. (i) If, after reviewing the veteran's completed
application, the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is totally and permanently disabled as defined in Sec. 674.51(aa)(2),
the Secretary notifies the veteran and the veteran's lenders that the
application for disability discharge has been approved. With this
notification, the Secretary provides the effective date of the
determination and directs each institution holding a Direct, NDSL, or
Perkins Loan made to the veteran to discharge the loan.
(ii) The institution returns any payments received on or after the
effective date of the determination by the Department of Veterans
Affairs that the veteran is unemployable due to a service-connected
disability to the person who made the payments.
(iii) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as defined in Sec.
674.51(aa)(2), the Secretary notifies the veteran or the veteran's
representative, and the institution that the application
[[Page 42131]]
for a disability discharge has been denied. The notification includes--
(A) The reason or reasons for the denial;
(B) An explanation that the loan is due and payable to the
institution under the terms of the promissory note and that the loan
will return to the status that would have existed had the total and
permanent disability discharge application not been received;
(C) An explanation that the institution will notify the veteran of
the date the veteran must resume making payments on the loan;
(D) An explanation that the veteran is not required to submit a new
total and permanent disability discharge application if the veteran
requests that the Secretary re-evaluate the veteran's application for
discharge by providing, within 12 months of the date of the
notification, additional documentation from the Department of Veterans
Affairs that supports the veteran's eligibility for discharge; and
(E) Information on how the veteran may reapply for a total and
permanent disability discharge in accordance with the procedures
described in paragraphs (b)(1) through (b)(8) of this section, if the
documentation from the Department of Veterans Affairs does not indicate
that the veteran is totally and permanently disabled as defined in
Sec. 674.51(aa)(2), but indicates that the veteran may be totally and
permanently disabled as defined in Sec. 674.51(aa)(1).
(d) No Federal reimbursement. No Federal reimbursement is made to
an institution for discharge of loans due to death or disability.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
3. The authority citation for part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
Sec. 682.209 [Amended]
4. Section 682.209 is amended in paragraph (a)(6)(v)(C), by adding
the words ``through 682.215(e)(1)(iii)'' between the citation
``682.215(e)(1)(i)'' and the word ``within''.
5. Section 682.215 is amended by:
A. In paragraph (b)(1)(i), adding the words ``the borrower's''
immediately after the words ``outstanding principal amount of''.
B. In paragraph (b)(1)(ii)(C), adding the words ``the borrower's''
immediately after the words ``outstanding principal amount of''.
C. In the first sentence of paragraph (b)(2), removing the words
``an income-based repayment plan'' and adding, in their place, the
words ``the income-based repayment plan''.
D. Revising paragraph (b)(3).
E. In paragraph (b)(7), removing the words ``an income-based
repayment plan'' and adding, in their place, the words ``the income-
based repayment plan''.
F. In paragraph (b)(8), removing the words ``an income-based
repayment plan'' and adding, in their place, the words ``the income-
based repayment plan''.
G. In the introductory text of paragraph (c)(1), removing the words
``an income-based repayment plan'' and adding, in their place, the
words ``the income-based repayment plan''.
H. Revising paragraph (d).
I. Revising paragraph (e).
J. Revising paragraph (f)(1)(i).
K. In paragraph (f)(1)(iii), adding the words ``for the amount of
the borrower's loans that were outstanding at the time the loans
initially entered repayment'' at the end of the paragraph, immediately
before the punctuation ``;''.
L. In paragraph (f)(1)(iv), removing the words ``for the amount of
the borrower's loans that were outstanding at the time the borrower
first selected the income-based repayment plan'' immediately before the
punctuation and word ``; or''.
M. In the first sentence of paragraph (f)(3)(i), removing the words
``a FFEL Consolidation Loan,'' and adding, in their place, the words
``an eligible FFEL Consolidation Loan,''.
N. In paragraph (f)(3)(iv), removing the words ``(f)(1) after
qualifying for the income-based repayment plan'' immediately before the
punctuation ``.'' and adding, in their place, the words ``paragraph
(f)(1) of this section''.
O. Revising paragraph (f)(5).
P. Revising paragraph (g).
Q. Adding an OMB control number parenthetical following the
section.
The revisions and addition read as follows:
Sec. 682.215 Income-based repayment plan.
* * * * *
(b) * * *
(3) If a borrower elects the income-based repayment plan, the loan
holder must, unless the borrower has some loans that are eligible for
repayment under the income-based repayment plan and other loans that
are not eligible for repayment under that plan, require that all
eligible loans owed by the borrower to that holder be repaid under the
income-based repayment plan.
* * * * *
(d) Changes in the payment amount. (1) If a borrower no longer has
a partial financial hardship, the borrower may continue to make
payments under the income-based repayment plan but the loan holder must
recalculate the borrower's monthly payment. The loan holder also
recalculates the monthly payment for a borrower who chooses to stop
making income-based payments. In either case, as a result of the
recalculation--
(i) The maximum monthly amount that the loan holder requires the
borrower to repay is the amount the borrower would have paid under the
FFEL standard repayment plan based on a 10-year repayment period using
the amount of the borrower's eligible loans that was outstanding at the
time the borrower began repayment on the loans with that holder under
the income-based repayment plan; and
(ii) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(2) If a borrower no longer wishes to pay under the income-based
repayment plan, the borrower must pay under the FFEL standard repayment
plan and the loan holder recalculates the borrower's monthly payment
based on--
(i) Except as provided in paragraph (d)(2)(ii) of this section, the
time remaining under the maximum 10-year repayment period and the
amount of the borrower's loans that was outstanding at the time the
borrower discontinued paying under the income-based repayment plan; or
(ii) For a Consolidation Loan, the time remaining under the
applicable repayment period as initially determined under Sec.
682.209(h)(2) and the total amount of that loan that was outstanding at
the time the borrower discontinued paying under the income-based
repayment plan.
(3) A borrower who no longer wishes to repay under the income-based
repayment plan and who is required to repay under the FFEL standard
repayment plan in accordance with paragraph (d)(2) of this section may
request a change to a different repayment plan after making one monthly
payment under the FFEL standard repayment plan. For this purpose, a
monthly payment may include one payment made under a forbearance that
provides for temporarily accepting smaller payments than previously
scheduled, in accordance with Sec. 682.211(a)(1).
(e) Eligibility documentation, verification, and notifications. (1)
The loan holder determines whether a borrower has a partial financial
hardship to qualify for the income-based repayment plan for the year
the borrower elects the plan and for each subsequent year that the
borrower
[[Page 42132]]
remains on the plan. To make this determination, the loan holder
requires the borrower to--
(i) Provide documentation, acceptable to the loan holder, of the
borrower's AGI;
(ii) If the borrower's AGI is not available, or the loan holder
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, provide other documentation to verify
income;
(iii) If the spouse of a married borrower who files a joint Federal
tax return has eligible loans and the loan holder does not hold at
least one of the spouse's eligible loans--
(A) Provide consent for the loan holder to access the National
Student Loan Data System to obtain information about the spouse's
eligible loans; or
(B) Provide other documentation, acceptable to the loan holder, of
the spouse's eligible loan information; and
(iv) Annually certify the borrower's family size. If the borrower
fails to certify family size, the loan holder must assume a family size
of one for that year.
(2) After making a determination that a borrower has a partial
financial hardship to qualify for the income-based repayment plan for
the year the borrower initially elects the plan and for any subsequent
year that the borrower has a partial financial hardship, the loan
holder must send the borrower a written notification that provides the
borrower with--
(i) The borrower's scheduled monthly payment amount, as calculated
under paragraph (b)(1) of this section, and the time period during
which this scheduled monthly payment amount will apply (annual payment
period);
(ii) Information about the requirement for the borrower to annually
provide the information described in paragraph (e)(1) of this section,
if the borrower chooses to remain on the income-based repayment plan
after the initial year on the plan, and an explanation that the
borrower will be notified in advance of the date by which the loan
holder must receive this information;
(iii) An explanation of the consequences, as described in
paragraphs (e)(1)(iv) and (e)(7) of this section, if the borrower does
not provide the required information;
(iv) An explanation of the consequences if the borrower no longer
wishes to repay under the income-based repayment plan; and
(v) Information about the borrower's option to request, at any time
during the borrower's current annual payment period, that the loan
holder recalculate the borrower's monthly payment amount if the
borrower's financial circumstances have changed and the income amount
that was used to calculate the borrower's current monthly payment no
longer reflects the borrower's current income. If the loan holder
recalculates the borrower's monthly payment amount based on the
borrower's request, the loan holder must send the borrower a written
notification that includes the information described in paragraphs
(e)(2)(i) through (e)(2)(v) of this section.
(3) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the income-based repayment plan,
the loan holder must notify the borrower in writing of the requirements
in paragraph (e)(1) of this section no later than 60 days and no
earlier than 90 days prior to the date specified in paragraph (e)(3)(i)
of this section. The notification must provide the borrower with--
(i) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the loan holder must receive
all of the information described in paragraph (e)(1) of this section
(annual deadline); and
(ii) The consequences if the loan holder does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (d)(1) of this section, the effective date
for the recalculated monthly payment amount, and the fact that unpaid
accrued interest will be capitalized at the end of the borrower's
current annual payment period in accordance with paragraph (b)(5) of
this section.
(4) Each time a loan holder makes a determination that a borrower
no longer has a partial financial hardship for a subsequent year that
the borrower wishes to remain on the plan, the loan holder must send
the borrower a written notification that provides the borrower with--
(i) The borrower's recalculated monthly payment amount, as
determined in accordance with paragraph (d)(1) of this section;
(ii) An explanation that unpaid accrued interest will be
capitalized in accordance with paragraph (b)(5) of this section; and
(iii) Information about the borrower's option to request, at any
time, that the loan holder redetermine whether the borrower has a
partial financial hardship, if the borrower's financial circumstances
have changed and the income amount used to determine that the borrower
no longer has a partial financial hardship does not reflect the
borrower's current income, and an explanation that the borrower will be
notified annually of this option. If the loan holder determines that
the borrower again has a partial financial hardship, the loan holder
must recalculate the borrower's monthly payment in accordance with
paragraph (b)(1) of this section and send the borrower a written
notification that includes the information described in paragraphs
(e)(2)(i) through (e)(2)(v) of this section.
(5) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the income-based repayment
plan, the loan holder must send the borrower a written notification
that includes the information described in paragraph (e)(4)(iii) of
this section.
(6) If a borrower who is currently repaying under another repayment
plan selects the income-based repayment plan but does not provide the
documentation described in paragraphs (e)(1)(i) through (e)(1)(iii) of
this section, or if the loan holder determines that the borrower does
not have a partial financial hardship, the borrower remains on his or
her current repayment plan.
(7) The loan holder designates the repayment option described in
paragraph (d)(1) of this section if a borrower who is currently
repaying under the income-based repayment plan remains on the plan for
a subsequent year but the loan holder does not receive the information
described in paragraphs (e)(1)(i) through (e)(1)(iii) of this section
within 10 days of the specified annual deadline.
(8)(i) If the loan holder receives the information described in
paragraphs (e)(1)(i) through (e)(1)(iii) of this section within 10 days
of the specified annual deadline, the loan holder must promptly
determine the borrower's new monthly payment amount. If the loan holder
does not determine the new monthly payment amount by the end of the
borrower's current annual payment period, the loan holder must prevent
the borrower's monthly payment amount from being recalculated in
accordance with paragraph (d)(1) of this section and maintain the
borrower's current scheduled monthly payment amount until the loan
holder determines the new monthly payment amount.
(ii) If the new monthly payment amount is less than the borrower's
previously calculated income-based monthly payment amount, the loan
holder must make the appropriate adjustment to the borrower's account
to reflect any payments at the previously calculated amount that the
borrower
[[Page 42133]]
made after the end of the most recent annual payment period.
Notwithstanding the requirements of Sec. 682.209(b)(2)(ii), unless the
borrower requests otherwise the loan holder applies the excess payment
amounts made after the end of the most recent annual payment period in
accordance with the requirements of Sec. 682.215(c)(1).
(iii) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated income-based monthly payment
amount, the loan holder does not make any adjustments to the borrower's
account.
(9) If the loan holder receives the documentation described in
paragraphs (e)(1)(i) through (e)(1)(iii) of this section more than 10
days after the specified annual deadline and the borrower's monthly
payment amount is recalculated in accordance with paragraph (d)(1) of
this section, the loan holder may grant forbearance with respect to
payments that are overdue or would be due at the time the new
calculated income-based monthly payment amount is determined, if the
new monthly payment amount is $0.00 or is less than the borrower's
previously calculated income-based monthly payment amount. Interest
that accrues during the portion of this forbearance period that covers
payments that are overdue after the end of the prior annual payment
period is not capitalized.
(f) * * *
(1) * * *
(i) Made reduced monthly payments under a partial financial
hardship as provided in paragraph (b)(1) of this section, including a
monthly payment amount of $0.00, as provided in paragraph (b)(1)(ii) of
this section;
* * * * *
(5) Any payments made on a defaulted loan are not made under a
qualifying repayment plan and are not counted toward the 25-year
forgiveness period.
(g) Loan forgiveness processing and payment. (1) The loan holder
determines when a borrower has met the loan forgiveness requirements
under paragraph (f) of this section and does not require the borrower
to submit a request for loan forgiveness. No later than 6 months prior
to the anticipated date that the borrower will meet the loan
forgiveness requirements, the loan holder must send the borrower a
written notice that includes--
(i) An explanation that the borrower is approaching the date that
he or she is expected to meet the requirements to receive loan
forgiveness;
(ii) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(iii) General information on the current treatment of the
forgiveness amount for tax purposes, and instructions for the borrower
to contact the Internal Revenue Service for more information.
(2) No later than 60 days after the loan holder determines that a
borrower qualifies for loan forgiveness, the loan holder must request
payment from the guaranty agency.
(3) If the loan holder requests payment from the guaranty agency
later than the period specified in paragraph (g)(2) of this section,
interest that accrues on the discharged amount after the expiration of
the 60-day filing period is ineligible for reimbursement by the
Secretary, and the holder must repay all interest and special allowance
received on the discharged amount for periods after the expiration of
the 60-day filing period. The holder cannot collect from the borrower
any interest that is not paid by the Secretary under this paragraph.
(4)(i) Within 45 days of receiving the holder's request for
payment, the guaranty agency must determine if the borrower meets the
eligibility requirements for loan forgiveness under this section and
must notify the holder of its determination.
(ii) If the guaranty agency approves the loan forgiveness, it must,
within the same 45-day period required under paragraph (g)(4)(i) of
this section, pay the holder the amount of the forgiveness.
(5) After being notified by the guaranty agency of its
determination of the eligibility of the borrower for loan forgiveness,
the holder must, within 30 days--
(i) Inform the borrower of the determination and, if appropriate,
that the borrower's repayment obligation on the loans is satisfied; and
(ii) Provide the borrower with the information described in
paragraph (g)(1)(iii) of this section.
(6)(i) The holder must apply the payment from the guaranty agency
under paragraph (g)(4)(ii) of this section to satisfy the outstanding
balance on those loans subject to income-based forgiveness; or
(ii) If the forgiveness amount exceeds the outstanding balance on
the eligible loans subject to forgiveness, the loan holder must refund
the excess amount to the guaranty agency.
(7) If the guaranty agency does not pay the forgiveness claim, the
lender will continue the borrower in repayment on the loan. The lender
is deemed to have exercised forbearance of both principal and interest
from the date the borrower's repayment obligation was suspended until a
new payment due date is established. Unless the denial of the
forgiveness claim was due to an error by the lender, the lender may
capitalize any interest accrued and not paid during this period, in
accordance with Sec. 682.202(b).
(8) The loan holder must promptly return to the sender any payment
received on a loan after the guaranty agency pays the loan holder the
amount of loan forgiveness. (Approved by the Office of Management and
Budget under control number 1845-NEWA.)
* * * * *
6. Section 682.402 is amended by:
A. Revising paragraph (c).
B. In paragraph (g)(1)(iv), removing the words ``certification of
disability described in paragraph (c)(2) of this section'' and adding,
in their place, the words ``notification described in paragraph
(c)(3)(iii) or (c)(9)(ix) of this section in which the Secretary
notifies the lender that the borrower is totally and permanently
disabled''.
C. In paragraph (g)(2)(i), removing the punctuation and words ``,
or the lender determines that the borrower is totally and permanently
disabled''.
D. Redesignating paragraphs (g)(2)(ii), (g)(2)(iii), and (g)(2)(iv)
as paragraphs (g)(2)(iii), (g)(2)(iv), and (g)(2)(v), respectively.
E. Adding a new paragraph (g)(2)(ii).
F. In paragraph (h)(1)(i)(A), adding the punctuation and word ``,
disability,'' after the word ``death''.
G. In paragraph (h)(1)(i)(B), removing the words and punctuation
``disability, closed school,'' and adding, in their place, the words
``closed school''.
H. Revising paragraph (h)(1)(v).
I. In paragraph (h)(3)(iii)(A), adding the punctuation and word ``,
disability,'' after the word ``death''.
J. In paragraph (h)(3)(iii)(B), removing the words and punctuation
``disability, closed school,'' and adding, in their place, the words
``closed school''.
K. Revising paragraph (k)(2)(i).
L. Revising paragraph (k)(2)(ii).
M. In paragraph (k)(2)(iii), adding the words ``by the Secretary''
after the words ``is determined''.
N. In paragraph (k)(5)(ii), removing the words ``the guaranty
agency makes a preliminary determination'' and adding, in their place,
the words ``the Secretary makes a determination''.
O. Revising paragraph (r)(2).
P.. Revising paragraph (r)(3).
The revisions and additions read as follows:
[[Page 42134]]
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
* * * * *
(c)(1) Total and permanent disability. (i) A borrower's loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in Sec. 682.200(b), and satisfies the eligibility requirements
in this section.
(ii) For a borrower who becomes totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
682.200(b), the borrower's loan discharge application is processed in
accordance with paragraphs (c)(2) through (8) of this section.
(iii) For a veteran who is totally and permanently disabled as
described in paragraph (2) of the definition of that term in Sec.
682.200(b), the veteran's loan discharge application is processed in
accordance with paragraph (c)(9) of this section.
(iv) For purposes of Sec. 682.402(c)--
(A) A borrower's representative or a veteran's representative is a
member of the borrower's family, the borrower's attorney, or another
individual authorized to act on behalf of the borrower in connection
with the borrower's total and permanent disability discharge
application. References to a ``borrower'' or a ``veteran'' include, if
applicable, the borrower's representative or the veteran's
representative for purposes of applying for a total and permanent
disability discharge, providing notifications or information to the
Secretary, and receiving notifications from the Secretary;
(B) References to ``the lender'' mean the guaranty agency if the
guaranty agency is the holder of the loan at the time the borrower
applies for a total and permanent disability discharge, except that the
total and permanent disability discharge claim filing requirements
applicable to a lender do not apply to the guaranty agency; and
(C) References to ``the applicable guaranty agency'' mean the
guaranty agency that guaranteed the loan.
(2) Discharge application process for a borrower who is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b). (i) If the borrower notifies the lender
that the borrower claims to be totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
682.200(b), the lender must direct the borrower to notify the Secretary
of the borrower's intent to submit an application for total and
permanent disability discharge and provide the borrower with the
information needed for the borrower to notify the Secretary.
(ii) If the borrower notifies the Secretary of the borrower's
intent to apply for a total and permanent disability discharge, the
Secretary--
(A) Provides the borrower with the information needed for the
borrower to apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the borrower and notifies
the lenders of the borrower's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
borrower for a period not to exceed 120 days; and
(D) Informs the borrower that the suspension of collection activity
described in paragraph (c)(2)(ii)(C) of this section will end after 120
days and collection will resume on the loans if the borrower does not
submit a total and permanent disability discharge application to the
Secretary within that time;
(iii) If the borrower fails to submit an application for a total
and permanent disability discharge to the Secretary within 120 days,
collection resumes on the borrower's title IV loans, and the lender
shall be deemed to have exercised forbearance of principal and interest
from the date it suspended collection activity. The lender may
capitalize, in accordance with Sec. 682.202(b), any interest accrued
and not paid during that period, except that if the lender is a
guaranty agency it may not capitalize accrued interest.
(iv) The borrower must submit to the Secretary an application for a
total and permanent disability discharge on a form approved by the
Secretary. The application must contain a certification by a physician,
who is a doctor of medicine or osteopathy legally authorized to
practice in a State, that the borrower is totally and permanently
disabled as described in paragraph (1) of the definition of that term
in Sec. 682.200(b).
(v) The borrower must submit the application described in paragraph
(c)(2)(iv) of this section to the Secretary within 90 days of the date
the physician certifies the application.
(vi) After the Secretary receives the application described in
paragraph (c)(2)(iv) of this section, the Secretary notifies the
holders of the borrower's title IV loans, that the Secretary has
received a total and permanent disability discharge application from
the borrower. The holders of the loans must notify the applicable
guaranty agencies that the total and permanent disability discharge
application has been received.
(vii) If the application is incomplete, the Secretary notifies the
borrower of the missing information and requests the missing
information from the borrower or the physician who provided the
certification, as appropriate. The Secretary does not make a
determination of eligibility until the application is complete.
(viii) The lender notification described in paragraph (c)(2)(vi) of
this section directs the borrower's loan holders to suspend collection
activity or maintain the suspension of collection activity on the
borrower's title IV loans.
(ix) After the Secretary receives the disability discharge
application, the Secretary sends a notice to the borrower that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the borrower that the borrower's lenders will suspend
collection activity or maintain the suspension of collection activity
on the borrower's title IV loans while the Secretary reviews the
borrower's application for a discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(3) Secretary's review of total and permanent disability discharge
application. (i) If, after reviewing the borrower's completed
application, the Secretary determines that the physician's
certification supports the conclusion that the borrower is totally and
permanently disabled, as described in paragraph (1) of the definition
of that term in Sec. 682.200(b), the borrower is considered totally
and permanently disabled as of the date the physician certified the
borrower's application.
(ii) The Secretary may require the borrower to submit additional
medical evidence if the Secretary determines that the borrower's
application does not conclusively prove that the borrower is totally
and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b). As part of the Secretary's
review of the borrower's discharge application, the Secretary may
require and arrange for an additional review of the borrower's
condition by an independent physician at no expense to the borrower.
(iii) After determining that the borrower is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b), the Secretary notifies the borrower and
the borrower's lenders that the application for a disability discharge
has been approved. With this notification, the Secretary provides the
date the physician certified the
[[Page 42135]]
borrower's loan discharge application and directs each lender to submit
a disability claim to the guaranty agency so the loan can be assigned
to the Secretary. The Secretary returns any payment received by the
Secretary after the date the physician certified the borrower's loan
discharge application to the person who made the payments.
(iv) After the loan is assigned, the Secretary discharges the
borrower's obligation to make further payments on the loan and notifies
the borrower and the lender that the loan has been discharged. The
notification to the borrower explains the terms and conditions under
which the borrower's obligation to repay the loan will be reinstated,
as specified in paragraph (c)(6)(i) of this section.
(v) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower is
totally and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b), the Secretary notifies the
borrower and the lender that the application for a disability discharge
has been denied. The notification includes--
(A) The reason or reasons for the denial;
(B) A statement that the loan is due and payable to the lender
under the terms of the promissory note and that the loan will return to
the status that would have existed had the total and permanent
disability discharge application not been received;
(C) A statement that the lender will notify the borrower of the
date the borrower must resume making payments on the loan;
(D) An explanation that the borrower is not required to submit a
new total and permanent disability discharge application if the
borrower requests that the Secretary re-evaluate the application for
discharge by providing, within 12 months of the date of the
notification, additional information that supports the borrower's
eligibility for discharge; and
(E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12
months of the date of the notification, the borrower must submit a new
total and permanent disability discharge application to the Secretary
if the borrower wishes the Secretary to re-evaluate the borrower's
eligibility for a total and permanent disability discharge.
(vi) If the borrower requests re-evaluation in accordance with
paragraph (c)(3)(v)(D) of this section or submits a new total and
permanent disability discharge application in accordance with paragraph
(c)(3)(v)(E) of this section, the request must include new information
regarding the borrower's disabling condition that was not available at
the time the Secretary reviewed the borrower's initial application for
a total and permanent disability discharge.
(4) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a title IV loan or TEACH Grant before the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
(5) Receipt of new title IV loans or TEACH Grants after the date of
the physician's certification. If a borrower receives a disbursement of
a new title IV loan or receives a new TEACH Grant made on or after the
date the physician certified the borrower's discharge application and
before the date the Secretary grants a discharge under this section,
the Secretary denies the borrower's discharge request and collection
resumes on the borrower's loans.
(6) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates the
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (c)(3)(iii) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty guideline for a family of two, as published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2);
(B) Receives a new TEACH Grant or a new loan under the Perkins or
Direct Loan programs, except for a Direct Consolidation Loan that
includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made is returned to the loan holder or to the Secretary, as
applicable, within 120 days of the disbursement date.
(ii) If the borrower's obligation to repay a loan is reinstated,
the Secretary--
(A) Notifies the borrower that the borrower's obligation to repay
the loan has been reinstated;
(B) Returns the loan to the status that would have existed if the
total and permanent disability discharge application had not been
received; and
(C) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
borrower's obligation to repay the loan was reinstated.
(iii) The Secretary's notification under paragraph (c)(6)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(7) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (c)(6)(i) of this section, the borrower must--
(i) Promptly notify the Secretary of any changes in the borrower's
address or phone number;
(ii) Promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(6)(i)(A) of this section; and
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment, on a form approved by
the Secretary.
(8) Lender and guaranty agency actions. (i) If the Secretary
approves the borrower's total and permanent disability discharge
application--
(A) The lender must submit a disability claim to the guaranty
agency, in accordance with paragraph (g)(1) of this section;
(B) If the claim satisfies the requirements of Sec. 682.402(g)(1),
the guaranty agency must pay the claim submitted by the lender;
(C) After receiving a claim payment from the guaranty agency, the
lender must return to the sender any payments received by the lender
after the date the physician certified the borrower's loan discharge
application as well as any
[[Page 42136]]
payments received after claim payment from or on behalf of the
borrower;
(D) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender;
and
(E) The guaranty agency must assign the loan to the Secretary
within 45 days of the date the guaranty agency pays the disability
claim and receives the reimbursement payment, or within 45 days of the
date the guaranty agency receives the notice described in paragraph
(c)(3)(iii) of this section if a guaranty agency is the lender.
(ii) If the Secretary does not approve the borrower's total and
permanent disability discharge request, the lender must resume
collection of the loan and is deemed to have exercised forbearance of
payment of both principal and interest from the date collection
activity was suspended. The lender may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period,
except if the lender is a guaranty agency it may not capitalize accrued
interest.
(9) Discharge application process for veterans who are totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b). (i) General. If a veteran notifies the
lender that the veteran claims to be totally and permanently disabled
as described in paragraph (2) of the definition of that term in Sec.
682.200(b), the lender must direct the veteran to notify the Secretary
of the veteran's intent to submit an application for a total and
permanent disability discharge and provide the veteran with the
information needed for the veteran to apply for a total and permanent
disability discharge to the Secretary.
(ii) If the veteran notifies the Secretary of the veteran's intent
to apply for a total and permanent disability discharge, the
Secretary--
(A) Provides the veteran with the information needed for the
veteran to apply for a total and permanent disability discharge;
(B) Identifies all title IV loans owed by the veteran and notifies
the lenders of the veteran's intent to apply for a total and permanent
disability discharge;
(C) Directs the lenders to suspend efforts to collect from the
veteran for a period not to exceed 120 days; and
(D) Informs the veteran that the suspension of collection activity
described in paragraph (c)(9)(ii)(C) of this section will end after 120
days and the lender will resume collection on the loans if the veteran
does not submit a total and permanent disability discharge application
to the Secretary within that time.
(iii) If the veteran fails to submit an application for a total and
permanent disability discharge to the Secretary within 120 days,
collection resumes on the veteran's title IV loans and the lender is
deemed to have exercised forbearance of principal and interest from the
date it suspended collection activity. The lender may capitalize, in
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period, except that if the lender is a guaranty agency it
may not capitalize accrued interest.
(iv) The veteran must submit to the Secretary an application for a
total and permanent disability discharge on a form approved by the
Secretary.
(v) The application must be accompanied by documentation from the
Department of Veterans Affairs showing that the Department of Veterans
Affairs has determined that the veteran is unemployable due to a
service-connected disability. The veteran will not be required to
provide any additional documentation related to the veteran's
disability.
(vi) After the Secretary receives the application and supporting
documentation described in paragraphs (c)(9)(iv) and (c)(9)(v) of this
section, the Secretary notifies the holders of the veteran's title IV
loans, that Secretary has received a total and permanent disability
discharge application from the veteran. The holders of the loans must
notify the applicable guaranty agencies that the total and permanent
disability discharge application has been received.
(vii) If the application is incomplete, the Secretary notifies the
veteran of the missing information and requests the missing information
from the veteran or the veteran's representative. The Secretary does
not make a determination of eligibility until the application is
complete.
(viii) The lender notification described in paragraph (c)(9)(vi) of
this section directs the lenders to suspend collection activity or
maintain the suspension of collection activity on the veteran's title
IV loans.
(ix) After the Secretary receives the disability discharge
application, the Secretary sends a notice to the veteran that--
(A) States that the application will be reviewed by the Secretary;
(B) Informs the veteran that the veteran's lenders will suspend
collection activity on the veteran's title IV loans while the Secretary
reviews the veteran's application for a discharge; and
(C) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(x) After making a determination that the veteran is totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b), the Secretary notifies the veteran and
the veteran's lenders that the application for a disability discharge
has been approved. With this notification, the Secretary provides the
effective date of the determination and directs each lender to submit a
disability claim to the guaranty agency.
(xi) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as described in paragraph (2)
of the definition of that term in Sec. 682.200(b), the Secretary
notifies the veteran and the lender that the application for a
disability discharge has been denied. The notification includes--
(A) The reason or reasons for the denial;
(B) An explanation that the loan is due and payable to the lender
under the terms of the promissory note and that the loan will return to
the status it was in at the time the veteran applied for a total and
permanent disability discharge;
(C) An explanation that the lender will notify the veteran of the
date the veteran must resume making payments on the loan;
(D) An explanation that the veteran is not required to submit a new
total and permanent disability discharge application if the veteran
requests that the Secretary re-evaluate the application for discharge
by providing, within 12 months of the date of the notification,
additional documentation from the Department of Veterans Affairs that
supports the veteran's eligibility for discharge; and
(E) Information on how the veteran may reapply for a total and
permanent disability discharge in accordance with procedures described
in paragraphs (c)(2) through (c)(8) of this section, if the
documentation from the Department of Veterans Affairs does not indicate
that the veteran is totally and permanently disabled as described in
paragraph (2) of the definition of that term in Sec. 682.200(b), but
indicates that the veteran may be totally and permanently disabled as
described in paragraph (1) of the definition of that term.
(xii)(A) If the Secretary approves the veteran's total and
permanent disability discharge application based on documentation from
the Department of
[[Page 42137]]
Veterans Affairs the lender must submit a disability claim to the
guaranty agency, in accordance with paragraph (g)(1) of this section.
(B) If the claim meets the requirements of paragraph (g)(1) of this
section, the guaranty agency must pay the claim and discharge the loan.
(C) The Secretary reimburses the guaranty agency for a disability
claim after the agency pays the claim to the lender.
(D) Upon receipt of the claim payment from the guaranty agency, the
lender returns any payments received by the lender on or after the
effective date of the determination by the Department of Veterans
Affairs to the person who made the payments.
(E) If the Secretary does not approve the veteran's total and
permanent disability discharge based on documentation from the
Department of Veterans Affairs, the lender must resume collection and
is deemed to have exercised forbearance of payment of both principal
and interest from the date collection activity was suspended. The
lender may capitalize, in accordance with Sec. 682.202(b), any
interest accrued and not paid during that period, except that if the
lender is a guaranty agency it may not capitalize accrued interest.
* * * * *
(g) * * *
(2) * * *
(ii) Within 60 days of the date the lender received notification
from the Secretary that the borrower is totally and permanently
disabled, in accordance with Sec. 682.402(c)(3)(iii) or
682.402(c)(9)(ix).
* * * * *
(h) * * *
(1) * * *
(v) In the case of a disability claim based on a veteran's
discharge request processed in accordance with Sec. 682.402(c)(9), the
guaranty agency must review the claim promptly and not later than 45
days after the claim was filed by the lender pay the claim or return
the claim to the lender in accordance with Sec. 682.402(c)(9)(xi)(B).
* * * * *
(k) * * *
(2) * * *
(i) The Secretary determines that the borrower (or each of the co-
makers of a PLUS loan) has become totally and permanently disabled
since applying for the loan, or the guaranty agency determines that the
borrower (or the student for whom a parent obtained a PLUS loan or each
of the co-makers of a PLUS loan) has died, or has filed for relief in
bankruptcy, in accordance with the procedures in paragraph (b), (c), or
(f) of this section, or the student was unable to complete an
educational program because the school closed, or the borrower's
eligibility to borrow (or the student's eligibility in the case of a
PLUS loan) was falsely certified by an eligible school. For purposes of
this paragraph, references to the ``lender'' and ``guaranty agency'' in
paragraphs (b) through (f) of this section mean the guaranty agency and
the Secretary respectively;
(ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary
determines that the borrower (or each of the co-makers of a PLUS loan)
has become totally and permanently disabled since applying for the
loan, the guaranty agency determines that the borrower (or the student
for whom a parent obtained a PLUS loan, or each of the co-makers of a
PLUS loan) has died, or has filed the petition for relief in bankruptcy
within 10 years of the date the borrower entered repayment, exclusive
of periods of deferment or periods of forbearance granted by the lender
that extended the 10-year maximum repayment period, or the borrower (or
the student for whom a parent received a PLUS loan) was unable to
complete an educational program because the school closed, or the
borrower's eligibility to borrow (or the student's eligibility in the
case of a PLUS loan) was falsely certified by an eligible school;
* * * * *
(r) * * *
(2) If the guaranty agency receives any payments from or on behalf
of the borrower on or attributable to a loan that has been assigned to
the Secretary based on the determination that the borrower is eligible
for a total and permanent disability discharge, the guaranty agency
must promptly return these payments to the sender. At the same time
that the agency returns the payments, it must notify the borrower that
there is no obligation to make payments on the loan after it has been
discharged due to a total and permanent disability, unless the loan is
reinstated in accordance with Sec. 682.402(c), or the Secretary
directs the borrower otherwise.
(3) When the Secretary discharges the loan, the Secretary returns
to the sender any payments received by the Secretary on the loan after
the date the borrower became totally and permanently disabled.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
7. The authority citation for part 685 continues to read as
follows:
Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
8. Section 685.200 is amended by revising paragraph
(a)(1)(iv)(A)(3) to read as follows:
Sec. 685.200 Borrower eligibility.
(a) * * *
(1) * * *
(iv) * * *
(A) * * *
(3) If the borrower receives a new Direct Loan, other than a Direct
Consolidation Loan, within three years of the date that any previous
title IV loan or TEACH Grant service obligation was discharged due to a
total and permanent disability in accordance with Sec.
685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 682.402(c)(3)(iv),
or 34 CFR 686.42(b) based on a discharge request received on or after
July 1, 2010, the borrower resumes repayment on the previously
discharged loan in accordance with Sec. 685.213(b)(7), 34 CFR
674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he or she
is once again subject to the terms of the TEACH Grant agreement to
serve before receiving the new loan.
* * * * *
9. Section 685.202 is amended by:
A. In paragraph (b)(3), removing the citation ``Sec.
685.209(d)(3)'' and adding, in its place, the citation ``Sec.
685.209(b)(3)(iv)''.
B. Revising paragraph (b)(4).
The revision reads as follows:
Sec. 685.202 Charges for which Direct Loan borrowers are responsible.
* * * * *
(b) * * *
(4) Except as provided in paragraph (b)(3) of this section and in
Sec. Sec. 685.208(l)(5) and 685.209(b)(3)(iv), the Secretary annually
capitalizes unpaid interest when the borrower is paying under the
alternative repayment plan or the income-contingent repayment plan
described in Sec. 685.209(b) and the borrower's scheduled payments do
not cover the interest that has accrued on the loan.
* * * * *
10. Section 685.208 is amended by:
A. Revising paragraph (a)(1).
B. Revising paragraph (a)(2)
C. Revising paragraph (k).
The revisions read as follows:
Sec. 685.208 Repayment plans.
(a) * * *
[[Page 42138]]
(1) Borrowers who entered repayment before July 1, 2006. (i) A
Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct Subsidized
Consolidation Loan, or a Direct Unsubsidized Consolidation Loan may be
repaid under --
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (d) of
this section;
(C) The graduated repayment plan in accordance with paragraph (f)
of this section;
(D) The income-contingent repayment plan in accordance with
paragraph (k)(2) of this section; or
(E) The income-based repayment plan in accordance with paragraph
(m) of this section.
(ii) A Direct PLUS Loan or a Direct PLUS Consolidation Loan may be
repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (d) of
this section; or
(C) The graduated repayment plan in accordance with paragraph (f)
of this section.
(2) Borrowers entering repayment on or after July 1, 2006. (i) A
Direct Subsidized Loan, a Direct Unsubsidized Loan, or a Direct PLUS
Loan that was made to a graduate or professional student borrower may
be repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (g)
of this section;
(D) The income-contingent repayment plans in accordance with
paragraph (k) of this section; or
(E) The income-based repayment plan, in accordance with paragraph
(m) of this section.
(ii) A Direct PLUS Loan that was made to a parent borrower may be
repaid under--
(A) The standard repayment plan in accordance with paragraph (b) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section; or
(C) The graduated repayment plan in accordance with paragraph (g)
of this section.
(iii) A Direct Consolidation Loan that did not repay a parent
Direct PLUS Loan or a parent Federal PLUS Loan may be repaid under--
(A) The standard repayment plan in accordance with paragraph (c) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (h)
of this section;
(D) The income-contingent repayment plans in accordance with
paragraph (k) of this section; or
(E) The income-based repayment plan in accordance with paragraph
(m) of this section.
(iv) A Direct Consolidation Loan that repaid a parent Direct PLUS
Loan or a parent Federal PLUS Loan may be repaid under--
(A) The standard repayment plan in accordance with paragraph (c) of
this section;
(B) The extended repayment plan in accordance with paragraph (e) of
this section;
(C) The graduated repayment plan in accordance with paragraph (h)
of this section; or
(D) The income-contingent plan in accordance with paragraph (k)(2)
of this section.
(v) No scheduled payment may be less than the amount of interest
accrued on the loan between monthly payments, except under the income-
contingent repayment plan, the income-based repayment plan, or an
alternative repayment plan.
* * * * *
(k) Income-contingent repayment plans. (1) Under the income-
contingent repayment plan described in Sec. 685.209(a), the required
monthly payment for a borrower who has a partial financial hardship is
limited to no more than 10 percent of the amount by which the
borrower's Adjusted Gross Income (AGI) exceeds 150 percent of the
poverty guideline applicable to the borrower's family size, divided by
12. The Secretary determines annually whether the borrower continues to
qualify for this reduced monthly payment based on the amount of the
borrower's eligible loans, AGI, and poverty guideline.
(2) Under the income-contingent repayment plan described in Sec.
685.209(b), a borrower's monthly repayment amount is generally based on
the total amount of the borrower's Direct Loans, family size, and AGI
reported by the borrower for the most recent year for which the
Secretary has obtained income information.
(3) For the income-contingent repayment plan described in Sec.
685.209(b), the regulations in effect at the time a borrower enters
repayment and selects the income-contingent repayment plan or changes
into the income-contingent repayment plan from another plan govern the
method for determining the borrower's monthly repayment amount for all
of the borrower's Direct Loans, unless--
(i) The Secretary amends the regulations relating to a borrower's
monthly repayment amount under the income-contingent repayment plan;
and
(ii) The borrower submits a written request that the amended
regulations apply to the repayment of the borrower's Direct Loans.
(4) Provisions governing the income-contingent repayment plans are
in Sec. 685.209.
* * * * *
11. Section 685.209 is revised to read as follows:
Sec. 685.209 Income-contingent repayment plans.
(a) ICR-A plan: The ICR-A plan is an income-contingent repayment
plan for eligible new borrowers.
(1) Definitions. As used in this section--
(i) Adjusted gross income (AGI) means the borrower's adjusted gross
income as reported to the Internal Revenue Service. For a married
borrower filing jointly, AGI includes both the borrower's and spouse's
income. For a married borrower filing separately, AGI includes only the
borrower's income;
(ii) Eligible loan means any outstanding loan made to a borrower
under the Direct Loan Program or the FFEL Program except for a
defaulted loan, a Direct PLUS Loan or Federal PLUS Loan made to a
parent borrower, or a Direct Consolidation Loan or Federal
Consolidation Loan that repaid a Direct PLUS Loan or Federal PLUS Loan
made to a parent borrower;
(iii) Eligible new borrower means an individual who--
(A) Has no outstanding balance on a Direct Loan Program Loan or a
FFEL Program loan as of October 1, 2007, or who has no outstanding
balance on such a loan on the date he or she receives a new loan after
October 1, 2007; and
(B)(1) Receives a disbursement of a Direct Subsidized Loan, Direct
Unsubsidized Loan, or student Direct PLUS Loan on or after October 1,
2011; or
(2) Receives a Direct Consolidation Loan based on an application
received on or after October 1, 2011, except that a borrower is not
considered an eligible new borrower if the Direct Consolidation Loan
repays a loan that would otherwise make the borrower
[[Page 42139]]
ineligible under paragraph (a)(1)(iii)(A) of this section;
(iv) Family size means the number that is determined by counting
the borrower, the borrower's spouse, and the borrower's children,
including unborn children who will be born during the year the borrower
certifies family size, if the children receive more than half their
support from the borrower. A borrower's family size includes other
individuals if, at the time the borrower certifies family size, the
other individuals--
(A) Live with the borrower; and
(B) Receive more than half their support from the borrower and will
continue to receive this support from the borrower for the year the
borrower certifies family size. Support includes money, gifts, loans,
housing, food, clothes, car, medical and dental care, and payment of
college costs;
(v) Partial financial hardship means a circumstance in which--
(A) For an unmarried borrower or a married borrower who files an
individual Federal tax return, the annual amount due on all of the
borrower's eligible loans, as calculated under a standard repayment
plan based on a 10-year repayment period, using the greater of the
amount due at the time the borrower initially entered repayment or at
the time the borrower elects the ICR-A plan, exceeds 10 percent of the
difference between the borrower's AGI and 150 percent of the poverty
guideline for the borrower's family size; or
(B) For a married borrower who files a joint Federal tax return
with his or her spouse, the annual amount due on all of the borrower's
eligible loans and, if applicable, the spouse's eligible loans, as
calculated under a standard repayment plan based on a 10-year repayment
period, using the greater of the amount due at the time the loans
initially entered repayment or at the time the borrower or spouse
elects the ICR-A plan, exceeds 10 percent of the difference between the
borrower's and spouse's AGI, and 150 percent of the poverty guideline
for the borrower's family size; and
(vi) Poverty guideline refers to the income categorized by State
and family size in the poverty guidelines published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2). If a borrower is not a resident of a State identified
in the poverty guidelines, the poverty guideline to be used for the
borrower is the poverty guideline (for the relevant family size) used
for the 48 contiguous States.
(2) Terms of the ICR-A repayment plan. (i) A borrower may select
the ICR-A plan only if the borrower has a partial financial hardship.
The borrower's aggregate monthly loan payments are limited to no more
than 10 percent of the amount by which the borrower's AGI exceeds 150
percent of the poverty guideline applicable to the borrower's family
size, divided by 12.
(ii) The Secretary adjusts the calculated monthly payment if--
(A) Except for borrowers provided for in paragraph (a)(2)(ii)(B) of
this section, the total amount of the borrower's eligible loans are not
Direct Loans, in which case the Secretary determines the borrower's
adjusted monthly payment by multiplying the calculated payment by the
percentage of the total outstanding principal amount of the borrower's
eligible loans that are Direct Loans;
(B) Both the borrower and borrower's spouse have eligible loans and
filed a joint Federal tax return, in which case the Secretary
determines--
(1) Each borrower's percentage of the couple's total eligible loan
debt;
(2) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(a)(2)(ii)(B)(1) of this section; and
(3) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly Direct Loan payment by multiplying the
payment determined in paragraph (a)(2)(ii)(B)(2) of this section by the
percentage of the total outstanding principal amount of the borrower's
eligible loans that are Direct Loans;
(C) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A),
or (a)(2)(ii)(B) of this section is less than $5.00, in which case the
borrower's monthly payment is $0.00; or
(D) The calculated amount under paragraph (a)(2)(i), (a)(2)(ii)(A),
or (a)(2)(ii)(B) of this section is equal to or greater than $5.00 but
less than $10.00, in which case the borrower's monthly payment is
$10.00.
(iii) If the borrower's monthly payment amount is not sufficient to
pay the accrued interest on the borrower's Direct Subsidized loan or
the subsidized portion of a Direct Consolidation Loan, the Secretary
does not charge the borrower the remaining accrued interest for a
period not to exceed three consecutive years from the established
repayment period start date on that loan under the ICR-A plan. On a
Direct Consolidation Loan that repays loans on which the Secretary has
not charged the borrower accrued interest, the three-year period
includes the period for which the Secretary did not charge the borrower
accrued interest on the underlying loans. This three-year period does
not include any period during which the borrower receives an economic
hardship deferment.
(iv)(A) Except as provided in paragraph (a)(2)(iii) of this
section, accrued interest is capitalized--
(1) When a borrower is determined to no longer have a partial
financial hardship; or
(2) At the time a borrower chooses to leave the ICR-A plan.
(B)(1) The amount of accrued interest capitalized under paragraph
(a)(2)(iv)(A)(1) of this section is limited to 10 percent of the
original principal balance at the time the borrower entered repayment
under the ICR-A plan.
(2) After the amount of accrued interest reaches the limit
described in paragraph (a)(2)(iv)(B)(1) of this section, interest
continues to accrue, but is not capitalized while the borrower remains
on the ICR-A plan.
(v) If the borrower's monthly payment amount is not sufficient to
pay any of the principal due, the payment of that principal is
postponed until the borrower chooses to leave the ICR-A plan or no
longer has a partial financial hardship.
(vi) The repayment period for a borrower under the ICR-A plan may
be greater than 10 years.
(3) Payment application and prepayment. (i) The Secretary applies
any payment made under the ICR-A plan in the following order:
(A) Accrued interest.
(B) Collection costs.
(C) Late charges.
(D) Loan principal.
(ii) The borrower may prepay all or part of a loan at any time
without penalty, as provided under Sec. 685.211(a)(2).
(iii) If the prepayment amount equals or exceeds a monthly payment
amount of $10.00 or more under the repayment schedule established for
the loan, the Secretary applies the prepayment consistent with the
requirements of Sec. 685.211(a)(3).
(iv) If the prepayment amount exceeds a monthly payment amount of
$0.00 under the repayment schedule established for the loan, the
Secretary applies the prepayment consistent with the requirements of
paragraph (a)(3)(i) of this section.
(4) Changes in the payment amount. (i) If a borrower no longer has
a partial financial hardship, the borrower may continue to make
payments under the ICR-A plan, but the Secretary recalculates the
borrower's monthly payment. The Secretary also
[[Page 42140]]
recalculates the monthly payment for a borrower who chooses to stop
making income contingent payments. In either case, as a result of the
recalculation--
(A) The maximum monthly amount that the Secretary requires the
borrower to repay is the amount the borrower would have paid under the
standard repayment plan based on a 10-year repayment period using the
amount of the borrower's eligible loans that was outstanding at the
time the borrower began repayment on the loans under the ICR-A plan;
and
(B) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(ii) A borrower who no longer wishes to repay under the ICR-A plan
may change to a different repayment plan in accordance with Sec.
685.210(b).
(5) Eligibility documentation, verification, and notifications.
(i)(A) The Secretary determines whether a borrower has a partial
financial hardship to qualify for the ICR-A plan for the year the
borrower selects the plan and for each subsequent year that the
borrower remains on the plan. To make this determination, the Secretary
requires the borrower to provide documentation, acceptable to the
Secretary, of the borrower's AGI.
(B) If the borrower's AGI is not available, or if the Secretary
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, the borrower must provide other
documentation to verify income.
(C) The borrower must annually certify the borrower's family size.
If the borrower fails to certify family size, the Secretary assumes a
family size of one for that year.
(ii) After making a determination that a borrower has a partial
financial hardship to qualify for the ICR-A plan for the year the
borrower initially elects the plan and for each subsequent year that
the borrower has a partial financial hardship, the Secretary sends the
borrower a written notification that provides the borrower with --
(A) The borrower's scheduled monthly payment amount, as calculated
under paragraph (a)(2) of this section, and the time period during
which this scheduled monthly payment amount will apply (annual payment
period);
(B) Information about the requirement for the borrower to annually
provide the information described in paragraph (a)(5)(i) of this
section, if the borrower chooses to remain on the ICR-A plan after the
initial year on the plan, and an explanation that the borrower will be
notified in advance of the date by which the Secretary must receive
this information;
(C) An explanation of the consequences, as described in paragraphs
(a)(5)(i)(C) and (a)(5)(v) of this section, if the borrower does not
provide the required information; and
(D) Information about the borrower's option to request, at any time
during the borrower's current annual payment period, that the Secretary
recalculate the borrower's monthly payment amount if the borrower's
financial circumstances have changed and the income amount that was
used to calculate the borrower's current monthly payment no longer
reflects the borrower's current income. If the Secretary recalculates
the borrower's monthly payment amount based on the borrower's request,
the Secretary sends the borrower a written notification that includes
the information described in paragraphs (a)(5)(ii)(A) through (D) of
this section.
(iii) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the ICR-A plan, the Secretary
notifies the borrower in writing of the requirements in paragraph
(a)(5)(i) of this section no later than 60 days and no earlier than 90
days prior to the date specified in paragraph (a)(5)(iii)(A) of this
section. The notification provides the borrower with --
(A) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
all of the documentation described in paragraph (a)(5)(i) of this
section (annual deadline); and
(B) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (a)(4)(i) of this section, the effective
date for the recalculated monthly payment amount, and the fact that
unpaid accrued interest will be capitalized in accordance with
paragraph (a)(2)(iv) of this section.
(iv) Each time the Secretary makes a determination that a borrower
no longer has a partial financial hardship for a subsequent year that
the borrower wishes to remain on the plan, the Secretary sends the
borrower a written notification that provides the borrower with--
(A) The borrower's recalculated monthly payment amount, as
determined in accordance with paragraph (a)(4)(i) of this section;
(B) An explanation that unpaid interest will be capitalized in
accordance with paragraph (a)(2)(iv) of this section; and
(C) Information about the borrower's option to request, at any
time, that the Secretary redetermine whether the borrower has a partial
financial hardship, if the borrower's financial circumstances have
changed and the income amount used to determine that the borrower no
longer has a partial financial hardship does not reflect the borrower's
current income, and an explanation that the borrower will be notified
annually of this option. If the Secretary determines that the borrower
again has a partial financial hardship, the Secretary recalculates the
borrower's monthly payment in accordance with paragraph (a)(2)(i) of
this section and sends the borrower a written notification that
includes the information described in paragraphs (a)(5)(ii)(A) through
(D) of this section.
(v) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the ICR-A plan, the
Secretary sends the borrower a written notification that includes the
information described in paragraph (a)(5)(iv)(C) of this section.
(vi) If a borrower who is currently repaying under another
repayment plan selects the ICR-A plan but does not provide the
documentation described in paragraphs (a)(5)(i)(A) or (B) of this
section, or if the Secretary determines that the borrower does not have
a partial financial hardship, the borrower remains on his or her
current repayment plan.
(vii) The Secretary designates the repayment option described in
paragraph (a)(4)(i) of this section if a borrower who is currently
repaying under the ICR-A repayment plan remains on the plan for a
subsequent year but the Secretary does not receive the documentation
described in paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section
within 10 days of the specified annual deadline.
(viii) If the Secretary receives the documentation described in
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section within 10 days
of the specified annual deadline, the Secretary maintains the
borrower's current scheduled monthly payment amount until the new
scheduled monthly payment amount is determined. If the new monthly
payment amount is less than the borrower's previously calculated ICR-A
monthly payment amount, and the borrower made payments at the
previously calculated amount after the end of the most recent annual
payment period, the Secretary makes the appropriate adjustment to the
borrower's account. Notwithstanding the requirements of Sec.
685.211(b)(3), unless the borrower requests otherwise,
[[Page 42141]]
the Secretary applies the excess payment amounts made after the end of
the most recent annual payment period in accordance with the
requirements of Sec. 685.209(a)(3)(i).
(ix)(A) If the Secretary receives the documentation described in
paragraphs (a)(5)(i)(A) and (a)(5)(i)(B) of this section more than 10
days after the specified annual deadline and the borrower's monthly
payment amount is recalculated in accordance with paragraph (a)(4)(i)
of this section, the Secretary grants forbearance with respect to
payments that are overdue or would be due at the time the new
calculated ICR-A monthly payment amount is determined, if the new
monthly payment amount is $0.00 or is less than the borrower's
previously calculated income-based monthly payment amount. Interest
that accrues during the portion of this forbearance period that covers
payments that are overdue after the end of the prior annual payment
period is not capitalized.
(B) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(6) Loan forgiveness. (i) To qualify for loan forgiveness after 20
years, a borrower must have participated in the ICR-A plan and
satisfied at least one of the following conditions during that period:
(A) Made reduced monthly payments under a partial financial
hardship as provided in paragraph (a)(2)(i) or (a)(2)(ii) of this
section, including a monthly payment amount of $0.00, as provided under
paragraph (a)(2)(ii)(C) of this section.
(B) Made reduced monthly payments after the borrower no longer had
a partial financial hardship or stopped making income-contingent
payments as provided in paragraph (a)(4)(i) of this section.
(C) Made monthly payments under any repayment plan, that were not
less than the amount required under the Direct Loan standard repayment
plan described in Sec. 685.208(b) for the amount of the borrower's
loans that were outstanding at the time the loans initially entered
repayment.
(D) Made monthly payments under the Direct Loan standard repayment
plan described in Sec. 685.208(b).
(E) Made monthly payments under the ICR-B plan described in
paragraph (b) of this section or the income-based repayment plan
described in Sec. 685.221, including a calculated monthly payment
amount of $0.00.
(F) Received an economic hardship deferment on eligible Direct
Loans.
(ii) As provided under paragraph (a)(6)(v) of this section, the
Secretary cancels any outstanding balance of principal and accrued
interest on Direct loans for which the borrower qualifies for
forgiveness if the Secretary determines that--
(A) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (a)(6)(i) of this section,
including a monthly payment amount of $0.00, as provided under
paragraph (a)(2)(ii)(C) of this section; and
(B)(1) The borrower made those monthly payments each year for a 20-
year period; or
(2) Through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 20 years of
payments.
(iii) For a borrower who qualifies for the ICR-A plan, the
beginning date for the 20-year period is--
(A) If the borrower made payments under the ICR-B plan described in
paragraph (b) of this section or the income-based repayment plan
described in Sec. 685.221, the earliest date the borrower made a
payment on the loan under one of those plans at any time after October
1, 2007; or
(B) If the borrower did not make payments under the ICR-B plan
described in paragraph (b) of this section or the income-based
repayment plan described in Sec. 685.221--
(1) For a borrower who has an eligible Direct Consolidation Loan,
the date the borrower made a payment or received an economic hardship
deferment on that loan, before the date the borrower qualified for the
ICR-A plan. The beginning date is the date the borrower made the
payment or received the deferment after October 1, 2007;
(2) For a borrower who has one or more other eligible Direct Loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower
made that payment or received the deferment on that loan after October
1, 2007;
(3) For a borrower who did not make a payment or receive an
economic hardship deferment on the loan under paragraph
(a)(6)(iii)(B)(1) or (a)(6)(iii)(B)(2) of this section, the date the
borrower made a payment on the loan under the ICR-A plan;
(4) If the borrower consolidates his or her eligible loans, the
date the borrower made a payment on the Direct Consolidation Loan that
met the requirements of paragraph (a)(6)(i) of this section; or
(5) If the borrower did not make a payment or receive an economic
hardship deferment on the loan under paragraph (a)(6)(iii)(A) or
(a)(6)(iii)(B) of this section, the date the borrower made a payment on
the loan under the ICR-A plan.
(iv) Any payments made on a defaulted loan are not made under a
qualifying repayment plan and are not counted toward the 20-year
forgiveness period.
(v)(A) When the Secretary determines that a borrower has satisfied
the loan forgiveness requirements under paragraph (a)(6) of this
section on an eligible loan, the Secretary cancels the outstanding
balance and accrued interest on that loan. No later than 6 months prior
to the anticipated date that the borrower will meet the forgiveness
requirements, the Secretary sends the borrower a written notice that
includes--
(1) An explanation that the borrower is approaching the date that
he or she is expected to meet the requirements to receive loan
forgiveness;
(2) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(3) General information on the current treatment of the forgiveness
amount for tax purposes, and instructions for the borrower to contact
the Internal Revenue Service for more information.
(B) The Secretary determines when a borrower has met the loan
forgiveness requirements in paragraph (a)(6) of this section and does
not require the borrower to submit a request for loan forgiveness.
(C) After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(1) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(2) Provides the borrower with the information described in
paragraph (a)(6)(v)(A)(3) of this section; and
(3) Returns to the sender any payment received on a loan after loan
forgiveness has been granted.
(b) ICR-B plan: The ICR-B plan is an income-contingent repayment
plan under which a borrower's monthly payment amount is generally based
on the total amount of the borrower's Direct Loans, family size, and
AGI.
(1) Repayment amount calculation. (i) The amount the borrower would
repay is based upon the borrower's Direct Loan debt when the borrower's
first loan enters repayment, and this basis for calculation does not
change unless the
[[Page 42142]]
borrower obtains another Direct Loan or the borrower and the borrower's
spouse obtain approval to repay their loans jointly under paragraph
(b)(2)(ii) of this section. If the borrower obtains another Direct
Loan, the amount the borrower would repay is based on the combined
amounts of the loans when the last loan enters repayment. If the
borrower and the borrower's spouse repay the loans jointly, the amount
the borrowers would repay is based on both borrowers' Direct Loan debts
at the time they enter joint repayment.
(ii) The annual amount payable by a borrower under the ICR-B plan
is the lesser of--
(A) The amount the borrower would repay annually over 12 years
using standard amortization multiplied by an income percentage factor
that corresponds to the borrower's AGI as shown in the income
percentage factor table in a notice published annually by the Secretary
in the Federal Register; or
(B) 20 percent of discretionary income.
(iii)(A) For purposes of paragraph (b) of this section,
discretionary income is defined as a borrower's AGI minus the amount of
the poverty guideline as defined in paragraph (b)(1)(iii)(B) of this
section. If a borrower provides documentation acceptable to the
Secretary that the borrower has more than one person in the borrower's
family, the Secretary applies the HHS Poverty Guidelines for the
borrower's family size.
(B) For purposes of paragraph (b) of this section, the term
``poverty guideline'' refers to the income categorized by State and
family size in the poverty guidelines published annually by the United
States Department of Health and Human Services pursuant to 42 U.S.C.
9902(2). If a borrower is not a resident of a State identified in the
poverty guidelines, the poverty line to be used for the borrower is the
poverty guideline (for the relevant family size) used for the 48
contiguous States.
(iv) For exact incomes not shown in the income percentage factor
table in the annual notice published by the Secretary, an income
percentage factor is calculated, based upon the intervals between the
incomes and income percentage factors shown on the table.
(v) Each year, the Secretary recalculates the borrower's annual
payment amount based on changes in the borrower's AGI, the variable
interest rate, the income percentage factors in the table in the annual
notice published by the Secretary, and updated HHS Poverty Guidelines
(if applicable).
(vi) If a borrower's monthly payment is calculated to be greater
than $0 but less than or equal to $5.00, the amount payable by the
borrower is $5.00.
(vii) For purposes of the annual recalculation described in
paragraph (b)(1)(v) of this section, after periods in which a borrower
makes payments that are less than interest accrued on the loan, the
payment amount is recalculated based upon unpaid accrued interest and
the highest outstanding principal loan amount (including amount
capitalized) calculated for that borrower while paying under the ICR-B
plan.
(viii) For each calendar year, the Secretary publishes in the
Federal Register a revised income percentage factor table reflecting
changes based on inflation. This revised table is developed by changing
each of the dollar amounts contained in the table by a percentage equal
to the estimated percentage changes in the Consumer Price Index (as
determined by the Secretary) between December 1995 and the December
next preceding the beginning of such calendar year.
(ix) Examples of the calculation of monthly repayment amounts and
tables that show monthly repayment amounts for borrowers at various
income and debt levels are included in the annual notice published by
the Secretary.
(x) At the beginning of the repayment period under the ICR-B plan,
the borrower must make monthly payments of the amount of interest that
accrues on the borrower's Direct Loan until the Secretary calculates
the borrower's monthly payment amount on the basis of the borrower's
income.
(2) Treatment of married borrowers. (i)(A) For a married borrower
who files a joint Federal tax return with his or her spouse, the AGI
for both spouses is used to calculate the monthly payment amount under
the ICR-B plan.
(B) For a married borrower who files a Federal income tax return
separately from his or her spouse, only the borrower's AGI is used to
determine the monthly payment amount under the ICR-B plan.
(ii) Married borrowers may repay their loans jointly. The
outstanding balances on the loans of each borrower are added together
to determine the borrowers' payback rate under paragraph (b)(1) of this
section.
(iii) The amount of the payment applied to each borrower's debt is
the proportion of the payments that equals the same proportion as that
borrower's debt to the total outstanding balance, except that the
payment is credited toward outstanding interest on any loan before any
payment is credited toward principal.
(3) Other features of the ICR-B plan. (i) Alternative documentation
of income. If a borrower's AGI is not available or if, in the
Secretary's opinion, the borrower's reported AGI does not reasonably
reflect the borrower's current income, the Secretary may use other
documentation of income provided by the borrower to calculate the
borrower's monthly repayment amount.
(ii) Adjustments to repayment obligations. The Secretary may
determine that special circumstances, such as a loss of employment by
the borrower or the borrower's spouse, warrant an adjustment to the
borrower's repayment obligations.
(iii) Repayment period. (A) The maximum repayment period under the
ICR-B plan is 25 years.
(B) The repayment period includes--
(1) Periods in which the borrower makes payments under the ICR-B
plan on loans that are not in default;
(2) Periods in which the borrower makes reduced monthly payments
under the income-based repayment plan or a recalculated reduced monthly
payment after the borrower no longer has a partial financial hardship
or stops making income-based payments, as provided in Sec.
685.221(d)(1)(i);
(3) Periods in which the borrower made monthly payments under the
standard repayment plan after leaving the income-based repayment plan
as provided in Sec. 685.221(d)(2);
(4) Periods in which the borrower makes payments under the standard
repayment plan described in Sec. 685.208(b);
(5) For borrowers who entered repayment before October 1, 2007, and
if the repayment period is not more than 12 years, periods in which the
borrower makes monthly payments under the extended repayment plans
described in Sec. 685.208(d) and (e), or the standard repayment plan
described in Sec. 685.208(c);
(6) Periods after October 1, 2007, in which the borrower makes
monthly payments under any other repayment plan that are not less than
the amount required under the standard repayment plan described in
Sec. 685.208(b); or
(7) Periods of economic hardship deferment after October 1, 2007.
(C) If a borrower repays more than one loan under the ICR-B plan, a
separate repayment period for each loan begins when that loan enters
repayment.
(D) If a borrower has not repaid a loan in full at the end of the
25-year repayment period under the ICR-B plan, the Secretary cancels
the outstanding
[[Page 42143]]
balance and accrued interest on that loan. No later than 6 months prior
to the anticipated date that the borrower will meet the forgiveness
requirements, the Secretary sends the borrower a written notification
that includes--
(1) An explanation that the borrower is approaching the date that
he or she is expected to meet the requirements to receive loan
forgiveness;
(2) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(3) General information on the current treatment of the forgiveness
amount, and instructions for the borrower to contact the Internal
Revenue Service for more information.
(E) The Secretary determines when a borrower has met the loan
forgiveness requirements under paragraph (b)(3)(iii)(D) of this section
and does not require the borrower to submit a request for loan
forgiveness. After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(1) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(2) Provides the information described in paragraph
(b)(3)(iii)(D)(3) of this section; and
(3) Returns to the sender any payment received on a loan after loan
forgiveness has been granted.
(iv) Limitation on capitalization of interest. If the amount of a
borrower's monthly payment is less than the accrued interest, the
unpaid interest is capitalized until the outstanding principal amount
is 10 percent greater than the original principal amount. After the
outstanding principal amount is 10 percent greater than the original
amount, interest continues to accrue but is not capitalized. For
purposes of this paragraph, the original amount is the amount owed by
the borrower when the borrower enters repayment.
(v) Notification of terms and conditions. When a borrower elects or
is required by the Secretary to repay a loan under the ICR-B plan, and
for each subsequent year that the borrower remains on the plan, the
Secretary sends the borrower a written notification that provides the
terms and conditions of the plan, including--
(A) The borrower's scheduled monthly payment amount as calculated
under paragraph (b)(1) or (b)(3)(vi)(D) of this section, as applicable,
and the time period during which this scheduled monthly payment will
apply (``annual payment period'');
(B) Information about the requirement for the borrower to annually
provide the information described in paragraph (b)(3)(vi)(A) of this
section, if the borrower chooses to remain on the ICR-B plan after the
initial year on the plan, and an explanation that the borrower will be
notified in advance of the date by which the Secretary must receive the
information;
(C) That if the borrower believes that special circumstances
warrant an adjustment to the borrower's repayment obligations, as
described in paragraph (b)(3)(iii) of this section, the borrower may
contact the Secretary and obtain the Secretary's determination as to
whether an adjustment is appropriate; and
(D) An explanation of the consequences, as described in paragraph
(b)(3)(vi)(D) of this section, if the borrower does not provide the
required information.
(vi) Documentation of income. (A) For the initial year that a
borrower selects the ICR-B plan and for each subsequent year that the
borrower remains on the plan, the borrower must provide acceptable
documentation, as determined by the Secretary, of the borrower's AGI to
the Secretary for purposes of calculating a monthly repayment amount
and servicing and collecting a loan under the plan.
(B) For each subsequent year that a borrower remains on the ICR-B
plan, the Secretary notifies the borrower in writing of the requirement
described in paragraph (b)(3)(vi)(A) of this section no later than 60
days and no earlier than 90 days prior to the date specified in
paragraph (b)(3)(vi)(B)(1) of this section. The notification provides
the borrower with--
(1) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
the documentation described in paragraph (b)(3)(vi)(A) of this section
(annual deadline); and
(2) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (b)(3)(vi)(D) of this section, and the
effective date for the recalculated monthly payment amount.
(C) The Secretary designates the standard repayment plan for a
borrower who initially selects the ICR-B plan but does not comply with
the requirement in paragraph (b)(3)(vi)(A) of this section.
(D) If, during a subsequent year that a borrower remains on the
ICR-B plan, the Secretary does not receive the documentation described
in paragraph (b)(3)(vi)(A) of this section within 10 days of the
specified annual deadline, the Secretary recalculates the borrower's
required monthly payment amount. The maximum recalculated monthly
amount the Secretary requires the borrower to repay is the amount the
borrower would have paid under the standard repayment plan based on a
10-year repayment period using the amount of the borrower's loans that
was outstanding at the time the borrower began repayment under the ICR-
B plan. The repayment period based on the recalculated payment may
exceed 10 years.
(E) If the Secretary receives the documentation described in
paragraph (b)(3)(vi)(A) of this section within 10 days of the specified
annual deadline, the Secretary maintains the borrower's current
scheduled monthly payment amount until the new scheduled monthly
payment amount is determined. If the new calculated monthly payment
amount is less than the borrower's previously calculated monthly
payment amount, and the borrower made payments at the previously
calculated amount after the end of the most recent annual payment
period, the Secretary makes the appropriate adjustment to the
borrower's account. The Secretary applies the excess payment amounts
made after the end of the most recent annual payment period in
accordance with the requirements of Sec. 685.211(a)(1), unless the
borrower requests otherwise.
(F)(1) If the Secretary receives the documentation described in
paragraph (b)(3)(vi)(A) of this section more than 10 days after the
specified annual deadline and the borrower's monthly payment amount is
recalculated in accordance with paragraph (b)(3)(vi)(D) of this
section, the Secretary grants forbearance with respect to payments that
are overdue or would be due at the time the new calculated monthly
payment amount is determined, if the new monthly payment amount is
$0.00 or is less than the borrower's previously calculated monthly
payment amount. Interest that accrues during the portion of this
forbearance period that covers payments that are overdue after the end
of the prior annual payment period is not capitalized.
(2) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments otherwise meet the requirements described in
Sec. 685.219(c)(1).
(G) If a borrower defaults and the Secretary designates the ICR-B
plan for the borrower but the borrower fails to comply with the
requirement in
[[Page 42144]]
paragraph (b)(3)(vi)(A) of this section, the Secretary mails a notice
to the borrower establishing a repayment schedule for the borrower.
(Approved by the Office of Management and Budget under control number
1845-0021)
Authority: 20 U.S.C. 1087a (et seq.)
12. Section 685.210 is amended by revising paragraph (b)(2)(ii) to
read as follows:
Sec. 685.210 Choice of repayment plan.
* * * * *
(b) * * *
(2) * * *
(ii) If a borrower changes plans, the repayment period is the
period provided under the borrower's new repayment plan, calculated
from the date the loan initially entered repayment. However, if a
borrower changes to the income-contingent repayment plan under Sec.
685.209(a), the income-contingent repayment plan under Sec.
685.209(b), or the income-based repayment plan under Sec. 685.221, the
repayment period is calculated as described in Sec.
685.209(a)(6)(iii), Sec. 685.209(b)(3)(iii), or Sec. 685.221(f)(3),
respectively.
* * * * *
Sec. 685.211 [Amended]
13. Section 685.211(a)(1) is amended by adding the words ``income-
contingent repayment plan under Sec. 685.209(a)(3) or the''
immediately before the words ``income-based repayment''.
Sec. 685.212 [Amended]
14. Section 685.212(g)(2) is amended by removing the words ``the
borrower became totally and permanently disabled, as certified under
Sec. 685.213(b)'' and adding, in their place, the words ``specified in
Sec. 685.213(b)(4)(iii) or 685.213(c)(2)(i), as applicable''.
15. Section 685.213 is revised to read as follows:
Sec. 685.213 Total and permanent disability discharge.
(a) General. (1) A borrower's Direct Loan is discharged if the
borrower becomes totally and permanently disabled, as defined in Sec.
685.102(b), and satisfies the eligibility requirements in this section.
(2) For a borrower who becomes totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
685.102(b), the borrower's loan discharge application is processed in
accordance with paragraph (b) of this section.
(3) For veterans who are totally and permanently disabled as
described in paragraph (2) of the definition of that term in Sec.
685.102(b), the veteran's loan discharge application is processed in
accordance with paragraph (c) of this section.
(4) For purposes of Sec. 685.213, a borrower's representative or a
veteran's representative is a member of the borrower's family, the
borrower's attorney, or another individual authorized to act on behalf
of the borrower in connection with the borrower's total and permanent
disability discharge application. References to a ``borrower'' or a
``veteran'' include, if applicable, the borrower's representative or
the veteran's representative for purposes of applying for a total and
permanent disability discharge, providing notifications or information
to the Secretary, and receiving notifications from the Secretary.
(b) Discharge application process for a borrower who is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 685.102(b). (1) Borrower application for discharge.
To qualify for a discharge of a Direct Loan based on a total and
permanent disability, a borrower must submit a discharge application to
the Secretary on a form approved by the Secretary. If the borrower
notifies the Secretary that the borrower claims to be totally and
permanently disabled prior to submitting a total and permanent
disability discharge application, the Secretary suspends collection
activity on any of the borrower's title IV loans held by the Secretary,
and notifies the borrower's other title IV loan holders to suspend
collection activity on the borrower's title IV loans for a period not
to exceed 120 days.
(2) Physician Certification. The application must contain a
certification by a physician, who is a doctor of medicine or osteopathy
legally authorized to practice in a State, that the borrower is totally
and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 685.102(b).
(3) Deadline for Application Submission. The borrower must submit
the application described in paragraph (b)(1) of this section to the
Secretary within 90 days of the date the physician certifies the
application. Upon receipt of the borrower's application, the
Secretary--
(i) Identifies all title IV loans owed by the borrower, notifies
the lenders that the Secretary has received a total and permanent
disability discharge application from the borrower and directs the
lenders to suspend collection activity or maintain the suspension of
collection activity on the borrower's title IV loans;
(ii) If the application is incomplete, notifies the borrower of the
missing information and requests the missing information from the
borrower or the physician who certified the application, as
appropriate, and does not make a determination of eligibility for
discharge until the application is complete;
(iii) Notifies the borrower that no payments are due on the loan
while the Secretary determines the borrower's eligibility for
discharge; and
(iv) Explains the process for the Secretary's review of total and
permanent disability discharge applications.
(4) Determination of eligibility. (i) If, after reviewing the
borrower's completed application, the Secretary determines that the
physician's certification supports the conclusion that the borrower
meets the criteria for a total and permanent disability discharge, as
described in paragraph (1) of the definition of that term in Sec.
685.102(b), the borrower is considered totally and permanently disabled
as of the date the physician certified the borrower's application.
(ii) The Secretary may require the borrower to submit additional
medical evidence if the Secretary determines that the borrower's
application does not conclusively prove that the borrower is totally
and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 685.102(b). As part of the Secretary's
review of the borrower's discharge application, the Secretary may
require and arrange for an additional review of the borrower's
condition by an independent physician at no expense to the borrower.
(iii) After determining that the borrower is totally and
permanently disabled, as described in paragraph (1) of the definition
of that term in Sec. 685.102(b), the Secretary discharges the
borrower's obligation to make any further payments on the loan,
notifies the borrower that the loan has been discharged, and returns to
the person who made the payments on the loan any payments received
after the date the physician certified the borrower's loan discharge
application. The notification to the borrower explains the terms and
conditions under which the borrower's obligation to repay the loan will
be reinstated, as specified in paragraph (b)(7)(i) of this section.
(iv) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower is
totally and permanently disabled, as described
[[Page 42145]]
in paragraph (1) of the definition of that term in Sec. 685.102(b),
the Secretary notifies the borrower that the application for a
disability discharge has been denied. The notification to the borrower
includes--
(A) The reason or reasons for the denial;
(B) A statement that the loan is due and payable to the Secretary
under the terms of the promissory note and that the loan will return to
the status that would have existed if the total and permanent
disability discharge application had not been received;
(C) The date that the borrower must resume making payments;
(D) An explanation that the borrower is not required to submit a
new total and permanent disability discharge application if the
borrower requests that the Secretary re-evaluate the borrower's
application for discharge by providing, within 12 months of the date of
the notification, additional information that supports the borrower's
eligibility for discharge; and
(E) An explanation that if the borrower does not request re-
evaluation of the borrower's prior discharge application within 12
months of the date of the notification, the borrower must submit a new
total and permanent disability discharge application to the Secretary
if the borrower wishes the Secretary to re-evaluate the borrower's
eligibility for a total and permanent disability discharge.
(v) If the borrower requests re-evaluation in accordance with
paragraph (b)(4)(iv)(D) of this section or submits a new total and
permanent disability discharge application in accordance with paragraph
(b)(4)(iv)(E) of this section, the request must include new information
regarding the borrower's disabling condition that was not available at
the time the Secretary reviewed the borrower's initial application for
total and permanent disability discharge.
(5) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a title IV loan or TEACH Grant before the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
(6) Receipt of new title IV loans or TEACH Grants after the date of
the physician's certification. If a borrower receives a disbursement of
a new title IV loan or receives a new Teach Grant made on or after the
date the physician certified the borrower's discharge application and
before the date the Secretary grants a discharge under this section,
the Secretary denies the borrower's discharge request and resumes
collection on the borrower's loan.
(7) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates a
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (b)(4)(iii) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty guideline for a family of two, as published annually by the
United States Department of Health and Human Services pursuant to 42
U.S.C. 9902(2);
(B) Receives a new TEACH Grant or a new loan under the Perkins or
Direct Loan programs, except for a Direct Consolidation Loan that
includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made is returned to the loan holder or to the Secretary, as
applicable, within 120 days of the disbursement date.
(ii) If the borrower's obligation to repay the loan is reinstated,
the Secretary--
(A) Notifies the borrower that the borrower's obligation to repay
the loan has been reinstated;
(B) Returns the loan to the status that would have existed if the
total and permanent disability discharge application had not been
received; and
(C) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
borrower's obligation to repay the loan was reinstated.
(iii) The Secretary's notification under paragraph (b)(7)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(8) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (b)(7)(i) of this section, the borrower must--
(i) Promptly notify the Secretary of any changes in the borrower's
address or phone number;
(ii) Promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(7)(i)(A) of this section; and
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment on a form provided by
the Secretary.
(c) Discharge application process for veterans who are totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 685.102(b). (1) Veteran's application for discharge.
To qualify for a discharge of a Direct Loan based on a total and
permanent disability as described in paragraph (2) of the definition of
that term in Sec. 685.102(b), a veteran must submit a discharge
application to the Secretary on a form approved by the Secretary. The
application must be accompanied by documentation from the Department of
Veterans Affairs showing that the Department of Veterans Affairs has
determined that the veteran is unemployable due to a service-connected
disability. The Secretary does not require the veteran to provide any
additional documentation related to the veteran's disability. Upon
receipt of the veteran's application, the Secretary--
(i) Identifies all title IV loans owed by the veteran and notifies
the lenders that Secretary has received a total and permanent
disability discharge application from the borrower;
(ii) If the application is incomplete, requests the missing
information from the veteran and does not make a determination of
eligibility for discharge until the application is complete;
(iii) Notifies the veteran that no payments are due on the loan
while the Secretary determines the veteran's eligibility for discharge;
and
(iv) Explains the Secretary's process for reviewing total and
permanent disability discharge applications.
(2) Determination of eligibility. (i) If the Secretary determines,
based on a review of the documentation from the Department of Veterans
Affairs, that the veteran is totally and permanently disabled as
described in paragraph (2) of
[[Page 42146]]
the definition of that term in Sec. 685.102(b), the Secretary
discharges the veteran's obligation to make any further payments on the
loan and returns to the person who made the payments on the loan any
payments received on or after the effective date of the determination
by the Department of Veterans Affairs that the veteran is unemployable
due to a service-connected disability.
(ii) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as described in paragraph (2)
of the definition of that term in Sec. 685.102(b), the Secretary
notifies the veteran that the application for a disability discharge
has been denied. The notification to the veteran includes--
(A) The reason or reasons for the denial;
(B) An explanation that the loan is due and payable to the
Secretary under the terms of the promissory note and that the loan will
return to the status it was in at the time the veteran applied for a
total and permanent disability discharge;
(C) The date that the veteran must resume making payments;
(D) An explanation that the veteran is not required to submit a new
total and permanent disability discharge application if the veteran
requests that the Secretary re-evaluate the veteran's application for
discharge by providing, within 12 months of the date of the
notification, additional documentation from the Department of Veterans
Affairs that supports the veteran's eligibility for discharge; and
(E) Information on how the veteran may reapply for a total and
permanent disability discharge in accordance with the procedures
described in paragraph (b) of this section if the documentation from
the Department of Veterans Affairs does not indicate that the veteran
is totally and permanently disabled as described in paragraph (2) of
the definition of that term in Sec. 685.102(b), but indicates that the
veteran may be totally and permanently disabled as described in
paragraph (1) of the definition of that term.
(Approved by the Office of Management and Budget under control number
1845-0065.)
(Authority: 20 U.S.C. 1087a et seq.)
16. Section 685.220 is amended by revising paragraph (d)(1)(ii)(D)
to read as follows:
Sec. 685.220 Consolidation.
* * * * *
(d) * * *
(1) * * *
(ii) * * *
(D) In default but agrees to repay the consolidation loan under one
of the income-contingent repayment plans described in Sec. 685.208(k)
or the income-based repayment plan described in Sec. 685.208(m).
* * * * *
17. Section 685.221 is amended by:
A. Redesignating paragraphs (a)(4) and (a)(5) as paragraphs (a)(5)
and (a)(6), respectively.
B. Adding a new paragraph (a)(4).
C. In redesignated paragraph (a)(5)(i), removing the words
``exceeds 15 percent'' and adding, in their place, the words ``exceeds
15 percent or, for a new borrower, 10 percent''.
D. In redesignated paragraph (a)(5)(ii), removing the words
``exceeds 15 percent'' and adding, in their place, the words ``exceeds
15 percent or, for a new borrower, 10 percent''.
E. In paragraph (b)(1), removing the words ``no more than 15
percent'' and adding, in their place, the words ``no more than 15
percent or, for a new borrower, 10 percent''.
F. In paragraph (b)(2)(i), removing the words ``the total amount of
eligible loans'' and adding, in their place, the words ``the total
outstanding principal amount of the borrower's eligible loans''.
G. In paragraph (b)(2)(ii)(C), removing the words ``the outstanding
principal amount of eligible loans'' and adding, in their place, the
words ``the total outstanding principal amount of the borrower's
eligible loans''.
H. Revising paragraph (c).
I. Revising paragraph (d).
J. Revising paragraph (e).
K. Revising paragraph (f).
The addition and revisions read as follows:
Sec. 685.221 Income-based repayment plan.
(a) * * *
(4) New borrower means an individual who has no outstanding balance
on a Direct Loan Program or FFEL Program loan on July 1, 2014, or who
has no outstanding balance on such a loan on the date he or she obtains
a loan after July 1, 2014.
* * * * *
(c) Payment application and prepayment. (1) The Secretary applies
any payment made under the income-based repayment plan in the following
order:
(i) Accrued interest.
(ii) Collection costs.
(iii) Late charges.
(iv) Loan principal.
(2) The borrower may prepay all or part of a loan at any time
without penalty, as provided under Sec. 685.211(a)(2).
(3) If the prepayment amount equals or exceeds a monthly payment
amount of $10.00 or more under the repayment schedule established for
the loan, the Secretary applies the prepayment consistent with the
requirements of Sec. 685.211(a)(3).
(4) If the prepayment amount exceeds a monthly payment amount of
$0.00 under the repayment schedule established for the loan, the
Secretary applies the prepayment consistent with the requirements of
paragraph (c)(1) of this section.
(d) Changes in the payment amount. (1) If a borrower no longer has
a partial financial hardship, the borrower may continue to make
payments under the income-based repayment plan, but the Secretary
recalculates the borrower's monthly payment. The Secretary also
recalculates the monthly payment for a borrower who chooses to stop
making income-based payments. In either case, as result of the
recalculation--
(i) The maximum monthly amount that the Secretary requires the
borrower to repay is the amount the borrower would have paid under the
standard repayment plan based on a 10-year repayment period using the
amount of the borrower's eligible loans that was outstanding at the
time the borrower began repayment on the loans under the income-based
repayment plan; and
(ii) The borrower's repayment period based on the recalculated
payment amount may exceed 10 years.
(2)(i) If a borrower no longer wishes to pay under the income-based
payment plan, the borrower must pay under the standard repayment plan
and the Secretary recalculates the borrower's monthly payment based
on--
(A) For a Direct Subsidized Loan, a Direct Unsubsidized Loan, or a
Direct PLUS Loan, the time remaining under the maximum ten-year
repayment period for the amount of the borrower's loans that were
outstanding at the time the borrower discontinued paying under the
income-based repayment plan; or
(B) For a Direct Consolidation Loan, the time remaining under the
applicable repayment period as initially determined under Sec.
685.208(j) and the amount of that loan that was outstanding at the time
the borrower discontinued paying under the income-based repayment plan.
(ii) A borrower who no longer wishes to repay under the income-
based repayment plan and who is required to repay under the Direct Loan
standard repayment plan in accordance with
[[Page 42147]]
paragraph (d)(2)(i) of this section may request a change to a different
repayment plan after making one monthly payment under the Direct Loan
standard repayment plan. For this purpose, a monthly payment may
include one payment made under a forbearance that provides for
accepting smaller payments than previously scheduled, in accordance
with Sec. 685.205(a).
(e) Eligibility documentation, verification, and notifications. (1)
The Secretary determines whether a borrower has a partial financial
hardship to qualify for the income-based repayment plan for the year
the borrower selects the plan and for each subsequent year that the
borrower remains on the plan. To make this determination, the Secretary
requires the borrower to--
(i) Provide documentation, acceptable to the Secretary, of the
borrower's AGI;
(ii) If the borrower's AGI is not available, or the Secretary
believes that the borrower's reported AGI does not reasonably reflect
the borrower's current income, provide other documentation to verify
income; and
(iii) Annually certify the borrower's family size. If the borrower
fails to certify family size, the Secretary assumes a family size of
one for that year.
(2) After making a determination that a borrower has a partial
financial hardship to qualify for the income-based repayment plan for
the year the borrower initially elects the plan and for any subsequent
year that the borrower has a partial financial hardship, the Secretary
sends the borrower a written notification that provides the borrower
with--
(i) The borrower's scheduled monthly payment amount, as calculated
under paragraph (b)(1) of this section, and the time period during
which this scheduled monthly payment amount will apply (annual payment
period);
(ii) Information about the requirement for the borrower to annually
provide the information described in paragraph (e)(1) of this section,
if the borrower chooses to remain on the income-based repayment plan
after the initial year on the plan, and an explanation that the
borrower will be notified in advance of the date by which the Secretary
must receive this information;
(iii) An explanation of the consequences, as described in
paragraphs (e)(1)(iii) and (e)(5) of this section, if the borrower does
not provide the required information;
(iv) An explanation of the consequences if the borrower no longer
wishes to repay under the income-based repayment plan; and
(v) Information about the borrower's option to request, at any time
during the borrower's current annual repayment period, that the
Secretary recalculate the borrower's monthly payment amount if the
borrower's financial circumstances have changed and the income amount
that was used to calculate the borrower's current monthly payment no
longer reflects the borrower's current income. If the Secretary
recalculates the borrower's monthly payment amount based on the
borrower's request, the Secretary sends the borrower a written
notification that includes the information described in paragraphs
(e)(2)(i) through (v) of this section.
(3) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the income-based repayment plan,
the Secretary notifies the borrower in writing of the requirements in
paragraph (e)(1) of this section no later than 60 days and no earlier
than 90 days prior to the date specified in paragraph (e)(3)(i) of this
section. The notification provides the borrower with--
(i) The date, no earlier than 35 days before the end of the
borrower's annual payment period, by which the Secretary must receive
all of the information described in paragraph (e)(1) of this section
(``annual deadline''); and
(ii) The consequences if the Secretary does not receive the
information within 10 days following the annual deadline specified in
the notice, including the borrower's new monthly payment amount as
determined under paragraph (d)(1) of this section, the effective date
for the recalculated monthly payment amount, and the fact that unpaid
accrued interest will be capitalized at the end of the borrower's
current annual payment period in accordance with paragraph (b)(4) of
this section.
(4) Each time the Secretary makes a determination that a borrower
no longer has a partial financial hardship for a subsequent year that
the borrower wishes to remain on the plan, the Secretary sends the
borrower a written notification that provides the borrower with--
(i) The borrower's recalculated monthly payment amount, as
determined in accordance with paragraph (d)(1) of this section;
(ii) An explanation that unpaid interest will be capitalized in
accordance with paragraph (b)(4) of this section; and
(iii) Information about the borrower's option to request, at any
time, that the Secretary redetermine whether the borrower has a partial
financial hardship, if the borrower's financial circumstances have
changed and the income amount used to determine that the borrower no
longer has a partial financial hardship does not reflect the borrower's
current income, and an explanation that the borrower will be notified
annually of this option. If the Secretary determines that the borrower
again has a partial financial hardship, the Secretary recalculates the
borrower's monthly payment in accordance with paragraph (b)(1) of this
section and sends the borrower a written notification that includes the
information described in paragraphs (e)(2)(i) through (e)(2)(v) of this
section.
(5) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the income-based repayment
plan, the Secretary sends the borrower a written notification that
includes the information described in paragraph (e)(4)(iii) of this
section.
(6) If a borrower who is currently repaying under another repayment
plan selects the income-based repayment plan but does not provide the
information described in paragraphs (e)(1)(i) and (e)(1)(ii) of this
section, or if the Secretary determines that the borrower does not have
a partial financial hardship, the borrower remains on his or her
current repayment plan.
(7) The Secretary designates the repayment option described in
paragraph (d)(1) of this section if a borrower who is currently
repaying under the income-based repayment plan remains on the plan for
a subsequent year but the Secretary does not receive the information
described in paragraphs (e)(1)(i) through (e)(1)(ii) of this section
within 10 days of the specified annual deadline.
(8) If the Secretary receives the information described in
paragraphs (e)(1)(i) and (e)(1)(ii) of this section within 10 days of
the specified annual deadline, the Secretary maintains the borrower's
current scheduled monthly payment amount until the new scheduled
monthly payment amount is determined. If the new monthly payment amount
is less than the borrower's previously calculated income-based monthly
payment amount, and the borrower made payments at the previously
calculated amount after the end of the most recent annual payment
period, the Secretary makes the appropriate adjustment to the
borrower's account. Notwithstanding the requirements of Sec.
685.211(b)(3), unless the borrower requests otherwise, the Secretary
applies the excess payment amounts made after the end of
[[Page 42148]]
the most recent annual payment period in accordance with the
requirements of Sec. 685.221(c)(1).
(9)(i) If the Secretary receives the documentation described in
paragraphs (e)(1)(i) and (e)(1)(ii) of this section more than 10 days
after the specified annual deadline and the borrower's monthly payment
amount is recalculated in accordance with paragraph (d)(1) of this
section, the Secretary grants forbearance with respect to payments that
are overdue or would be due at the time the new calculated income-based
monthly payment amount is determined, if the new monthly payment amount
is $0.00 or is less than the borrower's previously calculated income-
based monthly payment amount. Interest that accrues during the portion
of this forbearance period that covers payments that are overdue after
the end of the prior annual payment period is not capitalized.
(ii) Any payments that the borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new monthly payment amount is calculated
are considered to be qualifying payments for purposes of Sec. 685.219,
provided that the payments were made within 15 days of the scheduled
due date for the full previously calculated payment amount.
(f) Loan forgiveness. (1) To qualify for loan forgiveness after 25
years or, for a new borrower, after 20 years, a borrower must have
participated in the income-based repayment plan and satisfied at least
one of the following conditions during the applicable loan forgiveness
period:
(i) Made reduced monthly payments under a partial financial
hardship as provided in paragraph (b)(1) or (b)(2) of this section,
including a monthly payment amount of $0.00, as provided under
paragraph (b)(2)(ii) of this section.
(ii) Made reduced monthly payments after the borrower no longer had
a partial financial hardship or stopped making income-based payments as
provided in paragraph (d) of this section.
(iii) Made monthly payments under any repayment plan, that were not
less than the amount required under the Direct Loan standard repayment
plan described in Sec. 685.208(b) for the amount of the borrower's
loans that were outstanding at the time the loans initially entered
repayment.
(iv) Made monthly payments under the Direct Loan standard repayment
plan described in Sec. 685.208(b).
(v) Made monthly payments under a Direct Loan income-contingent
repayment plan, including a calculated monthly payment amount of $0.00.
(vi) Received an economic hardship deferment on eligible Direct
Loans.
(2) As provided under paragraph (f)(4) of this section, the
Secretary cancels any outstanding balance of principal and accrued
interest on Direct loans for which the borrower qualifies for
forgiveness if the Secretary determines that--
(i) The borrower made monthly payments under one or more of the
repayment plans described in paragraph (f)(1) of this section,
including a monthly payment amount of $0.00, as provided under
paragraph (b)(2)(iii) of this section; and
(ii)(A) The borrower made those monthly payments each year for the
applicable loan forgiveness period, or
(B) Through a combination of monthly payments and economic hardship
deferments, the borrower has made the equivalent of 25 years of
payments or, for a new borrower, the equivalent of 20 years of
payments.
(3) For a borrower who qualifies for the income-based repayment
plan, the beginning date for the applicable loan forgiveness period
is--
(i) If the borrower made payments under the income contingent
repayment plan, the date the borrower made a payment on the loan under
that plan at any time after July 1, 1994; or
(ii) If the borrower did not make payments under the income
contingent repayment plan--
(A) For a borrower who has an eligible Direct Consolidation Loan,
the date the borrower made a payment or received an economic hardship
deferment on that loan, before the date the borrower qualified for
income-based repayment. The beginning date is the date the borrower
made the payment or received the deferment, but no earlier than July 1,
2009;
(B) For a borrower who has one or more other eligible Direct Loans,
the date the borrower made a payment or received an economic hardship
deferment on that loan. The beginning date is the date the borrower
made that payment or received the deferment on that loan, but no
earlier than July 1, 2009;
(C) For a borrower who did not make a payment or receive an
economic hardship deferment on the loan under paragraph (f)(3)(ii)(A)
or (f)(3)(ii)(B) of this section, the date the borrower made a payment
under the income-based repayment plan on the loan;
(D) If the borrower consolidates his or her eligible loans, the
date the borrower made a payment on the Direct Consolidation Loan that
met the requirements in paragraph (f)(1) of this section; or
(E) If the borrower did not make a payment or receive an economic
hardship deferment on the loan under paragraph (f)(3)(i) or (f)(3)(ii)
of this section, determining the date the borrower made a payment under
the income-based repayment plan on the loan.
(4) Any payments made on a defaulted loan are not made under a
qualifying repayment plan and are not counted toward the applicable
loan forgiveness period.
(5)(i) When the Secretary determines that a borrower has satisfied
the loan forgiveness requirements under paragraph (f) of this section
on an eligible loan, the Secretary cancels the outstanding balance and
accrued interest on that loan. No later than 6 months prior to the
anticipated date that the borrower will meet the forgiveness
requirements, the Secretary sends the borrower a written notice that
includes--
(A) An explanation that the borrower is approaching the date that
he or she is expected to meet the requirements to receive loan
forgiveness;
(B) A reminder that the borrower must continue to make the
borrower's scheduled monthly payments; and
(C) General information on the current treatment of the forgiveness
amount for tax purposes, and instructions for the borrower to contact
the Internal Revenue Service for more information.
(ii) The Secretary determines when a borrower has met the loan
forgiveness requirements under paragraph (f) of this section and does
not require the borrower to submit a request for loan forgiveness.
(iii) After determining that a borrower has satisfied the loan
forgiveness requirements, the Secretary--
(A) Notifies the borrower that the borrower's obligation on the
loans is satisfied;
(B) Provides the borrower with the information described in
paragraph (f)(5)(i)(C) of this section; and
(C) Returns to the sender any payment received on a loan after loan
forgiveness has been granted in accordance with paragraph (f)(5)(i) of
this section.
* * * * *
[FR Doc. 2012-15888 Filed 7-16-12; 8:45 am]
BILLING CODE 4000-01-P