[Federal Register Volume 77, Number 212 (Thursday, November 1, 2012)]
[Rules and Regulations]
[Pages 66088-66147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-26348]
[[Page 66087]]
Vol. 77
Thursday,
No. 212
November 1, 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; Final Rule
Federal Register / Vol. 77 , No. 212 / Thursday, November 1, 2012 /
Rules and Regulations
[[Page 66088]]
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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: Final regulations.
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SUMMARY: The Secretary amends the Federal Perkins Loan (Perkins Loan)
program, Federal Family Education Loan (FFEL) program, and William D.
Ford Federal Direct Loan (Direct Loan) program regulations. These final
regulations 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
(TPD) discharge process for borrowers in loan programs under title IV
of the Higher Education Act of 1965, as amended (HEA). These final
regulations implementing a new ICR plan and the statutory changes to
the IBR plan will assist borrowers in repaying their loans while the
changes to the TPD discharge process will reduce burden for borrowers
who are disabled and seeking a discharge of their title IV debt.
DATES: Effective date: These regulations are effective July 1, 2013.
Implementation dates: For implementation dates, see the
Implementation Date of These Regulations section of the Supplementary
Information.
FOR FURTHER INFORMATION CONTACT: For further information related to the
Pay As You Earn repayment plan, and the IBR and ICR plans, Pamela Moran
or Jon Utz at (202) 502-7732 or (202) 377-4040 or by email at:
[email protected] or [email protected]. For information related to Total
and Permanent Disability Discharge, Gail McLarnon or Brian Smith at
(202) 219-7048 or (202) 502-7551 or by email at [email protected] or
[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 challenging.
For Federal student loan borrowers who suffer from a total and
permanent disability, the Department's current TPD 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 final regulations will 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 TPD discharge process for borrowers in the title IV, HEA loan
programs.
Summary of the Major Provisions of This Regulatory Action: The
final regulations will--
Create a new ICR plan (the Pay As You Earn repayment plan)
in the Direct Loan program based on the President's Pay As You Earn
repayment initiative. The 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.
Amend the regulations governing the IBR plan to
incorporate statutory changes 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 the Perkins Loan and FFEL program regulations to
permit borrowers to apply directly to the Department for a TPD
discharge. In the Direct Loan program, borrowers would continue to
apply directly to the Department for TPD discharges, as they do under
the current Direct Loan regulations.
Revise the Perkins, FFEL, and Direct Loan program
regulations to permit a TPD discharge based on a borrower's Social
Security Administration (SSA) notice of award for Social Security
Disability Insurance (SSDI) benefits or Supplemental Security Income
(SSI) benefits indicating that the borrower's eligibility for
disability benefits will be reviewed on a five- to seven-year schedule.
This five- to seven-year review schedule classifies the borrower as
permanently impaired--medical improvement not expected. Borrowers will
still be subject to the three-year discharge review that is currently
in place.
Make conforming changes throughout the Perkins, FFEL, and
Direct Loan program regulations referencing the use of an SSA
disability notice of award in the TPD process.
Reinstate a title IV loan discharged based on the
borrower's TPD if the borrower receives a notice from the SSA
indicating that the borrower is no longer disabled or the borrower's
continuing disability review will no longer be the five- to seven-year
period indicated in the SSA disability notice of award.
Require a Perkins, FFEL, or Direct Loan borrower to notify
the Secretary, during the three-year period following a TPD discharge,
if the borrower has been notified by the SSA that the borrower is no
longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period indicated in the SSA
disability notice of award.
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 TPD discharge regulations
include a borrower's representative or a veteran's representative.
Specify that the Department will deny a disability
discharge application and collection will resume on the borrower's
loans if the borrower receives a disbursement of a new title IV loan or
receives a new grant under the Teacher Education Assistance for College
and Higher Education (TEACH)
[[Page 66089]]
grant program made on or after the date the physician certified the
borrower's disability discharge application or on or after the date the
Secretary receives the borrower's SSA disability notice of award and
before the date the Department makes a decision on the borrower's
application for a TPD discharge.
Specify that if a borrower's Perkins, FFEL, or Direct Loan
program loan is reinstated, it returns to the status that it would have
had if the TPD discharge application had not been received.
Make corresponding changes to the TPD application process
based on a certification from the Department of Veterans Affairs.
Chart 1 summarizes the final 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
Pay As You Earn repayment plan with another million borrowers being
affected by the statutory changes to the IBR plan reflected in these
regulations. Significant benefits of these final regulations include a
streamlined process for TPD 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 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):
Establishes the Pay As You Earn Enhanced cash management Estimated net budget impact of $2.1 billion
repayment plan with features of option for borrowers. over the 2012-2021 loan cohorts.
IBR as revised by SAFRA for new
borrowers on or after 10/1/2007
with a loan disbursement made on
or after 10/1/2011. The Pay As You
Earn repayment plan retains a cap
on interest capitalization from
current ICR.
Establishes threshold for PFH at 10 Reduced payments and
percent for Pay As You Earn shorter forgiveness
repayment plan borrowers. period may encourage
acknowledgement and
payment of debt.
Loan forgiveness after 20 years of Reduced monthly payments
qualifying payments compared to 25 may allow greater
years under current regulations. participation in the
economy.
Retains current ICR program as ICR. An income-driven repayment
option remains available
to all borrowers.
Establishes process for borrower
notification and processing of
loan forgiveness by loan holders.
Income-Based Repayment (34 CFR part
685):
Incorporates statutory changes from Benefits mirror those
SAFRA. associated with proposed
ICR changes.
Threshold for PFH reduced from 15
percent to 10 percent for new
borrowers after 7/1/2014.
Loan forgiveness after 20 years of
qualifying payments compared to 25
years under current regulations.
Income-Based Repayment (34 CFR part
685, 34 CFR part 682):
A smaller payment amount made under Improved notifications No net budget impact from proposed
a forbearance can qualify as the around annual regulations.
single payment made in standard recertification of income
repayment plan for borrower may reduce number of
leaving IBR to select another borrowers removed from
repayment plan. PFH for paperwork reasons.
Modified notification and income Estimated paperwork compliance costs of
documentation requirements for approximately $570,000 annually.
borrowers in IBR.
Establishes process for borrower
notification and processing of
loan forgiveness by loan holders.
Total and Permanent Disability (34 CFR
674.61; 34 CFR 682.402; 34 CFR
685.213):
Creates single discharge Simplifies process for Estimated paperwork compliance burden of
application process through the borrowers. approximately $725,000.
Department for all of a borrower's
FFEL, Direct, and Perkins loans.
Specifies that borrower's Departmental processing
representative will receive all should increase
notifications and can be involved consistency of TPD
in all aspects of the process. determinations.
Enhanced notifications, including Process changes could
more detailed reasons for denials reduce reinstatements for
and information about options for paperwork reasons.
reapplying.
Revised treatment of payments made Simplifies application
following a TPD discharge. process for borrowers and
the Department.
Creation of standard form for
reporting income during 3-year
post-discharge monitoring period.
[[Page 66090]]
Allows for acceptance of an SSA
disability notice of award for
Social Security Disability
Insurance or Supplemental Security
Income benefits as proof of a
borrower's TPD if the notice
indicates that the SSA will review
the borrower's continuing
eligibility for benefits once
every five to seven years, thus
indicating that the borrower's
disability is in the medical
improvement not expected category.
The borrower would still be
subject to the three-year post
discharge monitoring period.
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On July 17, 2012 the Secretary published a notice of proposed
rulemaking (NPRM) for these programs in the Federal Register (77 FR
42086). The final regulations contain several changes from the NPRM. We
fully explain the changes in the Analysis of Comments and Changes
section of the preamble that follows.
Implementation Date of These Regulations
Section 482(c) of the HEA requires that regulations affecting
programs under title IV of the HEA be published in final form by
November 1 prior to the start of the award year (July 1) to which they
apply. However, that section also permits the Secretary to designate
any regulation as one that an entity subject to the regulations may
choose to implement earlier and the conditions for early
implementation.
Consistent with the Department's objective to provide critical
information to and improve servicing processes for borrowers who repay
under the IBR plan, the Secretary is exercising his authority under
section 482(c) to designate the following new and amended regulations
included in this document for early implementation beginning on
November 1, 2012 at the discretion of each loan holder, as appropriate:
(1) Section 682.209(a)(6)(v)(C).
(2) Section 682.211(f)(16).
(3) Section 682.215(d).
(4) Section 682.215(e).
The Secretary intends to implement the regulations governing the
Pay As You Earn repayment plan as soon as possible. We will publish a
separate Federal Register notice to announce when the plan becomes
available to borrowers.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 2,892
parties submitted comments on the proposed regulations. An analysis of
the comments and of the changes in the regulations since publication of
the NPRM follows.
We group major issues according to subject, with appropriate
sections of the 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 technical and other
minor changes.
Total and Permanent Disability Discharge
General Comments
Comments: Many commenters supported the Department's proposed rules
that allow a borrower to submit one application directly to the
Department for a TPD discharge on all of the borrower's loans rather
than to submit an application to each loan holder. The commenters also
stated that the proposed changes to the discharge process would make it
easier for disabled borrowers to provide the Department information
necessary to make a loan discharge determination.
Discussion: The Department appreciates the commenters' support.
Changes: None.
Comments: Many individual commenters suggested a range of
modifications to the proposed TPD regulations that would require
statutory change. Some commenters suggested that private student loans
should be discharged if the borrower is determined to be TPD. Other
suggestions were:
Eliminate the post-discharge monitoring period of a
borrower's income following a TPD discharge;
Do not treat loan amounts discharged based on the
borrower's permanent and total disability as income for Federal tax
purposes;
Do not reinstate a title IV loan that was discharged due
to TPD if the borrower has annual earnings from employment that exceed
the poverty line if the earnings are not related to the degree financed
by the discharged loan; and
Require credit reporting agencies to remove references to
TPD discharges from a borrower's credit report.
Discussion: We appreciate the commenters' suggestions; however,
absent congressional action to amend the HEA or other pertinent laws,
the Department generally does not have the authority to make these
changes. The Federal Government does not have authority to require the
discharge of a private student loan.
The post-discharge monitoring of a borrower's earned income is
required under section 437(a)(1)(A)(ii) of the HEA when FFEL and, by
extension, Direct Loans are discharged due to the borrower's TPD. Since
the standard for TPD discharges is the same in all of the title IV loan
programs, we believe that it is appropriate to require that the income
of Perkins Loan borrowers be monitored and that the Perkins Loan be
reinstated if the borrower's income exceeds the poverty line in the
same manner as Direct Loan and FFEL program loans.
The treatment of loan amounts discharged based on the borrower's
TPD as income for Federal tax purposes is governed by the Federal tax
code, not the HEA.
Section 437(a)(1)(A)(ii) of the HEA requires reinstatement of a
FFEL or Direct Loan discharged due to the borrower's TPD if the
borrower's earned income exceeds the poverty line. The HEA does not
distinguish between how the income is earned.
Finally, sections 430A(a)(5) and 463(c)(2)(C) of the HEA require
FFEL and Perkins Loan holders, respectively, to report to credit
reporting agencies when a FFEL or Perkins Loan is discharged due to
TPD. This requirement applies to Direct Loans in accordance with
section 455(a)(1) of the HEA. Section 605(a)(4) of the Fair Credit
Reporting Act requires credit reporting agencies to report the
disability discharge on the borrower's credit report for seven years.
Changes: None.
Comments: Many commenters indicated that they believed that the
statutory definition of TPD added to the HEA by the Higher Education
Opportunity Act of 2008 (HEOA) (Pub.
[[Page 66091]]
L. 110-315) is very similar to the definition used in the disability
benefit programs administered by the Social Security Administration
(SSA). The commenters expressed the belief that, by including a similar
definition of the term ``total and permanent disability'' in the HEA,
Congress showed that it intended for the Department to align its TPD
determinations more closely with the SSA's determinations of permanent
disability status to reduce the TPD application burden on borrowers
already determined to be permanently disabled by the SSA. The
commenters requested that the Department accept existing SSA disability
determinations when making a determination that a borrower is TPD for
title IV loan discharge purposes. The commenters stated that using SSA
disability determinations, along with the proposed rule to allow
borrowers to submit a single TPD application to the Department rather
than submit separate discharge applications to each of their lenders,
would further streamline the Department's TPD discharge process and
reduce burden on borrowers, the Department, and loan holders.
One commenter urged the Department to consider borrowers eligible
for a TPD discharge if the borrower, at a minimum, met the SSA
definition of ``Medical Improvement Not Expected'' or ``Medical
Improvement Possible'' after a period of at least 60 months. Another
commenter noted that when the Department transitioned to a single
servicer for TPD application purposes and before the Department adopted
the current TPD discharge process, the Department considered, but
decided against, adopting a TPD process under which borrowers could
provide proof of an SSA disability determination in the form of an SSA
disability notice of award indicating when the borrower's next SSA
medical review would occur as evidence that the borrower was totally
and permanently disabled for title IV loan discharge purposes. The
commenter urged the Department to reconsider this decision.
Finally, several commenters noted that the Department already
accepts disability determinations from the Department of Veterans
Affairs (VA) when making the determination that a title IV borrower is
eligible for a TPD discharge and urged the Department to do the same
with SSA disability determinations.
Discussion: Upon consideration of these comments and internal
deliberations, we have determined that we will accept the specific SSA
notice of award for Social Security Disability Insurance (SSDI)
benefits or Supplemental Security Income (SSI) benefits as proof of a
borrower's TPD if the notice indicates that the SSA will review the
borrower's continuing eligibility for SSDI or SSI benefits once every
five to seven years. Sections 437(a) and 464(c)(1)(F) of the HEA
provide for the discharge of a borrower's title IV loans if the
borrower becomes totally and permanently disabled 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, has lasted for a continuous period of not less than 60
months (five years), or can be expected to last for a continuous period
of not less than 60 months (five years). In two related final
regulations published in the Federal Register on October 28, 2009 (74
FR 55626), and on October 29, 2009 (74 FR 55972), we included the
specific statutory substantial gainful activity standard in our
regulations at Sec. Sec. 674.51(aa) and 682.200(b). Section 674.51(x)
of the Department's October 28, 2009, final regulations and Sec.
682.200(b) of the Department's October 29, 2009, final regulations both
defined ``substantial gainful activity'' to mean a level of work
performed for pay or profit that involves doing significant physical or
mental activities, or a combination of both. We do not use an earnings
standard to determine substantial gainful activity. However, if a title
IV borrower has received a TPD discharge and, within three years after
the loan is discharged, the borrower earns income from employment that
exceeds 100 percent of the poverty guideline for a family of two
($1,275 per month in the 48 contiguous states, $1,577 per month in
Alaska, and $1,451 per month in Hawaii) in a year, the borrower is not
considered to have been disabled and the loan repayment obligation is
reinstated.
The SSA defines the term ``disability'' to mean the inability of an
individual 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 that has lasted or can be expected to
last for a continuous period of not less than 12 months (42 U.S.C.
423). Upon making a disability determination based on this standard,
the SSA is required by law to conduct disability reviews to determine
the continuing eligibility of an individual for SSDI or SSI benefits
where a finding has been made that such disability is permanent at such
times as the Commissioner of Social Security determines to be
appropriate (42 U.S.C. 421). The SSA has promulgated regulations to
meet this statutory requirement under 20 CFR 404.1590 and 20 CFR
416.990. (20 CFR Part 404 and 20 CFR Part 416 govern the SSDI and SSI
programs, respectively). Specifically, under 20 CFR 404.1590(d) and 20
CFR 416.990(d) of the SSA regulations, if an individual's impairment is
expected to improve, generally the SSA reviews the individual's
eligibility for disability benefits at intervals from six to 18 months
following its most recent decision. This status is referred to as
``medical improvement expected diary'' under 20 CFR 404.1590(c) and 20
CFR 416.990(c) of the SSA regulations. If an individual's disability is
not considered permanent but is such that any medical improvement is
possible, the SSA reviews the individual's continuing eligibility for
disability benefits at least once every three years under 20 CFR
404.1590(d) and 20 CFR 416.990(d), unless SSA determines the
requirement should be waived under 20 CFR 404.1590(g) or 20 CFR
416.990(g). This type of disability is considered a ``nonpermanent
impairment'' under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of SSA
regulations. Finally, if an individual's disability is considered a
``permanent impairment,'' the SSA reviews an individual's eligibility
for benefits no less frequently than once every seven years, but no
more frequently than once every five years under Sec. 404.1590(d) and
Sec. 416.990(d). SSA regulations at 20 CFR 404.1590(c) and 20 CFR
416.990(c) use the term ``permanent impairment'' to refer to a case in
which any medical improvement in an individual's impairment is not
expected. The SSA uses the term ``permanent impairment'' to mean an
extremely severe condition determined on the basis of the SSA's
experience in administering the disability programs to be at least
static, but more likely to be progressively disabling either by itself
or by reason of impairment complications and unlikely to improve so as
to permit the individual to engage in substantial gainful activity. SSA
may also consider the interaction of the individual's age, impairment
consequences and lack of recent attachment to the labor market in
determining whether an impairment is permanent. Regardless of an
individual's classification, the SSA will conduct an immediate
continuing disability review if a question of continuing disability is
raised that meets any of the provisions of 20 CFR
[[Page 66092]]
404.1590(b) or 20 CFR 416.990(b). When the SSA notifies an individual
that he or she is eligible for disability benefits, the notice also
tells the individual when he or she can expect the first continuing
disability review.
The SSA regulations, at 20 CFR 404.1572 and 20 CFR 416.910, use the
term ``substantial gainful activity'' to describe a level of work
activity and earnings. ``Substantial work activity'' involves doing
significant physical or mental activities. ``Gainful work activity'' is
either work performed for pay or profit or work of a nature generally
performed for pay or profit. Substantial gainful activity is also
indicated by earnings averaging over $1,010 per month (for the year
2012) for individuals whose impairment is anything other than
blindness. The formula for determining substantial gainful activity for
individuals who are blind is set forth in 42 U.S.C. 423, see also 20
CFR 404.1584, Social Security Ruling 12-1p. The formula for determining
substantial gainful activity for individuals who are not blind is
similar to that used for individuals who are blind and is provided in
20 CFR 404.1574 and 20 CFR 404.1575.
Although the Department's definition of ``substantial gainful
activity'' does not precisely mirror the SSA's definition, we agree
that they are substantially similar. For example, both agencies require
that an individual must be unable to engage in any substantial gainful
activity by reason of a medically determinable physical or mental
impairment in order to be determined disabled. Both agencies also
define substantial gainful activity to mean a level of work performed
for pay or profit that involves doing significant physical or mental
activities or a combination of both. Both agencies allow an individual
to engage in minimal levels of employment after receiving a disability
determination as long as such employment does not exceed a specified
dollar amount. And while it is unclear whether Congress intended for
the Department to align its TPD determinations with the determination
of permanent disability made by the SSA, we acknowledge that the
standard a borrower must meet to establish eligibility for a title IV
TPD discharge under section 437(a)(1) is substantially similar to the
SSA's regulatory scheme governing a ``permanent impairment'' in 20 CFR
404.1590 and 20 CFR 416.990.
Section 437(a)(3) of the HEA explicitly provides the Secretary with
the authority to provide the appropriate safeguards with regard to TPD.
In light of this authority, the substantial similarity between the SSA
and TPD statutory standards, and the burden reduction for applicants
that will result from making this change, we have decided to allow a
borrower to submit, as proof of the borrower's TPD, an SSA
determination of permanent impairment-medical improvement not expected
in the form of a SSDI or SSI notice of award that informs a borrower
that his or her eligibility for SSA disability benefits will be
reviewed no less frequently than once every seven years and no more
frequently than once every five years (the five/seven year category).
We chose to accept only the five/seven year category as proof of
TPD as opposed to the SSA's continuing disability review standard of
every six- to 18-months or every three years to meet the Department's
standard for TPD discharge purposes because the latter two standards
indicate medical improvement expected or that medical improvement is
possible, respectively, under 20 CFR 404.1590(c) and 20 CFR 416.990 of
SSA's regulations. Medical improvement is expected in cases where a
borrower's impairment can be treated and recovery can be anticipated.
Medical improvement is possible where a borrower's impairment does not
rise to the level of severity of an impairment that is considered
permanent.
These regulations, along with regulations to allow borrowers to
submit a single TPD application to the Department rather than separate
discharge applications to each of their lenders, will further
streamline the Department's TPD process and reduce burden on the
Department as well as on borrowers who have already obtained such SSA
documentation. Specifically, if we review the borrower's TPD
application and the SSA notice of award for SSDI or SSI benefits
specifies that the borrower will be reviewed no less frequently than
once every seven years and no more frequently than once every five
years for the purpose of establishing the borrower's continued
eligibility for SSDI or SSI benefits, we will consider the borrower's
title IV loans discharged as of the date we receive the SSA notice of
award. The borrower would not be required to submit a certification by
a physician that the borrower is TPD; the SSA notice of award for SSDI
or SSI benefits alone will suffice as proof of the borrower's TPD.
We use the date the Secretary receives the borrower's SSA notice of
award for SSDI or SSI benefits to ensure, for the program integrity
purposes described below, that a borrower who receives a discharge
based on an application supported by an SSA notice of award for SSDI or
SSI benefits would still be subject to the three-year post-discharge
monitoring period and the borrower responsibilities after discharge.
Also, because a borrower who submits such a notice of award is not
required to obtain a physician's certification (the date of which is
used as the date of discharge), the date we receive an SSA notice of
award for SSDI or SSI benefits is the earliest possible date we can use
to discharge a borrower's loan without the benefit of the physician's
certification date that is contained in the borrower's TPD application
under the current process and which we use as the official TPD
discharge date if the Secretary approves the borrower's application. We
are making conforming changes throughout the Perkins, FFEL, and Direct
Loan regulations to reflect the use of the SSA notice of award for SSDI
or SSI benefits in the process.
In accepting the SSA notice of award for SSDI or SSI benefits, we
must also preserve the integrity of the TPD process. In the past, we
have not used the SSA's SSDI and SSI disability determinations in the
TPD discharge process because the SSA's decisions on whether to do a
disability review are not binding on the agency. As stated above, the
SSA, with some exceptions, conducts an immediate continuing disability
review if there is any evidence that raises a question as to whether an
individual's disability continues. These exceptions, in 20 CFR
404.1590(h) and (i) and 20 CFR 416.990(h) and (i), are crafted
narrowly--for example, if an individual is working and has received
SSDI benefits for at least 24 months, the SSA will not start a
continuing disability review based solely on an individual's activity
if he or she is currently entitled to widow's or widower's insurance
benefits based on disability. To maintain the integrity of the TPD
process when accepting an SSA notice of award for SSDI or SSI benefits
indicating that a borrower's medical review will be conducted in five
to seven years as proof of a borrower's disability for title IV
discharge purposes, we are adding a provision to the Perkins, FFEL, and
Direct Loan program regulations requiring the reinstatement of a
borrower's obligation to repay a loan that was discharged due to TPD
if, within three years after the date the discharge was granted, the
borrower receives a notice from the SSA indicating that the borrower is
no longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period contained in the SSA
notice of award for SSDI or SSI benefits. This reflects the fact that
any continuing disability
[[Page 66093]]
review done less frequently than five to seven years indicates a change
in the borrower's permanent disability status. We are also adding
Sec. Sec. 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require
borrowers, during the three-year monitoring period following the date
the borrower's loan is discharged, to promptly notify the Secretary if
the borrower receives a notice from the SSA indicating that the
borrower is no longer disabled or that the borrower's continuing
disability review will no longer be the five- to seven-year period
contained in the SSA notice of award for SSDI or SSI benefits. Again,
this would indicate that the SSA has changed the borrower's
classification of impairment from permanent impairment-medical
improvement not expected to another status.
We do not agree with the commenter who recommended that the
Department consider borrowers eligible for a TPD discharge if the
borrower was determined by the SSA to be eligible for disability
benefits with a continuing disability review schedule of every three
years. This review schedule represents the status of nonpermanent
impairment under which medical improvement is possible. We do not
believe this SSA status rises to the level of severity required to meet
the Department's definition of total and permanent disability because
this status does not result in death or meet the disability longevity
standards in the HEA. If, however, a borrower can provide documentation
proving that he or she has been in this nonpermanent impairment status
for at least five years, we will consider such evidence in determining
whether the borrower has engaged in any substantial gainful activity
for a period of at least 60 months (five years) under our current TPD
standards. Of course, we will continue to accept TPD applications from
borrowers under our current process that requires the borrower's
application to 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 TPD as defined in Department of Education
regulations. Thus, a borrower who has not received an SSA notice of
award for SSDI or SSI benefits may still be eligible for a TPD under
other provisions of these final regulations.
Lastly, sections 437(a)(2) and 464(c)(1)(F)(iv) of the HEA
authorize the Department to accept disability determinations from the
VA when making the determination that a title IV borrower is eligible
for a TPD discharge. The HEA does not specifically authorize the
Department to accept SSA disability determinations but rather gives the
Secretary the authority to provide the appropriate safeguards with
regard to TPD. We believe that allowing borrowers to submit an SSA
notice of award for SSDI or SSI benefits indicating a five- to seven-
year review period as proof of the borrower's TPD in conjunction with
other applicable Department regulations provides these safeguards, and,
for the reasons explained in this section, is consistent and aligns
with the statutory language in the HEA. This change with regard to SSA
determinations will further streamline and simplify the TPD process and
ease regulatory burden for both applicants and the Department.
Changes: We are making conforming amendatory changes throughout the
Perkins, FFEL, and Direct Loan final regulations to incorporate the use
of an SSA notice of award for SSDI or SSI benefits in the process of
determining whether borrowers have a TPD for the purposes of the
discharge of their title IV loans. Specifically, we are providing in
Sec. Sec. 674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2) that
a borrower may submit an SSA notice of award for SSDI or SSI benefits
indicating that the borrower's next scheduled disability review will be
within five to seven years as proof of the borrower's TPD.
We are also providing in Sec. Sec. 674.61(b)(3)(i),
682.402(c)(3)(i), and 685.213(b)(4)(i) that if, after reviewing a
borrower's completed application, the Secretary finds that the SSA
notice of award for SSDI or SSI benefits indicates that the borrower
has a permanent disability, the borrower is considered TPD as of the
date the Secretary received the SSA disability notice of award. Final
Sec. Sec. 674.61(b)(3)(iii) and 682.402(c)(3)(iii) provide that in
notifying the borrower's lenders that the borrower has been approved
for a TPD discharge, the Secretary includes the date the Secretary
received the SSA notice of award for SSDI or SSI benefits. Final
Sec. Sec. 674.61(b)(3)(v), 682.402(c)(3)(iii), and 685.213(b)(4)(iii)
provide that any payments on a loan received after the date the
Secretary received the SSA notice of award for SSDI or SSI benefits are
returned to the person who made them. Final Sec. Sec.
674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) state that if
the SSA notice of award for SSDI or SSI benefits provided by the
borrower does not support the conclusion that the borrower is TPD, the
Secretary notifies the borrower and the lender that the discharge has
been denied. We are amending Sec. Sec. 674.61(b)(4), 682.402(c)(4),
and 685.213(b)(5) to provide that if a borrower received a title IV
loan or TEACH grant before the date the Secretary received the SSA
notice of award for SSDI or SSI benefits and a disbursement of that
loan or grant is made during the period from the date the Secretary
received the SSA notice of award until the date the Secretary grants a
TPD discharge, the processing of the discharge application will be
suspended until the borrower returns the disbursement. We are amending
Sec. Sec. 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) to provide
that 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 Secretary
received the SSA notice of award for SSDI or SSI benefits and before
the date the Secretary grants a discharge, the Secretary denies the
discharge application and collection resumes on the loans. We are
amending Sec. Sec. 674.61(b)(7), 682.402(c)(6), and 685.213(b)(7) to
provide that the Secretary reinstates a borrower's obligation to repay
a loan that was discharged due to TPD if, within three years after the
date the discharge was granted, the borrower receives a notice from the
SSA indicating that the borrower is no longer disabled or the
borrower's continuing disability review will no longer be the five- to
seven-year period contained in the SSA notice of award for SSDI or SSI
benefits. We are amending Sec. Sec. 674.61(b)(7), 682.402(c)(7), and
685.213(b)(8) to require borrowers, during the three-year monitoring
period following the date the borrower's loan is discharged, to
promptly notify the Secretary if the borrower received a notice from
the SSA indicating that the borrower is no longer disabled or the
borrower's continuing disability review will no longer be the five- to
seven-year period contained in the SSA notice of award for SSDI or SSI
benefits. Lastly, we are amending Sec. 682.402(c)(8) to require that
once the Secretary approves the borrower's TPD application, and the
lender receives a claim payment from the guaranty agency, the lender
must return to the sender any payments received by the lender after the
date the Secretary received the SSA notice of award for SSDI or SSI
benefits.
Borrower Representatives (34 CFR 674.61(b)(1), 682.402(c)(1), and
685.213(a)(4))
Comments: One commenter expressed support for the regulations in
Sec. Sec. 674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), and 685.213(a)(4)
that provide for a borrower's or veteran's representative to act on
behalf of the borrower or veteran, but noted that the regulations refer
to a representative as an ``individual.'' The commenter asked if the
representative
[[Page 66094]]
could be a law firm or a legal aid society rather than an individual.
The commenter noted that personnel at law firms or legal aid societies
change, and it would reduce burden on the borrower if the borrower or
veteran did not have to authorize a different individual as a
representative as a result of a personnel change at a law firm or legal
aid society.
Another commenter asked whether the authorization of a
representative had to come from the borrower or veteran. This commenter
asked whether a court could authorize a representative to act on behalf
of the borrower or veteran.
A third commenter expressed concerns over the Department's current
process for sending notices to borrowers' representatives. In this
commenter's experience, the Department does not consistently send
notices to borrower's representatives. The commenter urged the
Department to improve the process for sending such notices as soon as
possible.
Discussion: Under the regulations as proposed and finalized, an
``individual'' could include a law firm or legal aid society authorized
to act on the borrower's or veteran's behalf without identifying a
specific individual within that law firm or legal aid society as the
representative. We agree that the authorization could be provided
through such means as a Power of Attorney or a court order. The
Department will review the validity of such authorizations on a case-
by-case basis to determine if the authorization meets applicable legal
requirements.
Since October 1, 2010, the Department has taken steps to identify
TPD discharge requests in which the borrower listed a representative.
When the borrower lists a representative, we send notices related to
the TPD discharge application to those borrower representatives, as
well as to the borrowers. The Department will continue to do so under
the new TPD discharge process. Borrowers who submitted TPD applications
prior to October 1, 2010, may request that a borrower representative be
added to their account at any time.
Changes: None.
Disability Discharge Application Process (34 CFR 674.61(b)(2),
682.402(c)(2), and 685.213(b))
Comments: One commenter recommended that all of a borrower's loan
holders be notified of a borrower's request for a TPD discharge after
the borrower submits a single TPD discharge application.
Another commenter recommended that if one lender discharges a
borrower's loans due to TPD, all of the borrower's other title IV loans
should be automatically discharged.
One commenter recommended that we streamline what the commenter
described as an ``extremely daunting'' application process for TPD
discharges. Similarly, another commenter requested that the Department
make it easier for borrowers with disabilities to seek TPD discharges.
Discussion: The Department appreciates the concerns expressed by
the commenters regarding the current TPD discharge process. Consistent
with the NPRM, these final regulations reflect the recommendations made
by the commenters. Sections 674.61(b)(2), 682.402(c)(2), and 685.213(b)
establish a single application process in which the borrower will
submit one TPD discharge application to the Department. The Department
has one contractor employed to handle TPD discharges and that servicer
will be the sole office receiving these TPD discharge applications.
Once the Department is notified that the borrower intends to apply for
a TPD discharge, we will notify all of the borrower's title IV loan
holders and instruct them to suspend collection activity on the
borrower's loans for 120 days. If the Department determines that the
borrower qualifies for a TPD discharge, the Department will notify all
of the borrower's title IV loan holders and instruct them to assign the
borrower's loans to the Department. After the Department accepts the
loan assignments, the Department will discharge the loans unless the
processing of the discharge request is suspended or denied under Sec.
674.61(b)(4), 674.61(b)(5), 682.402(c)(4), 682.402(c)(5),
685.213(b)(5), or 685.213(b)(6). We believe that the streamlined
disability discharge application process will alleviate many of the
difficulties borrowers have encountered in applying for TPD discharges.
Changes: None.
Comments: Sections 674.61(b)(2)(ii) and 682.402(c)(2)(ii) of the
Perkins and FFEL regulations specify that if a borrower notifies the
Secretary that the borrower intends to apply for a TPD discharge, the
Secretary provides the borrower with the information needed to apply
for the discharge and informs the borrower that the suspension of
collection activity will end after 120 days if the borrower does not
submit the TPD discharge application within that timeframe. One
commenter noted that these requirements were not included in proposed
Sec. 685.213(b)(1), the comparable section of the Direct Loan
regulations, and asked if there was a specific reason for the
difference.
Discussion: The Department will provide the same information and
notifications required under the Perkins and FFEL regulations to Direct
Loan borrowers. We agree that to provide consistency with the Perkins
and FFEL regulations these requirements should be included in the
Direct Loan regulations as well.
Changes: We have revised Sec. 685.213(b)(1) of the Direct Loan
regulations to state that the Secretary will provide borrowers with the
information needed to apply for a TPD discharge and inform the borrower
that collection will resume on the borrower's loan after 120 days if
the borrower does not submit a TPD discharge application.
Comments: One commenter recommended that the Department grant TPD
discharges retroactively as of the application date, so that both
voluntary and involuntary payments made after that date would be
refunded to the borrower.
Discussion: Sections 674.61(b)(3)(i)(A), 682.402(c)(3)(i)(A), and
685.213(b)(4)(i)(A) specify that if the Department determines that the
borrower is totally and permanently disabled, the borrower is
considered totally and permanently disabled ``as of the date the
physician certified the borrower's application.'' It is more beneficial
to the borrower to use the physician certification date than the
application date, because the physician certification date is earlier
than the application date.
Changes: None.
Suspension of Collection Activity (34 CFR 674.61(b)(2)(ii)(C),
674.61(b)(2)(vi), 682.402(c)(2)(ii)(C), 682.402(c)(2)(vi),
685.213(b)(1) and 685.213(b)(3)(i))
Comments: One commenter recommended that the Department cease
collection on a borrower's title IV loans upon receipt of a TPD
discharge application. Another commenter recommended that the
Department confirm that the indefinite suspension of collection
activity--which occurs after the Secretary receives the borrower's TPD
discharge application--is not dependent on whether the application is
complete. A similar comment stated that it is not clear how incomplete
applications received after the 120-day suspension of the collection
period are treated. This commenter gave an example in which a borrower
submits an incomplete application on day 119 of the suspension of
collection activity, but does not file the complete application until
day 130. The commenter asked if, under those circumstances, collection
activity would resume on day 121, or if the incomplete
[[Page 66095]]
application would be sufficient to keep the suspension of collection in
place.
One commenter also noted that Sec. Sec. 674.61(b)(2)(ix),
682.402(c)(2)(ix), and 685.213(b)(3) describe the contents of the
notice that the Department sends to the borrower upon receipt of the
disability discharge application. This commenter asked if this notice
is sent for incomplete applications, or if it is only sent once the
borrower has submitted a completed application.
In addition, some commenters recommended that Treasury Offset
Program (TOP) offsets and administrative wage garnishment (AWG)
collection activity on the loan cease during the suspension of
collection activity.
Discussion: The final regulations in Sec. Sec.
674.61(b)(2)(ii)(C), 682.402(c)(2)(ii)(C), and 685.213(b)(1) provide
that the 120-day suspension of collection begins on the date the
borrower notifies the Secretary of the borrower's intent to apply for a
TPD discharge. Collection ceases based on a borrower's notification to
the Secretary--which could be a verbal notification--and does not
require submission of an application.
The Secretary notifies the lenders of the second, indefinite period
of suspension of collection activity after the Secretary receives the
TPD discharge application, as specified in Sec. Sec. 674.61(b)(2)(vi),
682.402(c)(2)(vi), and 685.213(b)(3)(i). If the application is
incomplete, the Secretary contacts the borrower, or the physician who
certified the application, and asks for the missing information, as
provided by Sec. Sec. 674.61(b)(2)(vii), 682.402(c)(2)(vii), and
685.213(b)(3)(ii). The second, indefinite suspension of a collection
activity is not dependent on the TPD discharge application containing
all of the information needed for the Secretary to conduct the
eligibility review, as more detailed medical information regarding the
borrower's disability may be collected during the period of suspension
of collection activity. However, the application must contain
sufficient information for the Secretary to begin review of the
application, such as the borrower's identifying information,
physician's contact information, and the physician certification
required under Sec. Sec. 674.61(b)(2)(iv), 682.402(c)(2)(iv), and
685.213(b)(2)(i). The application must be provided to the Secretary
within 90 days of the date the physician certifies the application
under Sec. Sec. 674.61(b)(2)(v), 682.402(c)(2)(v), and 685.213(b)(3).
If the application arrives without the physician certification or
certification date, the Secretary cannot determine if the 90-day
requirement has been met. An application missing this information would
not meet the requirements of Sec. Sec. 674.61(b)(2)(vi),
682.402(c)(2)(vi), or 685.213(b)(3).
Borrowers who file a TPD discharge application will receive a
different notice depending on whether collection activity is suspended.
Thus, if the application does not meet the basic requirement of
including a physician certification and certification date (unless the
borrower submits an application that includes acceptable VA or SSA
documentation as proof of the borrower's TPD), the borrower would
receive a notice informing the borrower that suspension of collection
will not continue. The borrower would receive a notice requesting the
missing information, and notifying the borrower that collection
activity will resume on the loan if the information is not provided
before the end of the 120-day period of suspension.
We discussed the effect of the suspension of collection activity on
payments collected through AWG and TOP in the NPRM. The Department
disagrees with the recommendation that AWG and TOP payments be included
in the suspension of collection activity. Borrowers who apply for a TPD
discharge must, by definition, be unable to engage in substantial
gainful activity. Thus, these borrowers would not be earning wages and
would not generally be subject to AWG. With regard to TOP, given the
administrative effort and timing issues associated with suspending TOP,
we do not believe it is in the best interests of the taxpayers to
suspend TOP based solely on the filing of the TPD discharge
application. Notifying the Department of the intent to file a TPD
discharge request does not necessarily demonstrate that a borrower is
TPD. Suspending TOP based on such a notification might encourage
frivolous TPD discharge requests submitted solely to suspend TOP. If a
borrower's loan account has been certified for TOP, the Secretary or
the guaranty agency is not required to stop TOP offsets while the
borrower is preparing to submit the TPD discharge application or during
the Secretary's review of the TPD discharge request. The Secretary or
the guaranty agency may, however, stop or reduce TOP offsets during
this period if it believes such action is warranted under the
borrower's circumstances.
Changes: None.
Comments: One commenter expressed concern that the notice of
suspension of collection activity from the Department might not reach
the appropriate office in the case of a multi-campus system with a
central collection office. If the notice of suspension is sent to the
specific campus, rather than to the central collection office for all
of the campuses, the collection office would not know to suspend
collection for a borrower who obtained a Perkins Loan for attendance at
the school. The commenter noted that the National Student Loan Data
System (NSLDS) listing for such a borrower would show the specific
campus as the loan holder, not the central collection office.
Discussion: The Department is aware of the issues that may arise
with multi-campus systems with a centralized collection office. Under
the new TPD discharge process, if a borrower notifies us of the intent
to apply for a TPD discharge, we will contact the borrower's title IV
loan holders listed on the NSLDS. Unless the loan has been assigned to
the Department, the holder of a Perkins Loan is always the school that
awarded the loan to the borrower.
As we implement the new streamlined TPD discharge process, the
Department will work with multi-campus systems that have centralized
collection offices to find strategies to address this problem.
Changes: None.
Comments: One commenter stated that during the negotiated
rulemaking sessions non-Federal negotiators proposed modifying the
administrative forbearance regulations for the FFEL program to allow
guaranty agencies to retroactively grant administrative forbearances to
borrowers. This would eliminate delinquencies occurring before the
borrower notified the Department of the intent to apply for a TPD
discharge. When the Department decided to split the proposed
regulations into two separate regulatory packages, the administrative
forbearance provision was not included in the NPRM to these final
regulations. The commenter noted that including the administrative
forbearance provision in a subsequent rulemaking will create a period
of time where guaranty agencies will not be able to eliminate a prior
delinquency with an administrative forbearance. Delinquent borrowers
whose 120-day suspension period expires, or whose TPD discharge
application is denied before the effective date of the second set of
regulations resulting from these negotiations, will resume repayment
after the suspension periods at the same delinquency status. This
commenter recommended that the Department provide clear guidance that
would allow a borrower to exit a TPD suspension period in a
nondelinquent status, regardless of the status of the loan at the time
the suspension of collection
[[Page 66096]]
activity began, until the changes to the administrative forbearance
regulations are published and are in effect.
Discussion: The NPRM that would contain this revision to the
administrative forbearance provisions has not yet been published.
Consequently, there has been no opportunity for public comment on an
NPRM that includes this revision. The Department believes that it would
be inappropriate to establish such an administrative forbearance
through subregulatory guidance prior to publication of the proposed
regulatory change in an NPRM, receipt of public comment, and
publication of a final regulation. In addition, we have no evidence
that this has created a significant problem for borrowers seeking TPD
discharges under our current regulations.
Changes: None.
TPD Discharge Application Denial and Re-evaluation (34 CFR
674.61(b)(3)(vi), 674.61(b)(3)(vii), 682.402(c)(3)(v),
682.402(c)(3)(vi), 685.213(b)(4)(iv), and 685.213(b)(4)(v))
Comments: One commenter asked if the references in proposed
Sec. Sec. 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) to
the ``certification provided by the borrower'' meant the physician's
certification on the TPD application form. If so, the commenter asked
us to change the reference to the ``physician's certification.'' The
commenter also asked us to make the same change in the corresponding
regulations for the veteran's disability discharge process.
Discussion: The references to a ``certification provided by the
borrower'' in proposed Sec. Sec. 674.61(b)(3)(vi), 682.402(c)(3)(v),
and 685.213(b)(4)(iv) do refer to the physician certification. We agree
with the commenter and have revised these provisions in the final
regulations to make this explicit. However, the corresponding language
in Sec. Sec. 674.61(c), 682.402(c)(9), and 685.213(c) covering the
veteran's disability discharge process refers to documentation from the
Department of Veteran's Affairs not to a physician's certification, and
does not need to be revised.
Changes: We have replaced ``certification provided by the
borrower'' with ``physician's certification'' in Sec. Sec.
674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv).
Comments: The proposed regulations in Sec. Sec. 674.61(b)(3)(vii),
682.402(c)(3)(vi), and 685.213(b)(4)(v) would allow a borrower to
request a re-evaluation of the borrower's TPD discharge application
within 12 months of receiving the Secretary's decision denying the
application. The proposed rules specified that the request for a re-
evaluation must include information that was not available at the time
of the borrower's prior application. One commenter noted, however, that
the information might have been available at the time of the prior
application but might not have been included in the application for any
number of reasons. The commenter recommended replacing the words ``not
available'' with ``not included'' for these regulatory provisions.
In addition, commenters asked the Department to confirm that a FFEL
or Perkins loan holder will not provide a new period of suspension of
collection activity during the re-evaluation period, unless advised
otherwise by the Department.
Discussion: We agree with the recommendation to revise the
language, although, since detailed information is not included in the
TPD discharge application itself, we have revised the new language.
In response to the second comment noted above, we confirm that the
borrower does not receive a second period of suspension when a TPD
discharge is being re-evaluated.
Changes: We have replaced ``not available'' with ``not provided to
the Secretary in connection with the prior application'' in Sec. Sec.
674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) of the final
regulations.
Treatment of Disbursements of Title IV Loans and TEACH Grants or
Receipt of New Title IV Loans and TEACH Grants After Date of
Physician's Certification (34 CFR 674.61(b)(4) and (b)(5),
682.402(c)(4) and (c)(5), and 685.213(b)(5) and (b)(6))
Comments: The proposed regulations in Sec. Sec. 674.61(b)(4),
682.402(c)(4), and 685.213(b)(5) stipulated that if a borrower receives
a title IV loan or TEACH grant before the date the physician certified
the TPD discharge application, and disbursement of the loan or grant is
made after the date of the physician's certification and before the
date the loan is discharged, the processing of the discharge request is
suspended until the borrower returns the disbursement. One commenter
noted that this regulatory requirement could be easily misunderstood.
The commenter asked the Department to clarify what it means by a
borrower ``receiving'' a loan or grant prior to the loan or grant being
disbursed. The commenter asked if this requirement refers to a loan
that is partially disbursed before the physician's certification, and a
subsequent disbursement is made after the date of the certification.
Alternatively, the commenter asked if by ``received'' the Department
means originated or awarded.
Discussion: The commenter's second interpretation is correct. In
the context of these regulations, we are referring to a situation in
which the loan or grant has been originated or awarded prior to the
physician certification date. The provision is intended to apply to
situations in which a student has established eligibility for a title
IV loan or TEACH grant, the loan or grant is approved, and the process
for disbursing the funds has started. The Department believes that a
student in this situation should not be denied the TPD discharge.
However, the student must return the disbursed funds before the TPD
discharge may be granted.
Changes: None.
Comments: The proposed regulations in Sec. Sec. 674.61(b)(5),
682.402(c)(5), and 685.213(b)(6) provided that if a borrower receives a
disbursement of a new title IV loan or receives a TEACH grant made on
or after the date the physician certified the TPD discharge
application, the Department denies the TPD discharge application and
collection resumes on the borrower's loans. One commenter asked if this
refers to situations in which a title IV loan or TEACH grant was
originated or awarded on or after the date of the physician's
certification and is disbursed before the date the discharge is
granted.
Discussion: The commenter's understanding of the provision is
correct. This provision is intended to address borrowers who actively
request or apply for a new title IV loan or TEACH grant after the date
of the physician's certification. In applying for a loan or requesting
a TEACH grant the student commits to repay the loan or perform the
required teaching service. This commitment contradicts the borrower's
claim in the TPD discharge application that the borrower is too
disabled to work. Borrowers seeking a discharge on existing loans while
taking out new loans should not receive the benefit of a TPD discharge.
Changes: None.
Conditions for Reinstatement of a Loan and Borrower's Responsibilities
After a Total and Permanent Disability 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))
Comments: The regulations in Sec. Sec. 674.61(b)(6)(i)(A),
682.402(c)(6)(i)(A),
[[Page 66097]]
and 685.213(b)(7)(i)(A) provide that a loan that has been discharged
based on the borrower's TPD is reinstated if, within three years after
the discharge date, the borrower has annual earnings from employment
that exceed 100 percent of the poverty guideline for a family of two.
One commenter recommended that, in some cases, the Department should
examine a borrower's income for the three years prior to the TPD
discharge, rather than the three years after the discharge.
Another commenter recommended that the Department allow part-time
work for disability discharge recipients. A third commenter echoed this
comment, and added that full-time work on a short-term basis should
also be allowed.
In addition, the proposed regulations in Sec. Sec. 674.61(b)(7),
682.402(c)(7), and 685.213(b)(8) provided that, for a three-year period
after the borrower receives a TPD discharge, the borrower must: notify
the Department of any changes in address or telephone number; notify
the Department if the borrower's annual earnings exceed the poverty
level; and provide the Department, upon request, with documentation of
the borrower's earnings. One commenter asked what the consequences are
for a borrower who does not provide the requested documentation.
Discussion: Under both the current and proposed TPD discharge
regulations and these final regulations, the monitoring of the
borrower's income only occurs after the discharge has been granted. The
post-discharge monitoring of a borrower's earned income is required by
section 437 of the HEA.
The proposed and final regulations in Sec. Sec. 674.61(b)(6),
682.402(c)(6), and 685.213(b)(7) treat earnings during the three-year
post-discharge monitoring period as an indicator that a borrower is no
longer TPD. A borrower's loans are reinstated if the borrower's annual
earnings are greater than 100 percent of the poverty line for a family
of two, as published annually by the Department of Health and Human
Services. This standard allows the borrower to attempt part-time or
short-term full-time work without raising a question about the
borrower's disability, if the earnings from such work for the year do
not exceed the threshold. Earnings in excess of these amounts indicate
that the borrower is sufficiently able to engage in substantial gainful
activity, and does not meet the definition of ``totally and permanently
disabled.''
A borrower who does not provide the required documentation
(particularly income documentation) will have his or her loans
reinstated and will be required to resume payment on the loan.
Changes: None.
FFEL Lender and Guaranty Agency Actions (34 CFR 682.402(c)(8),
682.402(g)(2), and 682.402(k)(2))
Comments: Several commenters requested that the Department state in
this preamble to the final regulations that the guarantor of the loans
for which the borrower has submitted a TPD discharge application may
request and receive from the Department, on a case-by-case basis, any
information that may be needed to assist the borrower during the TPD
discharge process. These commenters noted that the guaranty agency may
be a trusted contact for a disabled borrower, and may have worked with
the borrower in the past with respect to default prevention activities
or ombudsman interactions.
Discussion: These regulations are intended to centralize the TPD
discharge process and to enable borrowers to receive TPD discharges
more easily. One way that the regulations accomplish this is by
minimizing the role of guaranty agencies and loan holders in the TPD
discharge process. We do not envision guaranty agencies or lenders
having a significant role in the processing of TPD discharge requests
under the new process. Because the role of guaranty agencies will be
limited, we do not believe that it is necessary for guaranty agencies
to receive information from the Department regarding specific TPD
discharge requests beyond the documentation already specified in the
regulations.
We note that an individual borrower who considers a guaranty agency
to be a trusted contact may choose to provide a copy of the TPD
discharge application or any communications that the borrower receives
from the Department to the guaranty agency.
Changes: None.
Comments: Some commenters noted that the regulatory language agreed
to during the negotiated rulemaking process would modify the current
requirements for a guaranty agency to file a disability claim.
Currently, Sec. 682.402(g)(1)(iv) requires a guaranty agency to
include a copy of the certified TPD discharge application with the
disability claim. Under the new TPD discharge process in this final
rule, the guaranty agency will not receive a copy of the TPD discharge
application. Under final Sec. 682.402(g)(1)(iv), the guaranty agency
will only receive the notice from the Department informing the lender
that the borrower is eligible for a TPD discharge. The commenters noted
that the regulatory language approved during the negotiated rulemaking
process would replace the reference to the TPD discharge form. The
commenters stated that proposed Sec. 682.402(g)(1)(iv) incorrectly
retained the requirement that the TPD discharge application be
submitted with the disability claim. The commenters requested that the
final regulations be modified to conform to the agreement reached
during negotiations.
These commenters also requested that the final regulations modify
Appendix D of 34 CFR Part 682 to remove language stating that the
Department does not reimburse a guaranty agency for a disability claim
if the lender has violated due diligence or timely filing requirements.
The commenters viewed this as a conforming change to the proposed
regulations.
Some commenters recommended that the Department revise proposed
Sec. 682.402(c)(8)(i)(E) that established assignment deadlines for
loans held by the guaranty agency at the time the borrower applies for
a disability discharge. The NPRM proposed to require the guaranty
agency to assign the loan to the Secretary within 45 days of the date
that the guaranty agency receives notice that the borrower qualifies
for a TPD discharge. The commenters recommended that the loan be
assigned within 45 days of the date the Secretary pays the remaining
disability claim amount to the guaranty agency.
Discussion: The language approved by the negotiating committee and
referenced by the commenters was included in the NPRM. However, in
finalizing the NPRM, we did not replace Sec. 682.402(g)(1)(iv) in its
entirety. Instead, we amended that section through an instruction. The
revision is reflected as instruction 6.B at 77 FR 42133. The
instruction that was included in the NPRM, and is included in these
final regulations, does not need to be modified.
During the negotiated rulemaking process, non-Federal negotiators
did not suggest that the Department waive the due diligence
requirements for disability discharge claims under the new process for
TPD discharges. This change was not discussed during the negotiated
rulemaking process or agreed to by the Department. Further, the NPRM
did not propose changing the current regulatory language in Sec.
682.402(k)(2) stating that the Department only pays a disability claim
to a guaranty agency ``after the agency has paid a default claim to the
lender thereon and received payment under its reinsurance agreement''
or the current
[[Page 66098]]
requirement in Sec. 682.402(k)(2)(v) that the Department only
reimburses a guaranty agency on a disability claim if ``the guaranty
agency has exercised due diligence in the collection of the loan.'' Nor
did the NPRM propose changes to current Sec. 682.406(a), which
specifies that a guaranty agency only receives a reinsurance payment
from the Department on a loan ``if the lender exercised due diligence
in making, disbursing, and servicing the loan as prescribed by the
rules of the agency.'' The changes to Appendix D that the commenters
request as a conforming change with the NPRM would actually be
inconsistent with the proposed and final regulations.
In these final regulations, Sec. 682.402(c)(3)(iii) states that,
after the Department determines that a borrower is totally and
permanently disabled, the Department ``directs each lender to submit a
disability claim to the guaranty agency * * * .'' Section
682.402(c)(8)(i)(B) requires a guaranty agency to pay the claim ``if
the claim satisfies the requirements of Sec. 682.402(g)(1).'' To
clarify that the disability claim must meet all of the due diligence
requirements, we have modified this language to specify that the claim
must meet the requirements of Sec. 682.406 as well.
The purpose of these regulations is to streamline and speed up the
process for granting TPD discharges as much as possible. Therefore, we
decline the recommendation from the guaranty agencies that they not be
required to assign a TPD claim to the Department until the remaining
reinsurance claim amount has been paid by the Department. The
borrower's discharge should not be delayed while the Department and the
guaranty agencies complete their financial transactions. We note that,
under the final regulations, the guaranty agency would have 45 days to
submit a claim to the Department for reimbursement before it is
required to assign the loan to the Department.
Changes: We have revised Sec. Sec. 682.402(c)(8)(i)(B) and
682.402(c)(9)(xii)(B) to state that a guaranty agency must pay a
disability claim if the claim satisfies the requirements of Sec. Sec.
682.402(g)(1) and 682.406.
Implementation and Forms Development
Comments: Some commenters urged the Department to implement the
proposed reforms to the TPD discharge process earlier than the July 1,
2013, effective date of the regulations, to the extent possible.
Conversely, another commenter recommended that the revised TPD
discharge application not be made available to borrowers before the
July 1, 2013, effective date to minimize borrower confusion and ensure
an orderly transition to the new discharge process. In addition, the
latter commenter recommended that the Department be prepared to accept
both versions of the TPD discharge application--the current version and
the revised version--as of the July 1, 2013, effective date, so that
borrowers who have completed the current version of the TPD discharge
application may also benefit from the streamlined TPD discharge
process.
One commenter recommended that the Department implement the third-
party release form that borrowers would use to identify borrower
representatives as soon as possible.
Discussion: Due to the complexity of the changes made by these
final regulations, the Department has determined that implementation of
the new TPD discharge process before the July 1, 2013, effective date
is not feasible. The new process will require extensive systems and
process changes by the Department, guaranty agencies, and loan holders
and servicers before the new TPD discharge process can be implemented.
The Department does not address implementation of forms in final
regulations. Forms developed or revised as a result of these final
regulations will be made available for public comment through the
Paperwork Reduction Act forms clearance process. After the forms have
been approved by OMB, the forms will be made available to program
participants through Dear Colleague Letters or Electronic
Announcements. Deadline dates for forms implementation, and any
transition period between the current TPD discharge application and the
new TPD discharge application, will be announced in the Dear Colleague
Letter or Electronic Announcement implementing the new and revised TPD
discharge forms.
Changes: None.
Additional Comments
Comments: Several commenters stated that navigating the TPD
discharge process is stressful and urged the Department to streamline
the process by providing a one-stop Web site where borrowers can get
information about the process.
One commenter recommended that the Department forgive loans of
individuals caring for permanently disabled veterans and to accept the
VA's determination of permanent disability.
One commenter asked the Department to allow borrowers who are
experiencing dire economic hardship because of health and disability
issues to modify their loan terms or restructure their loans to ease
the burden of repayment.
Discussion: The Department maintains a TPD discharge Web site at
the following link: http://www.disabilitydischarge.com/Pages/General.aspx?id=80
The Web site provides information on the TPD discharge process for
borrowers, loan holders, physicians, and veterans. The Web site allows
individuals to set up user accounts and can be used to help borrowers,
loan holders, and physicians navigate the TPD discharge process. The
Web site will be updated with new information, revised forms, and other
information that will be helpful to borrowers as the new streamlined
process is implemented.
The recommendations that the Department forgive loans for
individuals caring for disabled veterans and allow borrowers who are
experiencing financial hardship due to health or disability issues to
modify or restructure their title IV loans are outside the Department's
statutory authority. However, we note that there are other avenues for
borrowers who are experiencing dire economic circumstances due to
health issues or disabilities. Economic hardship deferments,
unemployment deferments, and forbearances are generally available to
borrowers in the Perkins, FFEL, and Direct Loan programs. In addition,
Direct Loan and FFEL borrowers can use the income-based or income-
contingent repayment plans discussed elsewhere in this preamble.
Changes: None.
Income-Based and Income-Contingent Repayment Plans: General Comments
Comments: One commenter suggested that we adopt more consumer-
friendly names for the two income-contingent repayment plans designated
as ``ICR-A'' and ``ICR-B'' in proposed Sec. 685.209. In light of the
fact that the President's ``Pay As You Earn'' repayment initiative has
been widely publicized, the commenter suggested that it may be helpful
to clarify for borrowers that the ICR-A repayment plan is in fact the
Pay As You Earn initiative.
Another commenter strongly urged the Department to consider using a
more descriptive and less confusing name than ICR-A and suggested ``Pay
As You Earn'' as an appropriate alternative. This
[[Page 66099]]
commenter believed that borrowers will have difficulty understanding
the differences between the similarly named income-driven repayment
plans and noted that the proposed ICR-A plan is much more like the
current IBR plan than the proposed ICR-B plan.
The majority of commenters expressed strong support for the
Secretary's proposed regulations, especially the proposed
implementation of the President's ``Pay As You Earn'' repayment
initiative as a new type of income-contingent repayment plan, in light
of rising student loan debt and the difficulty some borrowers
experience repaying their student loans. Many of the commenters noted
that the proposed regulations would make it easier and more affordable
for Federal student loan borrowers to repay their loans. A few
commenters stated that all of the income-driven repayment plans should
be discontinued because they believed that these plans are a poor use
of taxpayer funds, encourage students to enroll in substandard
educational programs, encourage students to borrow more than necessary,
and absolve borrowers of their responsibility to repay their student
loans in full.
Discussion: During the negotiated rulemaking sessions we invited
suggestions for naming the two income-contingent repayment plans
described in proposed Sec. 685.209, but did not receive any
recommendations at that time. We explained in the NPRM that the
proposed regulations would create a new income-contingent repayment
plan based on the President's Pay As You Earn initiative that would be
called the ICR-A plan, and that the existing income-contingent
repayment plan would be retained, with certain changes, as the ICR-B
plan. We agree with the commenters' recommendation that we adopt more
descriptive and consumer-friendly names for these repayment plans and
believe the most appropriate approach would be to use a distinctive
name for the new plan that is based on the Pay As You Earn initiative
and leave the name of the current income-contingent repayment plan
unchanged.
The Department appreciates the numerous comments we received in
support of the proposed regulations. With regard to the comments
recommending that the income-driven repayment plans be discontinued, we
note that the IBR and ICR plans were established by Congress to assist
borrowers in repaying their student loan debt, and the Pay As You Earn
repayment plan is based on a presidential initiative to help borrowers
reduce their monthly student loan payments. We believe these repayment
options provide a significant benefit to borrowers and taxpayers by
helping borrowers better manage their student loan debt and avoid
default.
Changes: We have revised Sec. 685.209 by redesignating the plan
called ``ICR-A'' in the NPRM as the ``Pay As You Earn repayment plan,''
and by redesignating the plan called ``ICR-B'' in the NPRM as the
``income-contingent repayment (ICR) plan.'' References to the ``income-
contingent repayment plans'' in other sections of the Direct Loan
program regulations may mean either the Pay As You Earn repayment plan
or the ICR plan, since both plans are presented in Sec. 685.209 as
income-contingent repayment plans. Where it is necessary to distinguish
between the two plans in other sections of the Direct Loan program
regulations, the regulations refer to the income-contingent repayment
plan described in Sec. 685.209(a) (the Pay As You Earn repayment plan)
or the income-contingent repayment plan described in Sec. 685.209(b)
(the ICR plan).
Comments: Many individual commenters suggested various changes to
the proposed regulations that would require amendments to the HEA.
These recommended changes included--
(1) Allowing private education loans to be repaid under the IBR and
ICR plans;
(2) Allowing private education loans to be consolidated together
with Federal student loans;
(3) Allowing parent PLUS loan borrowers to repay their loans under
the IBR and ICR plans;
(4) Making changes to the IBR plan that will be available to new
borrowers on or after July 1, 2014, available to all borrowers;
(5) Not taxing loan amounts forgiven under the IBR and ICR plans;
(6) Extending the length of time that borrowers with disabilities
are eligible for the interest subsidy provided in the IBR and proposed
Pay As You Earn repayment plans;
(7) Reducing the maximum IBR payment amount to five percent of
adjusted gross income (AGI);
(8) Counting payments made prior to entering IBR toward the 25-year
IBR loan forgiveness period;
(9) Allowing borrowers to separate joint consolidation loans in
cases of divorce, separation, spousal abandonment, or remarriage;
(10) Allowing defaulted borrowers to repay under IBR;
(11) Providing restructured loans for disabled borrowers and for
borrowers that meet other criteria;
(12) Reducing the interest rates charged on Federal student loans,
or charging no interest; and
(13) Basing the determination of PFH for IBR eligibility purposes
on factors other than eligible loan debt, AGI, and family size; some of
the suggested factors that commenters recommended for consideration in
determining whether a borrower has a PFH and other suggested changes
were--
Each borrower's unique individual expenses;
Regional cost-of-living differences;
Use of net pay or net taxable income, rather than AGI;
Modification of the poverty guidelines currently in use;
Adjustment of PFH determinations based on whether the
borrower is listed as the ``head of household'' on his or her income
tax return;
Inclusion of private student loan debt; and
Lower-income qualifications for PFH status.
Discussion: We appreciate the many comments we received
recommending changes that the commenters believe would benefit
borrowers and improve the administration of the title IV loan programs.
However, the suggested changes would require Congress to make changes
to the HEA or other laws. The following paragraphs identify the
statutory provisions that limit the Department's ability to adopt the
recommended changes in items (1) through (13).
With respect to items (1) and (2), the HEA does not govern the
terms and conditions of private education loans. Congress could not
legally require that the IBR or ICR plans be made available for private
education loans or provide for the consolidation of such loans into a
Direct Consolidation Loan because it cannot change the terms of private
contracts.
With respect to item (3), section 493C(b)(1) of the HEA limits
eligibility for IBR to ``a borrower of any loan made, insured, or
guaranteed under part B or D (other than an excepted PLUS loan or
excepted consolidation loan).'' Sections 493C(a)(1) and (a)(2) of the
HEA define ``excepted PLUS loan'' and ``excepted consolidation loan,''
respectively, as a PLUS loan made to a parent on behalf of a dependent
student, or a consolidation loan that repays a PLUS loan made to a
parent on behalf of a dependent student. The Pay As You Earn repayment
plan is based on the IBR plan and includes the same restrictions on the
types of loans that may be repaid under the plan. Section 455(d)(1)(D)
of the HEA provides that the income-contingent repayment plan is not
[[Page 66100]]
available to borrowers of Direct PLUS Loans made on behalf of dependent
students. Therefore, the HEA does not permit repayment of PLUS loans
made to parent borrowers through the IBR or ICR plans.
With respect to item (4), section 493C(e) of the HEA provides that
the changes to the IBR plan that reduce the maximum repayment timeframe
from 25 years to 20 years and the maximum income-based payment amount
from 15 percent of discretionary income to 10 percent of discretionary
income are only available to ``new borrowers on and after July 1,
2014.''
With respect to item (5), 26 U.S.C. 108(f) provides that an
individual's gross income for tax purposes does not include loan
amounts forgiven under certain types of loan discharge programs if the
loan amount was discharged on the basis that the borrower ``worked for
a certain period of time in certain professions.'' Based on the
Internal Revenue Service's (IRS) interpretation of this statutory
provision, loan amounts forgiven under the IBR, ICR, and Pay As You
Earn repayment plans must be treated as taxable income. The tax
implications of loan forgiveness are addressed in the Internal Revenue
Code and the regulations of the IRS, and the Department has no
authority to address this issue.
With respect to item (6), section 493C(b)(3) of the HEA provides
that if the calculated income-based payment for a borrower repaying
under the IBR plan does not cover all of the monthly interest that
accrues, the Secretary pays the remaining interest on the borrower's
subsidized loans for a period not to exceed three years from the date
the borrower entered repayment under the IBR plan, excluding periods of
economic hardship deferment. The Department does not have the authority
under the HEA to extend this maximum three-year interest subsidy
period.
With respect to item (7), section 493C(a)(3)(B) of the HEA provides
that a PFH exists when the annual amount due on a borrower's total
outstanding eligible loan debt, as calculated under a standard
repayment plan with a 10-year repayment period, exceeds 15 percent of
the difference between the borrower's, and the borrower's spouse's (if
applicable), AGI and 150 percent of the poverty line applicable to the
borrower's family size. The Department does not have the authority to
change this statutory provision.
With respect to item (8), section 493C(b)(7)(B) of the HEA
specifies the types of qualifying payments that are counted toward the
maximum 25-year IBR repayment period. Payments made prior to entering
the IBR repayment plan are not included. The Secretary does not have
the authority under the law to count other types of payments toward the
IBR repayment period.
With respect to item (9), section 428C(a)(3)(C) of the HEA provided
that married borrowers are jointly and severally liable for the
repayment of a joint consolidation loan ``without regard to any
subsequent change that may occur in the couple's marital status.'' As
part of the Higher Education Reconciliation Act of 2005 (Pub. L. 109-
171), Congress prohibited the origination of any new joint
consolidation loans, and as a consequence of this action, section
428C(a)(3)(C) was removed from the HEA. However, for those joint
consolidation loans that are still in repayment, this statutory
provision continues to apply. Without a statutory change, the
Department cannot permit the separation of a joint consolidation loan
for the reasons suggested by the commenter.
With respect to item (10), section 493C(b)(1) of the HEA permits a
borrower to elect IBR if the borrower has a PFH, ``whether or not the
borrower's loan has been submitted to a guaranty agency for default
aversion or had been in default.'' The HEOA amended the prior version
of section 493C(b)(1) by replacing the term ``or is already in
default'' with ``or had been in default.'' This change in the IBR
eligibility criteria served to prohibit defaulted borrowers from
participating in IBR, and a statutory change would be required to once
again allow defaulted borrowers to select the IBR plan.
With respect to item (11), no provision of the HEA permits the
Secretary to restructure loans for any borrowers.
With respect to recommendation (12), the interest rates charged on
loans made under the FFEL and Direct Loan programs are established by
statute in sections 427A and 455(b) of the HEA, respectively. The
Department does not have the authority to change these statutory
provisions.
With respect to recommendation (13), section 493C(a)(3)(B) of the
HEA specifies the standard for determining whether a borrower has a
PFH, as discussed earlier in connection with item (7). Absent a
statutory change, the Department is unable to make such changes.
Changes: None.
Use of Electronic and Internet-Based Processes for Borrowers Repaying
Under the IBR, ICR, and Pay As You Earn Repayment Plans
Comments: Many commenters requested that the Department make the
initial application and annual renewal process for the IBR, ICR, and
Pay As You Earn repayment plans more efficient through the use of
electronic, automated, or Internet-based methods. Some commenters
requested that the Department develop an interface with the IRS to
facilitate a borrower accessing and providing required income
information electronically to the borrower's loan servicer.
Discussion: The Department has recently made an electronic
application for the IBR plan available to borrowers. Specifically, the
Department's StudentLoans.gov Web site has been modified to allow
borrowers to login to that site with their Federal Student Aid Personal
Identification Number (PIN), apply for the IBR plan, populate their
application with the AGI on file with the IRS, and submit it
electronically to their Federal loan servicer. Borrowers may also use
this process to annually provide updated AGI information, as required
by the IBR regulations.
Initially, this enhanced functionality will only be available to
borrowers with Direct Loans and FFEL loans that are held by the
Department, or with commercially-held FFEL loans that are serviced by
an entity that has an association with certain members of the
Department's federal loan servicer team, who wish to apply to repay
under the IBR plan. The Department plans, however, to add a comparable
process for the ICR and Pay As You Earn repayment plans in the near
future. In addition, the Department also intends to eventually
establish the electronic exchange relationships necessary for all
servicers of commercially-held FFEL loans to participate in the
electronic application process.
The Department has also taken steps to modify and combine the
various forms that borrowers currently use to request the IBR and ICR
plans into a single standardized form borrowers can use to apply for
the IBR, ICR, and Pay As You Earn repayment plans and provide
alternative documentation of income, if appropriate, regardless of the
type of loan or loan holder. The Department has greatly simplified the
form to make it easier to understand and complete. The Department
anticipates that the form will become available for borrowers to use by
the end of 2012.
Changes: None.
[[Page 66101]]
Comments: Many commenters suggested that the Department should
expand eligibility for the Pay As You Earn repayment plan (the proposed
ICR-A plan) to include borrowers other than new borrowers as of October
1, 2007 who receive Direct Loan disbursements on or after October 1,
2011. Many of these commenters felt that it was unfair to exclude
certain borrowers from the Pay As You Earn repayment plan. The
commenters argued that all Federal student loan borrowers should have
access to all repayment plans.
One commenter suggested basing the eligibility criteria for the Pay
As You Earn repayment plan on academic or award years rather than on
the fiscal year approach taken in the proposed regulations. The
commenter stated that using fiscal years may be confusing to borrowers,
who are more familiar with award or academic years. The commenter
suggested that if budgetary constraints preclude using an award year
approach, we consider using calendar years 2008 and 2012 (January 1,
2008 and January 1, 2012, respectively) instead.
Discussion: In implementing the President's Pay As You Earn
repayment initiative, the Department attempted to provide the benefit
of the initiative to as many borrowers as budgetary constraints would
allow. While the Department understands the view of some of the
commenters that the Pay As You Earn repayment plan should be available
to all Federal student loan borrowers, expanding eligibility would
constitute a significant cost to the government. Similarly, defining
``new borrower'' on the basis of award years rather than fiscal years
would result in significant additional costs.
We understand the commenter's concern that some borrowers may be
confused by the use of fiscal year dates and appreciate the
recommendation to use calendar years instead. However, the Department
believes it is preferable to make the Pay As You Earn repayment plan
available to as many borrowers as possible. Using calendar years to
define the group of eligible borrowers would exclude borrowers from the
Pay As You Earn repayment plan who would have otherwise been eligible
under the proposed regulations. For example, a borrower who received
the first disbursement of a loan in the fall of 2008 and graduated in
three and a half years, with a final loan disbursement occurring on
October 15, 2011, would not be eligible for the Pay As You Earn
repayment plan if the regulations required the receipt of a Direct Loan
disbursement on or after January 1, 2012, rather than on or after
October 1, 2011, as in the proposed regulations. Similarly, an
otherwise eligible borrower who received the first loan in November
2007 would qualify under the proposed regulations, but would be
ineligible if the regulations defined new borrower as someone who had
no outstanding loan balance as of January 1, 2008. We believe making
the Pay As You Earn repayment plan available to as many borrowers as
possible is preferable to using dates that may be less confusing, but
that would limit eligibility.
Changes: None.
Income-Based and Income-Contingent Repayment Plans: Initial
Determination of Eligibility, Annual Income Documentation Requirements,
and Associated Notices
Comments: One commenter noted that under proposed Sec.
682.215(e)(9), FFEL program loan holders may grant forbearance under
certain circumstances to a borrower repaying under the IBR plan whose
required income documentation is received more than 10 days after the
specified annual deadline, and whose loan payments are overdue or would
be due at the time the borrower's new income-based monthly payment
amount is determined. The commenter further noted that in the preamble
to the NPRM the Secretary indicated that proposed Sec.
685.221(e)(9)(i) would establish the same requirement in the Direct
Loan program. However, the commenter pointed out that proposed Sec.
685.221(e)(9)(i) (and also proposed Sec. Sec. 685.209(b)(3)(vi)(F)(1)
and 685.209(a)(5)(ix)(A) for the ICR and Pay As You Earn repayment
plans, respectively) states that the Secretary ``grants forbearance''
whereas the corresponding FFEL program regulation states that the loan
holder ``may grant forbearance.'' The commenter believed that the
different language in the proposed regulations would require the
Secretary to grant forbearance in the Direct Loan program, but make the
granting of the forbearance optional on the part of the loan holder in
the FFEL program. The commenter recommended that the Department revise
Sec. 682.215(e)(9) to require FFEL loan holders to grant the
forbearance under the specified conditions.
The commenter also recommended that the Department expand the
conditions under which the forbearance described in proposed Sec. Sec.
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and
685.221(e)(9)(i) is granted. Under the proposed regulations, this
forbearance is granted only if the borrower's new calculated monthly
payment amount is $0.00 or is less than the borrower's previously
calculated monthly payment amount. The commenter recommended that the
Department revise the regulations to include borrowers whose new
calculated monthly payment amount is equal to the borrower's previously
calculated monthly payment amount. The commenter believed that the
forbearance should be available to a borrower whose new calculated
monthly payment is equal to the borrower's previous monthly payment
amount. The commenter suggested that a borrower whose financial
situation has not improved would likely have trouble paying the
``permanent standard'' payment amount (which is not based on the
borrower's income) that applies when a borrower's income documentation
is not received within 10 days of the specified annual deadline.
Finally, the commenter recommended that the regulations be revised
to provide that the forbearance described in proposed Sec. Sec.
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and
685.221(e)(9)(i) could be granted at the discretion of the Secretary or
loan holder under conditions other than those specified in the proposed
regulations, if a borrower is experiencing exceptional circumstances
such as personal or family health emergencies that prevented the
borrower from submitting the required income documentation on time.
Discussion: With regard to the recommendation that Sec.
682.215(e)(9) be revised to require FFEL loan holders to grant
forbearance (instead of specifying that the loan holder ``may grant
forbearance''), the words ``may grant'' indicate that FFEL program loan
holders are authorized to grant this forbearance. The Department does
not have the authority to require loan holders to grant forbearance
under conditions not provided for in section 428(c)(3)(A) of the HEA.
However, the Department expects that loan holders will grant
forbearance to FFEL program borrowers under the conditions specified in
Sec. 682.215(e)(9).
The Department declines to modify the forbearance regulations to
provide a forbearance to a borrower who submits the required income
information more than 10 days after the specified annual deadline if
the borrower's new calculated monthly payment amount is equal to the
borrower's previously calculated monthly payment amount. As discussed
in the preamble to the NPRM, the Department believes it is appropriate
to allow a forbearance
[[Page 66102]]
under limited circumstances, namely if a borrower's new calculated
monthly payment amount is $0.00 or is less than the borrower's prior
calculated monthly payment amount. A new calculated payment that is
$0.00 or less than the prior calculated payment amount may indicate a
worsening of the borrower's financial circumstances that may have
contributed to the borrower becoming delinquent or failing to provide
the required documentation in a timely manner. However, it is not
reasonable to attribute delinquent payments or failure to meet the
documentation deadline to a borrower's worsening financial situation if
the borrower's new calculated payment amount is the same as the
previously calculated payment amount, as this would suggest that there
has been no significant change in the borrower's financial
circumstances.
Similarly, the Department declines to make the recommended change
that would allow forbearance to be granted under conditions other than
those specified in Sec. Sec. 682.215(e)(9), 685.209(a)(5)(ix)(A),
685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i) if there are exceptional
circumstances. This approach would be inconsistent with the
Department's intent to allow forbearance for borrowers who fail to
submit income documentation in a timely manner and who are delinquent
in making loan payments only under limited circumstances, and could
result in inconsistent treatment of borrowers. Finally, we note that a
borrower who is having difficulty making payments but who does not
qualify for forbearance under Sec. Sec. 682.215(e)(9),
685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and 685.221(e)(9)(i)
would have the option of requesting forbearance under Sec. Sec.
682.211(a)(1) or 685.205(a)(1).
Changes: None.
Comments: One commenter recommended that the Department modify the
proposed regulations in Sec. Sec. 682.215(e)(2), 685.209(a)(5)(ii),
and 685.221(e)(2) governing the written notification that is sent to a
borrower after the Secretary or the loan holder has determined that the
borrower has a PFH to qualify for the IBR or Pay As You Earn repayment
plan. Under the proposed regulations, this written notification would
inform the borrower of the requirement for the borrower to provide
certain information annually and would explain that the borrower will
be notified in advance of the date by which the Secretary or loan
holder must receive this information. The notification does not include
the actual deadline date; the specific deadline by which the
information must be received is provided to the borrower in a separate
notification described in Sec. Sec. 682.215(e)(3)(i),
685.209(a)(5)(iii), and 685.221(e)(3)(i) that is sent closer to the
deadline date. The commenter asked the Department to modify proposed
Sec. Sec. 682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) to
require that the first written notification include the specific annual
deadline by which the required information must be received, instead of
simply explaining that the borrower will be notified in advance of the
deadline date. The commenter believed that including the actual
deadline date in the earlier notification would help borrowers plan
ahead for submitting the required information in a timely manner.
Discussion: As discussed in the preamble to the NPRM, the
Department initially proposed during the negotiated rulemaking sessions
that the annual notification reminding borrowers repaying under the IBR
and Pay As You Earn repayment plans of the upcoming deadline date for
submitting income documentation would be sent no later than 60 days
before the annual deadline date established by the Secretary or the
loan holder. However, some non-Federal negotiators were concerned that
this approach would allow for the notification to be sent too far in
advance of the annual deadline date for it to be effective. In response
to that concern, the Department proposed the regulatory language in the
NPRM that specifies that the notification of the deadline date for
submitting income documentation may be sent no later than 60 days and
no earlier than 90 days before the annual deadline date.
The Department believes that including the annual deadline date in
the initial notification required under Sec. Sec. 682.215(e)(2),
685.209(a)(5)(ii), and 685.221(e)(2), as suggested by the commenter,
would not be effective or helpful to most borrowers, as this
notification is sent many months in advance of the annual deadline
date. The Department believes the requirement for the borrower to be
notified of the annual deadline date no later than 60 days and no
earlier than 90 days before the annual deadline date provides
sufficient advance notice for borrowers to plan for submitting the
required information on time and will be more effective than notifying
borrowers of the deadline date many months in advance. In addition, the
Department notes that the notification required under Sec. Sec.
682.215(e)(2), 685.209(a)(5)(ii), and 685.221(e)(2) also includes
information about the borrower's option to request 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 a borrower makes such a
request and the borrower's monthly payment is recalculated based on
updated information provided by the borrower, there would be an
associated change in the annual deadline date for submitting income
information. This could be confusing for the borrower if the borrower
had previously been notified of a different annual deadline date.
Changes: None.
Comments: One commenter asked the Department to modify the proposed
regulations governing the IBR, ICR, and Pay As You Earn repayment plans
by replacing all references to the requirement for income information
to be received ``within 10 days'' of the annual deadline date with
alternative language stating that the information must be received
``before or within 10 days'' of the annual deadline. The commenter
believed that income information received from a borrower more than 10
days before the specified deadline date should be considered to have
been received on time.
Discussion: The regulatory language specifying that income
information must be received by the Secretary or loan holder within 10
days of the specified annual deadline date provides a ``grace period''
that allows a borrower who misses the annual deadline date to be
considered to have submitted the required information on time if the
information is received by the Secretary or the loan holder within 10
days of the specified deadline date. This language does not mean that
income information received before the annual deadline date is not
considered on time. The Department encourages borrowers to submit the
required income information prior to the annual deadline.
Changes: None.
Comments: One commenter recommended that the Department revise
proposed Sec. 682.215(e)(8)(i), which requires a FFEL program loan
holder to ``promptly'' determine a borrower's new monthly IBR payment
amount if the required income information is received within 10 days of
the specified annual deadline date, by defining the term ``promptly''
in order to establish specific guidelines on how quickly a loan holder
must calculate a borrower's new monthly payment amount. The commenter
noted that the corresponding Direct Loan regulations do not specify
that the Secretary
[[Page 66103]]
``promptly'' determines the borrower's new monthly payment amount,
though the Department noted in the preamble to the NPRM that the
Secretary would apply the same requirements in the Direct Loan program.
The commenter recommended that the Direct Loan regulations be revised
to clarify that the Secretary will ``promptly'' determine a borrower's
new IBR, Pay As You Earn, or ICR payment amount if the required income
documentation is received within 10 days of the specified annual
deadline date.
Discussion: The Department does not believe that it is necessary to
define ``promptly'' in Sec. 682.215(e)(8)(i). The regulations provide
that if a borrower's income information is received within 10 days of
the specified annual deadline date, 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 loan holder must maintain
the borrower's current monthly payment amount until the new payment
amount is determined, and the borrower is not penalized in any way as a
result of the loan holder's failure to make a more timely determination
of the new payment amount. However, the Department agrees with the
recommendation to revise the applicable Direct Loan program regulations
to clarify that if a borrower's income information is received within
10 days of the specified annual deadline date, the Secretary will
``promptly'' determine the borrower's new monthly payment amount.
Changes: We have amended proposed Sec. Sec. 685.209(a)(5)(viii),
685.209(b)(3)(vi)(E), and 685.221(e)(8) to provide that if the
Secretary receives the required income information from the borrower
within 10 days of the specified annual deadline date, the Secretary
``promptly determines the borrower's new scheduled monthly payment
amount and maintains the borrower's current scheduled monthly payment
amount until the new scheduled monthly payment amount is determined.''
Comments: One commenter recommended that the Department add
language to Sec. 685.209(a)(5)(iii)(B) clarifying that, for borrowers
repaying under the Pay As You Earn repayment plan whose income
information is received more than 10 days after the specified annual
deadline date, unpaid interest is not capitalized until the end of the
borrower's current annual payment period. The NPRM stated that interest
would be capitalized, but did not specify when the capitalization would
occur. The suggested change would make the regulatory language for the
Pay As You Earn repayment plan consistent with the corresponding IBR
plan regulatory language in Sec. Sec. 682.215(e)(3)(ii) and
685.221(e)(3)(ii).
Discussion: The Department agrees with the commenter's
recommendation.
Changes: Proposed Sec. 685.209(a)(5)(iii)(B) has been amended to
clarify that unpaid interest will be capitalized ``at the end of the
borrower's current annual payment period.''
Comments: One commenter asked the Department to revise Sec.
685.209(b)(3)(v)(C) to clarify that if a borrower repaying under the
ICR plan believes that special circumstances warrant an adjustment to
the borrower's repayment amount, the borrower may contact the Secretary
at any time during the borrower's current annual payment period to
request a change in the repayment amount. The NPRM indicated that the
borrower could contact the Secretary for a determination as to whether
an adjustment was appropriate, but did not clarify that the borrower
could make such a request at any time during the borrower's current
repayment period. The proposed change would make the regulations for
the ICR plan consistent with the corresponding IBR and Pay As You Earn
repayment plan regulations.
Discussion: We agree with the recommended change.
Changes: We have revised Sec. 685.209(b)(3)(v)(C) to clarify that
a borrower may request a determination from the Secretary as to whether
an adjustment to the borrower's payment amount is appropriate based on
special circumstances at any time during the borrower's current annual
payment period.
Comments: One commenter recommended that the regulations governing
the ICR plan be revised to require that the Secretary inform borrowers
that they are required to annually certify their family size in
addition to providing income information. The commenter noted that
while the proposed regulations for the IBR and Pay As You Earn
repayment plans require borrowers to annually certify family size, and
specify that the Secretary or the loan holder assumes a family size of
one if the borrower does not do so, the proposed regulations for the
ICR plan specified only that the borrower must annually provide income
information. To ensure that the calculated monthly payment under the
ICR plan accurately reflects the borrower's current family size, the
commenter believed that the regulations governing the ICR plan should
also require borrowers to annually certify their family size.
Discussion: Proposed Sec. 685.209(b)(1)(iii)(A) reflected the
current ICR plan regulations that provide that the Secretary applies
the HHS Poverty Guidelines for the borrower's family size if the
borrower provides acceptable documentation that the borrower's family
includes more than one person. In accordance with this provision, the
Secretary requires borrowers to certify family size only at the time
the borrower initially selects the ICR plan and the Secretary then
continues to use that family size to calculate the borrower's monthly
payment amount unless the borrower reports a change in family size. For
greater consistency among the income-driven repayment plans, and to
ensure that the ICR payment amount reflects the borrower's current
family size, the Department agrees with the commenter that it would be
appropriate to require borrowers repaying under the ICR plan to certify
family size upon initially selecting the ICR plan and annually
thereafter, and to specify that the Secretary assumes a family size of
one if the borrower fails to certify family size.
Changes: We have amended proposed Sec. 685.209(b)(3)(vi)(A) by
retaining the first part of the paragraph as introductory text and
creating two new paragraphs (b)(3)(iv)(A)(1) and (b)(3)(iv)(A)(2),
respectively. New paragraph (b)(3)(iv)(A)(1) contains the requirement
that was in proposed Sec. 685.209(b)(3)(vi)(A) for the borrower to
provide documentation of his or her AGI. New paragraph (b)(3)(iv)(A)(2)
requires the borrower to certify family size upon initially selecting
the ICR plan and annually thereafter, and explains that the Secretary
will assume a family size of one if the borrower fails to certify
family size. In addition, new paragraph (b)(3)(iv)(A)(1) has been
modified by adding a cross-reference to the alternative documentation
of income provision in Sec. 685.209(b)(3)(i) that was inadvertently
omitted from the proposed regulations. Minor conforming changes have
also been made elsewhere in Sec. 685.209. We have also added language
to Sec. 685.209(b)(1)(iii)(A) clarifying that for purposes of the ICR
plan, family size is defined in Sec. 685.209(a)(1)(iv).
Comments: One commenter recommended that the Department modify the
proposed IBR, ICR, and Pay As You Earn repayment plan regulations in
Sec. Sec. 682.215(e)(8), 685.209(a)(5)(viii), 685.209(b)(3)(vi)(E),
and 685.221(e)(8) governing the treatment of borrowers whose annual
income information is
[[Page 66104]]
received within 10 days after the annual deadline. Specifically, the
commenter recommended that proposed Sec. 682.215(e)(8) be revised to
clarify that if the loan holder does not calculate the borrower's new
monthly payment amount by the end of the prior annual payment period,
and the borrower continues to make payments at the previously
calculated payment amount before the new payment amount is calculated,
those payments would be considered to be qualifying payments for loan
forgiveness purposes, as long as the payments otherwise meet the
eligibility requirements for the respective repayment plans. The
commenter recommended that similar language be added to the
corresponding Direct Loan program regulations in Sec. Sec.
685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(f), to clarify
that payments the borrower continued to make at the previously
calculated payment amount would count for loan forgiveness purposes.
The commenter noted that the proposed regulations in Sec. Sec.
685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii)
indicate that, in the case of a borrower whose income information is
received more than 10 days after the annual deadline, any payments that
the borrower continues to make at the previously calculated payment
amount after the end of the prior annual payment period and before the
new payment amount is calculated would count as qualifying payments for
purposes of Public Service Loan Forgiveness under Sec. 685.219. The
Department stated in the preamble to the NPRM that these payments would
also count for purposes of IBR plan loan forgiveness. The commenter
believed that the regulations governing the treatment of borrowers who
submit their income information on time should likewise clarify that
payments a borrower continues to make at the previously calculated
amount before the new payment amount is calculated are counted for loan
forgiveness purposes.
The commenter also recommended that comparable changes be made in
Sec. Sec. 682.215(e)(9), 685.209(a)(5)(ix)(B),
685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii) to clarify that in the
case of a borrower whose income information is received more than 10
days after the annual deadline, any payments 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 would be considered qualifying payments for loan
forgiveness purposes. The commenter noted that the Department clarified
in the preamble to the NPRM that under proposed Sec. 685.221(e)(9)(ii)
any payments the borrower continued to make at the previously
calculated amount would count for purposes of IBR loan forgiveness, and
believed that adding this clarification to the regulations for all of
the income-driven repayment plans would encourage borrowers to continue
making payments, even if they miss the annual deadline for submitting
their required income information.
Discussion: The Department does not believe it is necessary to
revise the regulations to explicitly state that if a borrower's income
information is received within 10 days after the specified annual
deadline date, but the Secretary or the loan holder does not determine
the borrower's new monthly payment amount prior to the end of the
current annual payment period, payments the borrower continues to make
at the previously calculated amount before the new payment amount is
determined will count for purposes of loan forgiveness under the
various income-driven repayment plans. The regulations make it clear
that in such situations the Secretary or the loan holder maintains the
borrower's previously calculated payment amount until the new payment
amount is determined, and that the borrower is not subject to any
adverse consequences as a result of the Secretary's or loan holder's
failure to calculate the new payment amount in a timely manner.
Payments the borrower continues to make at the previously calculated
payment amount until the new payment amount is calculated are treated
for loan forgiveness purposes the same as any other payments made under
the IBR, ICR, or Pay As You Earn repayment plans.
Likewise, we do not believe it is necessary to make the similar
changes that were recommended for Sec. Sec. 682.215(e)(9),
685.209(a)(5)(ix)(B), 685.209(b)(3)(vi)(F)(2), and 685.221(e)(9)(ii).
In the case of a borrower whose income information is received more
than 10 days after the annual deadline, and the borrower's monthly
payment is converted to the permanent standard payment amount, any
payments that the borrower continues to make at the previously
calculated payment amount are qualifying payments made under the IBR,
ICR, or Pay As You Earn repayment plan and count as qualifying payments
for purposes of loan forgiveness under those plans. The proposed
regulations clarified that payments a Direct Loan borrower continues to
make at the previously calculated amount would count for Public Service
Loan Forgiveness purposes because otherwise these payments might be
viewed as not meeting the eligibility requirements of the Public
Service Loan Forgiveness program. We do not believe this clarification
is needed with regard to counting payments for other loan forgiveness
purposes.
We note also that the commenter's recommendation that the FFEL
program regulations be revised to state that payments would count for
purposes of Direct Loan program IBR, Pay As You Earn repayment plan
loan forgiveness, and ICR loan forgiveness, and a similar proposed
revision of the Direct Loan program regulations to refer to FFEL
program IBR loan forgiveness would be incorrect. Qualifying payments
that a borrower made on a FFEL program loan under the IBR plan are not
counted toward Direct Loan program IBR, ICR, or Pay As You Earn
repayment plan loan forgiveness. Also, qualifying payments that a
borrower made on a Direct Loan program loan under one of the income-
driven repayment plans do not count toward IBR loan forgiveness on the
borrower's FFEL program loans.
Changes: None.
Comments: Several commenters recommended that the Department modify
the proposed IBR and Pay As You Earn repayment plan regulations that
provide for capitalization of unpaid interest if the Secretary or the
loan holder does not receive a borrower's required annual income
information within 10 days of the specified annual deadline.
The commenters believed that the adverse consequences for borrowers
whose required information is received more than 10 days after the
annual deadline date (capitalization of unpaid interest and conversion
of their monthly loan payment to the permanent standard payment amount)
are unduly harsh, particularly for borrowers with the lowest incomes.
One of the commenters presented an example in which a borrower with
$50,000 in loan debt chose the IBR plan and had a monthly payment
amount of zero for the first three years because she was unemployed and
had no income. The borrower finds a job paying $45,000 per year shortly
before the fourth year of repayment under IBR, but misses the deadline
for submitting the required annual income information to the loan
holder. As a result, the borrower's required monthly payment amount
would increase from zero to more than $500 (the permanent standard
payment amount), and more than $10,000 in unpaid interest would be
capitalized,
[[Page 66105]]
significantly increasing the total amount the borrower would repay over
the IBR plan repayment period. The commenter felt that this is a harsh
and disproportionate penalty for missing a paperwork submission
deadline. To address this issue, the commenter recommended that the
regulations be revised to make the ``penalty'' for missing the annual
deadline proportionate to the amount of time that elapses between the
end of the most recent annual payment period and the date the
borrower's income information is received. Specifically, the commenter
proposed that if a borrower's income information is received more than
10 days after the specified annual deadline, only unpaid interest that
accrues during the period that the borrower's income information is
late would be capitalized.
Two other options suggested by the commenter would be to revise the
IBR regulations to include a limit on the amount of unpaid interest
that may be capitalized, or to authorize loan holders to reduce the
interest capitalization penalty under exceptional circumstances. The
commenter did not provide more detailed recommendations concerning
these two additional options.
The commenter believed these suggested changes would lessen the
consequences of missing the deadline date for the required annual
income information. The commenter also believed that these proposals
would have little or no budgetary implications because the budget
baseline for IBR and ICR does not include significant revenue from
large numbers of borrowers missing the income documentation deadline
and having their unpaid accrued interest capitalized. The commenter
stated that until recently, an IRS consent process allowed ICR and IBR
borrowers to provide a multi-year consent to allow the Department to
check their income, effectively preventing them from missing the annual
income documentation deadline date. The commenter added that if the
budget baseline never assumed revenue from large numbers of borrowers
submitting late paperwork and having their accrued interest
capitalized, limiting the capitalization of interest for late paperwork
would have little to no budgetary impact.
Discussion: We decline to make the requested changes. The proposed
regulations and the Department's current regulations reflect the
statutory requirement in section 493C(b)(3)(B) of the HEA that requires
capitalization of unpaid interest at the time a borrower repaying under
the IBR plan elects to no longer make income-based payments, or is
determined to no longer have a PFH. Under the current and proposed
regulations, a borrower who fails to provide the annual income
information required by the Secretary is considered to no longer have a
PFH, and unpaid interest will be capitalized. Under the proposed
regulations, unpaid interest would be capitalized only if the Secretary
or the loan holder does not receive the required income information
within 10 days after the annual deadline for the borrower to submit
income information. In addition, the HEA (for the IBR plan), the
current and proposed IBR plan regulations, and the proposed Pay As You
Earn repayment plan regulations provide that if a borrower elects to
discontinue making payments that are based on the borrower's income or
is determined to no longer have a PFH, the borrower's monthly payment
amount is recalculated and is no longer based on the borrower's income.
In such cases, the recalculated payment amount is the amount the
borrower would pay under a 10-year standard repayment plan, based on
the loan amount the borrower owed upon entering repayment under the IBR
or Pay As You Earn repayment plan. In the preamble to the NPRM, this
recalculated payment amount is referred to as the ``permanent
standard'' payment amount.
The proposed regulations provide for borrowers to be informed of
the annual income documentation requirement at the time they initially
choose the IBR, ICR, or Pay As You Earn repayment plan. Borrowers are
notified of the specific deadline for submitting the income information
no later than 60 days before the deadline date. In addition, the
proposed regulations include a 10-day ``grace period'' following the
specified annual deadline date and ensure that borrowers are not
subject to any adverse consequences if their income information is
received by the end of the grace period. We believe that these required
notifications and borrower protections will significantly reduce the
number of instances in which borrowers are subject to interest
capitalization and conversion to the permanent standard payment amount
as a result of their failure to submit required income information on
time. As discussed elsewhere in this preamble, the Department is also
planning to implement processes that will allow borrowers who select an
income-driven repayment plan to apply electronically and populate the
application with AGI information obtained directly from the IRS,
eliminating the need for borrowers to separately submit documentation
of AGI. Borrowers will also be able to use this process to update their
AGI information annually, as required by the IBR regulations. Although
borrowers will be provided with ample time and opportunity to meet the
income documentation requirements of the IBR plan, compliance with
these requirements is ultimately the borrower's responsibility. For
borrowers who do not submit their income information on time,
capitalization of unpaid interest is not a penalty, but rather a result
of the borrower's failure to comply with the terms and conditions of
the repayment plan that the borrower chose.
With regard to the suggested option of modifying the IBR plan
regulations to include a cap on the amount of interest that may be
capitalized, the Department does not have the statutory authority under
the HEA to apply such a cap in the IBR plan. Section 493C(b)(3)(B) of
the HEA requires the capitalization of any unpaid interest if a
borrower is determined to no longer have a PFH or chooses to stop
making income-based payments. The commenter's other recommendations
(capitalizing only the interest that accrues during the period when a
borrower's income information is late or giving loan holders discretion
to limit interest capitalization under exceptional circumstances) are
also inconsistent with the statutory interest capitalization
requirements that apply in the IBR plan. Additionally, giving loan
holders discretion to limit interest capitalization would result in
inconsistent treatment of borrowers, since individual loan holders
would determine what constitutes an exceptional circumstance.
Finally, the commenter's recommendations would present significant
operational challenges for loan holders and servicers, including the
Department. In accordance with section 493C(c) of the HEA, a borrower
who is repaying under the IBR plan must annually provide income
information so that the Secretary or loan holder may determine the
borrower's continued eligibility to make income-based payments and
calculate the borrower's IBR plan payment amount for the next annual
payment period. Section 493C(b)(6) of the HEA provides that if a
borrower repaying under the IBR plan is determined to no longer have a
PFH or chooses to stop making income-based payments, all unpaid
interest is capitalized. The policy reflected in the NPRM is consistent
with these statutory requirements. Based on these same requirements,
the systems of most loan holders and servicers are currently designed
to automatically
[[Page 66106]]
capitalize all unpaid interest at the end of a borrower's current
annual payment period under the IBR plan and convert the borrower's
payment to the permanent standard payment amount if the borrower has
not provided the required income information. The commenter's
recommendation to limit capitalization to the interest that accrues
during the period when a borrower's income information is late would
likely require interest capitalization to be handled as a manual
process on an individual borrower basis. Such a manual process would
not be feasible for the Secretary or loan holders to implement.
Changes: None.
Comments: One commenter recommended that the Department make two
changes to proposed Sec. Sec. 682.215(e)(7), 685.209(a)(5)(vii),
685.209(b)(3)(vi)(D), and 685.221(e)(7). First, the commenter asked the
Department to add language clarifying that in the case of a borrower
whose income information is received more than 10 days after the
specified annual deadline, and whose monthly payment is converted to
the permanent standard payment amount, the permanent standard payment
amount will apply only until the Secretary or the loan holder receives
the borrower's income documentation and calculates the new monthly
payment amount. Second, the commenter recommended that additional
language be added to the same sections of the regulations clarifying
that a borrower's monthly payment will not be converted to the
permanent standard payment amount if the borrower's income information
is received more than 10 days after the annual deadline, but the
Secretary or loan holder is able to determine the new monthly payment
amount before the end of the borrower's current annual payment period.
The commenter noted that this is consistent with what the Department
said in the preamble to the NPRM, and believed that this borrower
protection should be reflected in the regulations.
Discussion: We do not believe it is necessary to state in the
regulations that the permanent standard payment amount applies only
until the borrower's new monthly payment amount is determined. Sections
682.215(e)(9), 685.209(a)(5)(ix)(A), 685.209(b)(3)(vi)(F)(1), and
685.221(e)(9)(i) make it clear that the Secretary or loan holder
calculates a new monthly payment amount once the borrower's income
information is received, and it is understood that the new payment
amount would then replace the permanent standard payment amount.
However, we agree with the second change recommended by the commenter,
for the reasons cited by the commenter.
Changes: We have modified Sec. Sec. 682.215(e)(7),
685.209(a)(5)(vii), 685.209(b)(3)(vi)(D), and 685.221(e)(7) to clarify
that in the case of a borrower whose income information is received
more than 10 days after the specified annual deadline, the borrower's
monthly payment is not converted to the permanent standard payment
amount if the Secretary or the loan holder is able to determine the
borrower's new monthly payment amount before the end of the borrower's
current annual payment period.
Comment: Several commenters recommended that the Department revise
Sec. Sec. 685.209(a)(5)(vii), (a)(5)(viii) and (a)(5)(ix)(A), and
685.221(e)(6), (e)(8), and (e)(9) by changing ``and'' to ``through.''
The commenters believed that the use of the word ``and'' in each of
these paragraphs would suggest that a borrower must provide both
documentation of his or her AGI and alternative documentation of
income. They recommended that the Department replace the word ``and''
with the word ``through'' to make it clear that both types of income
documentation are not required.
Discussion: The proposed language cited by the commenters was not
intended to suggest that a borrower must, in all cases, provide both
documentation of AGI and alternative documentation of income. However,
we do not believe that any changes are needed. The language describing
alternative documentation of income in proposed Sec. Sec.
685.209(a)(5)(i)(B) and 685.221(e)(1)(ii) makes it clear that
alternative documentation of income is required only if the borrower's
AGI is unavailable, or if the Secretary believes that the borrower's
reported AGI does not reasonably reflect the borrower's current income.
The use of the word ``and'' in Sec. Sec. 685.209(a)(5)(vii),
(a)(5)(viii), and (a)(5)(ix)(A), and 685.221(e)(6), (e)(8), and (e)(9)
does not suggest that borrowers are always required to provide both
types of income documentation. In some cases a borrower may be required
to provide only AGI or only alternative documentation of income, but in
other cases a borrower may be required to provide both types of income
documentation (for example, if the Secretary believes that the AGI
information previously provided by the borrower does not reasonably
reflect the borrower's current income).
Changes: None.
Comments: A number of commenters recommended that the Department
change the proposed regulations for the Direct Loan program governing
the treatment of borrowers repaying under the IBR, ICR, and Pay As You
Earn repayment plans whose income information is received within 10
days of the specified annual deadline, and those borrowers whose income
information is received more than 10 days after the annual deadline.
One commenter recommended that, for consistency with the corresponding
FFEL program IBR plan regulations in Sec. 682.215(e)(8)(iii), the
proposed Direct Loan program regulations in Sec. Sec.
685.209(a)(5)(viii), 685.209(b)(3)(vi)(E), and 685.221(e)(8) should be
revised to clarify that if a borrower's new calculated monthly payment
amount is equal to or greater than the borrower's previously calculated
monthly payment amount, and the borrower continued to make payments at
the previously calculated amount after the end of the most recent
annual payment period, the Secretary does not make any adjustments to
the borrower's account to make up for the difference between any
payments the borrower made at a lower previously calculated amount and
the higher current payment amount. Several other commenters recommended
that the Department make this same change in Sec. Sec.
685.209(a)(5)(viii) and 685.221(e)(8), and proposed that the Department
further revise and restructure these paragraphs for greater clarity.
Using Sec. 685.209(a)(5)(viii) from the proposed Pay As You Earn
repayment plan regulations as an example, these commenters proposed to
restructure Sec. 685.209(a)(5)(viii) by dividing the current single
paragraph into (a)(5)(viii)(A) and (B). All of the text from proposed
(a)(5)(viii) would be retained with no changes, but most of the current
text would be placed in new paragraph (a)(5)(viii)(A)(1), and new
paragraphs (a)(5)(viii)(A)(2) and (a)(5)(viii)(A)(3) would be added,
along with a new paragraph (a)(5)(viii)(B). New paragraph
(a)(5)(viii)(A)(2) would clarify that if the borrower's new calculated
monthly payment amount is equal to or greater than the borrower's
previously calculated payment amount, and the borrower continued to
make payments at the previous amount before the new payment was
calculated, the Secretary does not make any adjustments to the
borrower's account. New paragraph (a)(5)(viii)(A)(3) would clarify that
payments made by the borrower at the previously calculated payment
amount would be considered
[[Page 66107]]
qualifying payments for purposes of the Public Service Loan Forgiveness
program under Sec. 685.219, provided that the payments otherwise meet
the requirements of that program. New paragraph (a)(5)(viii)(B) would
include the Department's clarification in the preamble to the NPRM that
the new annual payment period begins on the day after the end of the
most recent annual payment period. The commenters recommended that the
Department make the same changes in Sec. 685.221(e)(8) of the Direct
Loan program IBR plan regulations, and that similar changes be made in
proposed Sec. 682.215(e)(8) of the FFEL program IBR plan regulations.
The same commenters proposed an additional change in Sec. Sec.
685.209(a)(5)(ix) and 685.221(e)(9), which govern the treatment of
borrowers whose income information is received more than 10 days after
the specified annual deadline. Specifically, the commenters proposed to
remove Sec. Sec. 685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), which
provide that any payments that a borrower continued to make at the
previously calculated payment amount after the end of the prior annual
payment period and before the new payment amount is calculated are
considered to be qualifying payments for purposes of the Public Service
Loan Forgiveness program, provided that the payments otherwise meet the
eligibility requirements of that program. The commenters proposed to
remove these paragraphs from Sec. Sec. 685.209(a)(5)(ix) and
685.221(e)(9) and place the same text in new Sec. Sec.
685.209(a)(5)(viii)(A)(3) and 685.221(e)(8)(i)(C), respectively.
Discussion: We agree that the recommended changes provide greater
consistency and clarity, except for the proposed removal of Sec. Sec.
685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii). These paragraphs, which
reflect the consensus language agreed to at the conclusion of the
negotiated rulemaking sessions, clarify that even if a borrower misses
the annual deadline and the borrower's payment is converted to the
permanent standard payment amount, any payments that the borrower
continues to make at the previously calculated income-based 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 the Public Service Loan Forgiveness
program. Although we disagree with the proposal to remove Sec. Sec.
685.209(a)(5)(ix)(B) and 685.221(e)(9)(ii), we believe that for
consistency it would be appropriate to add the same clarifying language
to the regulatory provisions governing the treatment of borrowers whose
income information is received on time, and who continue to make
payments at the previously calculated payment amount before the new
monthly payment amount is determined.
Changes: We have revised Sec. Sec. 682.215(e)(8),
685.209(a)(5)(viii), and 685.221(e)(8) as described earlier in the
Comments and Discussion sections. We have also made comparable changes
to the ICR plan regulations in Sec. 685.209(b)(3)(vi)(E).
Comments: Several commenters recommended that the Department
restructure proposed Sec. Sec. 682.215(e)(2) and (e)(4) and
685.221(e)(2) and (e)(4) for greater clarity. Proposed Sec. Sec.
682.215(e)(2) and 685.221(e)(2) specify, in paragraphs (e)(2)(i)
through (e)(2)(v) of both the FFEL and Direct Loan program regulations,
the information that must be included in a written notification to a
borrower after the Secretary or the loan holder makes a determination
that a borrower has a PFH 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 PFH. In both the FFEL and Direct Loan program
regulations, proposed paragraph (e)(2)(v) states that the written
notification must include 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 payment amount if the borrower's financial
circumstances have changed. The last sentence of paragraph (e)(2)(v)
states that if the Secretary or loan holder recalculates the borrower's
payment at the borrower's request, the Secretary or loan holder sends
the borrower a written notification that includes the information
described in paragraphs (e)(2)(i) through (e)(2)(v).
Proposed Sec. Sec. 682.215(e)(4) and 685.221(e)(4) specify, in
paragraphs (e)(4)(i) through (iii) of both the FFEL and Direct Loan
program regulations, the information that must be included in a written
notice to the borrower each time the Secretary or the loan holder makes
a determination that a borrower no longer has a PFH for a subsequent
year that the borrower remains on the IBR plan. In both the FFEL and
Direct Loan program regulations, paragraph (e)(4)(iii) states that the
written notification must include 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 payment amount if the borrower's financial
circumstances have changed. The last sentence of paragraph (e)(4)(iii)
states that if the Secretary or loan holder recalculates the borrower's
payment based on the borrower's request, the Secretary or loan holder
sends the borrower a written notification that includes the information
described in paragraphs (e)(2)(i) through (v).
The commenters believed that Sec. Sec. 682.215(e)(2)(v) and
(e)(4)(iii) and 685.221(e)(2)(v) and (e)(4)(iii) could, as currently
structured, be interpreted to mean that the written notifications
required by the introductory text of Sec. Sec. 682.215(e)(2) and
(e)(4) and 685.221(e)(2) and (e)(4) must inform the borrower that the
Secretary or the loan holder will send the borrower another written
notification if the Secretary recalculates the borrower's payment
amount based on the borrower's request. To avoid this possible
misinterpretation, the commenters recommended that the last sentences
in Sec. Sec. 682.215(e)(2)(v), 682.215(e)(4)(iii), 685.221(e)(2)(v),
and 685.221(e)(4)(iii) be placed in separate paragraphs, with
additional conforming changes to the numbering of the paragraphs to
reflect the suggested restructuring.
Discussion: The recommended changes are not necessary. The phrasing
of the last sentences in Sec. Sec. 682.215(e)(2)(v),
682.215(e)(4)(iii), 685.221(e)(2)(v), and 685.221(e)(4)(iii) (``If the
[Secretary/loan holder] recalculates * * *'') makes it clear that these
sentences describe actions that must be taken only if the borrower's
payment is recalculated. The written notification required by the
introductory text of Sec. Sec. 682.215(e)(2) and (e)(4) and
685.221(e)(2) and (e)(4) does not have to inform the borrower that
another written notification will be sent if the borrower's payment is
later recalculated based on the borrower's request.
Changes: None.
Comments: Several commenters requested clarification regarding
proposed Sec. Sec. 682.215(e)(3)(ii) and 685.221(e)(3)(ii), which
provide for the Secretary or the loan holder to explain to the borrower
the consequences if the borrower's income information is not received
within 10 days following the annual deadline. Specifically, the
commenters asked the Department to confirm their understanding, based
on discussions that took place during the negotiated rulemaking
sessions, that the notification to the borrower would not communicate
the actual 10-day ``grace period'' following the deadline date. Rather,
it was the understanding of the commenters that the purpose of the
[[Page 66108]]
notification to the borrower was simply to explain the consequences of
not providing the required income information in a timely manner. The
commenters were concerned that telling the borrowers about the extra 10
days could lead some borrowers to not mail the required information by
the specified deadline and to miss the extra 10 days for mail
processing time.
Discussion: Proposed Sec. Sec. 682.215(e)(3)(ii) and
685.221(e)(3)(ii), which were approved by the consensus of the
negotiated rulemaking committee, state that the notice must inform the
borrower of the consequences if the Secretary or the loan holder does
not receive the required income information ``within 10 days following
the annual deadline specified in the notice.'' The clear intent of
Sec. Sec. 682.215(e)(3)(ii) and 685.221(e)(3)(ii) is that the notice
must inform the borrower of the additional 10-day period. We note that
this is consistent with many notices sent to borrowers in connection
with other financial obligations, such as home mortgages. For example,
most monthly mortgage statements specify a date, generally 10 to 15
days after the payment due date, by which the borrower's payment must
be received to avoid late charges or other penalties. We believe it is
in the best interest of the borrower to make the borrower aware of the
additional 10-day period.
Changes: None.
Comments: Several commenters recommended clarifying changes to
Sec. Sec. 682.215(e)(3) and (e)(7). Section 682.215(e)(3) describes
the notification that is sent to a borrower who has a PFH for a
subsequent year under the IBR plan; Sec. 682.215(e)(7) describes what
happens if a borrower who is repaying under the IBR plan remains on the
plan for a subsequent year, but the loan holder does not receive the
borrower's income information within 10 days of the specified annual
deadline. The commenters recommended that Sec. 682.215(e)(3) be
revised to explain more clearly that it cannot be known whether a
borrower will remain on the IBR plan with a PFH until the lender
determines whether the borrower qualifies for that subsequent year.
They recommended that Sec. 682.215(e)(7) be restructured and slightly
revised to more clearly state that a borrower who currently has a PFH
will be moved to the permanent standard payment amount upon expiration
of the current annual payment period if the borrower's income
information is not received within 10 days of the annual deadline.
Discussion: We believe that the two paragraphs cited by the
commenters are sufficiently clear as currently written and therefore
decline to make the changes suggested.
Changes: None.
Comments: Several commenters recommended that the Department add a
new administrative forbearance provision in Sec. 682.211(f) to cover
the new type of administrative forbearance included in proposed Sec.
682.215(e)(9).
Discussion: We agree with the commenter. To ensure consistency and
completeness in our regulations, we are making the proposed change to
Sec. 682.211(f).
Changes: We have revised Sec. 682.211(f) by adding a new paragraph
(f)(16) that addresses the forbearance provision described in Sec.
682.215(e)(9).
Income-Based and Income-Contingent Repayment Plans: Eligibility for
Interest Subsidy on Income-Based and Pay As You Earn Repayment Plan
Payments of Less Than Accrued Interest for Borrowers Who Change Plans
(Sec. Sec. 685.209(a)(2)(iii) and 685.221(b)(3))
Comments: Several commenters asked for clarification on the
treatment of Direct Loan borrowers who change from repayment under the
IBR plan to repayment under the Pay As You Earn repayment plan, or the
reverse, as it relates to the borrower's eligibility for the interest
subsidy on the borrower's subsidized Direct Loans. The commenters
stated that proposed Sec. Sec. 685.209(a)(2)(iii) and 685.221(b)(3)
appear to require the Department to reset the measurement of the
borrower's three consecutive years of eligibility for this interest
subsidy when the borrower enters each plan.
Discussion: The proposed regulations did not address the treatment
of a borrower who leaves the IBR plan and enters the Pay As You Earn
repayment plan, or the reverse. Under these plans, if a borrower's
calculated monthly payment on a subsidized Direct Loan does not cover
all accruing interest, the Secretary will pay the remaining interest
that accrues on the loan for up to three consecutive years from the
date the borrower entered the respective repayment plan, excluding
periods during which the borrower has an economic hardship deferment.
However, the intent of the regulations was not to provide borrowers who
change from one plan to the other with up to six years of eligibility
for the interest subsidy. That result would be inconsistent with the
HEA. Instead, to be consistent with the treatment of Direct
Consolidation loans that repay loans that were being repaid under IBR,
the maximum three-year interest subsidy period will include any period
during which the Secretary did not charge the borrower accrued interest
under the other repayment plan.
Changes: Sections 685.209(a)(2)(iii) and 685.221(b)(3) have been
revised to state that any period during which the Secretary has
previously not charged the borrower accrued interest on an eligible
loan under either the IBR or the Pay As You Earn repayment plan counts
toward the maximum three years of subsidy a borrower is eligible to
receive.
Determination of Initial Borrower Partial Financial Hardship Status and
Recalculated Payment Amount for Borrowers Transferring Between the IBR
and Pay As You Earn Repayment Plans (Sec. Sec. 685.209(a)(1)(v),
685.209(a)(4), 685.209(a)(4)(i)(A), 685.221(a)(4), 685.221(d), and
685.221(d)(1)(i))
Comments: Several commenters requested clarification on the
treatment of a borrower who changes from repayment under the IBR plan
to repayment under the Pay As You Earn repayment plan, or the reverse,
as it relates to determining whether the borrower has a PFH to
initially qualify for the respective plan and, if the borrower
initially qualifies for the plan but is later determined to no longer
have a PFH, determining the borrower's recalculated maximum monthly
payment amount (the amount referred to as the ``permanent standard''
payment amount in the NPRM). The commenters noted that the definition
of ``partial financial hardship'' in proposed Sec. 685.209(a)(1)(v)
provides for comparing the amount due on the borrower's eligible loans
at the time the borrower initially entered repayment with the amount
due ``at the time the borrower elects the ICR-A plan.'' The provision
for determining the permanent standard payment amount in proposed Sec.
685.209(a)(4)(i)(A) provides that the borrower's maximum monthly
payment (if the borrower no longer has a PFH or chooses to stop making
income-contingent payments) is the amount that would be due under a 10-
year standard plan 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.'' The commenters stated that in a situation
where a borrower changes from the IBR plan to the Pay As You Earn
repayment plan, the proposed regulations appeared to require the
Department to recalculate the maximum monthly payment amount used for
the purposes of determining PFH status and the permanent standard
payment amount. If this was not the Department's intent, the commenters
recommended that the regulations be revised to clarify the treatment of
a borrower who
[[Page 66109]]
changes from one repayment plan to the other.
Discussion: The commenters' understanding of the intent of the
proposed regulations is correct. We believe that because a borrower's
outstanding eligible loan balance may increase as a result of interest
capitalization after the borrower leaves the IBR plan to repay under
the Pay As You Earn repayment plan (or the reverse), the borrower will
receive the greatest benefit if the Secretary uses the greater of the
amount due at the time the borrower first entered repayment or at the
time the borrower elects to enter the new plan when determining whether
the borrower has a PFH. We also believe that once a borrower has begun
repayment under either the IBR or the Pay As You Earn repayment plan
after such a transfer, and later becomes subject to a change in the
maximum payment amount under Sec. 685.209(a)(4) or Sec. 685.221(d),
there is no reason to treat the borrower differently from other
borrowers under the plan when recalculating the borrower's maximum
payment amount. As a result, the recalculated maximum payment amount
for a borrower repaying under IBR who no longer has a PFH or who
chooses to stop making income-based payments would continue to be based
on ``the amount of the borrower's eligible loans that was outstanding
at the time the borrower began repayment under the income-based
repayment plan'' as provided under section 685.221(d)(1)(i). For
borrowers repaying under the Pay As You Earn repayment plan, the
maximum recalculated payment amount under the same circumstances would
be calculated 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 [Pay As You Earn repayment] plan.''
Changes: None.
Income-Based and Income-Contingent Repayment Plans: Payment Issues
Qualifying Payments for IBR, Pay As You Earn, and ICR Loan Forgiveness
Comments: Several commenters requested that the Department clarify
whether a borrower who changes from repayment under the Pay As You Earn
repayment plan (referred to as ICR-A in the NPRM) to repayment under
the ICR plan (referred to as ICR-B in the NPRM) would still be subject
to the 20-year repayment requirement for loan forgiveness that applies
under the Pay As You Earn repayment plan. These same commenters
recommended that the regulations governing eligible payments for ICR
forgiveness be revised to include payments made under the Pay As You
Earn repayment plan as eligible payments toward the 25 years for
forgiveness under the ICR plan.
Discussion: When a borrower transfers from the Pay As You Earn
repayment plan to the ICR plan, the borrower becomes subject to the
requirements of the ICR plan, which provides for forgiveness after 25
years of repayment. Prior payments made under the Pay As you Earn
repayment plan would, however, count toward the 25 years of repayment
required for forgiveness under the ICR plan.
Changes: Section 685.209(b)(3)(iii) of the proposed regulations
governing the ICR plan repayment period has been revised to specify in
new paragraph (b)(3)(iii)(3) that the repayment period includes periods
in which the borrower made monthly payments under the Pay As You Earn
repayment plan, and proposed paragraphs (b)(3)(iii)(3)-(7) have been
redesignated as (b)(3)(iii)(4)-(8).
Comments: Several commenters suggested that the proposed
regulations in Sec. 685.221(f)(1)(iii) governing IBR loan forgiveness
in the Direct Loan program were inconsistent with the statutory
requirements in section 493C(b)(7)(B)(ii) of the HEA and the
corresponding FFEL regulations at 34 CFR 682.215(f)(1)(iv), and
recommended that the Direct Loan regulations be revised to remove this
inconsistency. The commenters also recommended that the same change be
made in Sec. 685.209(a)(6)(i)(C), since the Pay As You Earn repayment
plan is largely modeled on the IBR plan. The commenters claimed that
the proposed Direct Loan regulations in Sec. 685.221(f)(1)(iii) are
inconsistent with the HEA.
Discussion: We agree with the commenters that changes should be
made in Sec. Sec. 685.221(f) and 685.209(a)(6)(i), but disagree with
the specific change that the commenters proposed. Sections
685.221(f)(1)(iii) and 685.209(a)(6)(i)(C) of the Direct Loan
regulations should correspond to Sec. 682.215(f)(1)(iii) of the FFEL
regulations, which reflects section 493C(b)(7)(B)(iii) of the HEA.
Section 493C(b)(7)(B)(iii) of the HEA governs a circumstance under
which a borrower repays under any repayment plan other than the 10-year
standard plan and pays a monthly payment amount under that plan that is
not less than what the borrower would pay under the standard repayment
plan over a 10-year period. This provision of the HEA does not refer to
the amount of the borrower's loans that were outstanding at the time
the loans initially entered repayment under the IBR plan. We believe
that Sec. Sec. 685.209(a)(6)(i)(D) and 685.221(f)(1)(iv) of the Direct
Loan regulations should correspond with section 682.215(f)(1)(iv) of
the FFEL regulations, which reflects section 493C(b)(7)(B)(ii) of the
HEA. As a result, we are revising Sec. Sec. 685.209(a)(6)(i)(C) and
(D) and 685.221(f)(1)(iii) and (iv) to properly align these provisions
with the HEA and the FFEL regulations.
Changes: Sections 685.209(a)(6)(i)(C) and 685.221(f)(1)(iii) of the
Direct Loan regulations have been revised to delete 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 respective
paragraphs and to substitute in their place the words ``with a 10-year
repayment period.'' Sections 685.209(a)(6)(i)(D) and 685.221(f)(1)(iv)
have also been revised by inserting at the end of the respective
paragraphs before the period: ``For the amount of the borrower's loans
that were outstanding at the time the borrower first selected the Pay
As You Earn repayment plan''; and ``for the amount of the borrower's
loans that were outstanding at the time the borrower first selected the
income-based repayment plan.''
Comments: Many commenters requested that the current treatment of
consolidation loans for purposes of the repayment period associated
with IBR and ICR loan forgiveness be changed and that all qualifying
payments made before and after consolidation should be counted towards
a borrower's IBR or ICR loan forgiveness if the loans on which
qualifying payments are made are later consolidated. The commenters
believed that borrowers should be given appropriate credit for what may
be many years of qualifying payments on loans that are later
consolidated, and noted that counting payments made prior to
consolidation for purposes of the three consecutive years of interest
subsidy on subsidized loans under the IBR plan, and as proposed under
the new Pay As You Earn repayment plan, serves as a precedent for such
a change.
Discussion: The conditions and qualifying payments that a borrower
must satisfy for loan forgiveness are in section 493C(b)(7) of the HEA,
which states that ``the Secretary shall repay or cancel an outstanding
balance of principal and interest due on all loans made under part B or
D'' if certain payment conditions are met on those loans. There is no
outstanding balance of principal and interest due on a loan if the loan
is repaid through the consolidation process and therefore a borrower's
payments on a loan that is later repaid through consolidation are
[[Page 66110]]
considered in calculating the 20- or 25-year repayment period necessary
for forgiveness of a Direct or FFEL Consolidation loan.
Changes: None
Treatment of Prepayments for Borrowers Repaying Under the IBR, ICR, and
Pay As You Earn Repayment Plans
Comments: One commenter noted that, consistent with Sec.
682.215(c)(2)(4) of the current FFEL regulations governing the IBR
plan, the proposed regulations added language to the Direct Loan
regulations in Sec. Sec. 685.209(a)(3)(ii)-(iv) and 685.221(c)(2)-(4)
to clarify that borrowers repaying their Direct Loans under the IBR and
the Pay As You Earn repayment plan may prepay their loans without
penalty. The commenter recommended that similar language be added to
the regulations governing the ICR plan.
The same commenter also observed that the proposed regulations
allowed a different treatment of borrower excess payments or
prepayments if the borrower submits the annual paperwork for
determination of the borrower's IBR or Pay As You Earn PFH eligibility
and the recalculation of the borrower's IBR, Pay As You Earn, and ICR
scheduled monthly payment amount within 10 days of the specified annual
deadline, and recommended that this treatment be applied to all
borrowers repaying loans under the IBR and ICR plans. Under the
proposed regulations, if a borrower's annual paperwork is received
within 10 days of the specified annual deadline, the borrower's current
monthly payment is maintained until the new scheduled monthly payment
amount is determined. If the new calculated scheduled monthly payment
amount is less than the amount the borrower paid while the prior annual
payment amount was maintained, the loan servicer makes appropriate
adjustments to the borrower's account that can result in the borrower
having made excess payments during those months. Sections
682.215(e)(8)(ii), 685.209(a)(5)(viii), 685.209(b)(vi)(E), and
685.221(e)(8) provide that excess payments identified retroactively
through these adjustments will be applied first to accrued interest,
then to collection costs, then to late charges, and finally to loan
principal, unless the borrower requests otherwise. The commenter noted
that borrower excess payments or prepayments at all other times are
applied to the borrower's future installment payments by advancing the
borrower's next payment due date unless the borrower requests
otherwise. The commenter believed that treating prepayment amounts as
intended for future installment payments is not appropriate for
borrowers repaying under the IBR and ICR plans where required payments
are based on the borrower's income and family size and pointed out that
FFEL and Direct Loan general prepayment regulations already contain an
exception for IBR in Sec. Sec. 682.209(b)(1) and 685.211(a)(1) of the
regulations. The commenter believed a change in the treatment of excess
payments for IBR and ICR borrowers would encourage borrowers to make
larger payments and repay their loans faster and recommends deleting
proposed Sec. Sec. 685.209(a)(3)(iii) and 685.221(c)(3) and Sec.
682.215(c)(3) of the current FFEL IBR regulations that state: ``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) [Sec. 682.209(b)(2)(ii) in FFEL].''
The same commenter also recommended that all borrowers be allowed
to specifically request that their excess payments be counted toward
principal first, rather than be applied first to accrued interest,
collection costs, and late charges, and that regulatory provisions
governing recalculation of payments be modified so that borrowers
making payments greater than their required scheduled monthly payment
amount are not treated as if they no longer have a PFH and are forced
to make a ``permanent standard'' payment amount.
Discussion: The application of borrower payments under the IBR plan
is specified in section 493C(b)(2) of the HEA and is reflected in Sec.
682.215(c)(1) of the FFEL regulations and Sec. 685.221(c) of the
Direct Loan regulations. Under the HEA, payments must be applied first
toward interest due on the loan, next toward any fees due on the loan,
and then toward the principal of the loan. ``Fees due on the loan'' are
identified as collection costs and late charges in the regulations and
are the responsibility of the borrower. The proposed regulations for
the Pay As You Earn repayment plan would adopt the IBR payment
application requirements along with other features of the IBR plan.
Given the different payment application requirements under IBR and the
proposed Pay As You Earn repayment plan, we believe it is important to
clarify in the regulations governing those plans that borrowers paying
under these plans may prepay all or part of their loans at any time
without penalty.
The ICR plan, however, is not subject to these statutory payment
application requirements. Borrower payments under ICR and the other
remaining Direct Loan repayment plans are applied in accordance with
Sec. 685.211(a)(1), which provides that any payment is first applied
to any accrued charges and collection costs, then to any outstanding
interest, and then to outstanding principal. Section 685.211(a)(2) of
the Direct Loan regulations provides borrowers repaying under ICR and
the other remaining Direct Loan repayment plans the same protection on
the ability to prepay a loan without penalty at any time. As a result,
we do not believe the change recommended by the commenter is needed in
the ICR regulations.
We also disagree that the same treatment of excess payments as that
proposed for IBR, Pay As You Earn, and ICR borrowers that submit their
annual paperwork on time and maintained their current payment until a
new lower annual payment is calculated should be applied to all IBR and
ICR borrowers at all times. The excess payments subject to these
exception processing provisions are the result of adjustments made
after the borrower's lower annual payment amount is calculated. We
believe it is important to ensure that excess payments identified
through such adjustments for a retroactive period do not affect the
integrity of the separate payments the borrower has already made at the
higher annual payment amount. We have, therefore, specified in the
regulations that these payments will be applied, unless otherwise
requested by the borrower, to cover accrued interest, other charges,
and loan principal first. Since many borrowers who continue to make on-
time, full monthly payments at the prior annual scheduled payment
amount under these circumstances will not have outstanding accrued
interest or other charges, the excess funds will be used primarily to
reduce the loan principal.
Sections 682.209(b)(2)(ii) and 685.211(a)(3) provide all FFEL and
Direct Loan borrowers the opportunity to request that excess payment
amounts or lump sum prepayments not be treated as intended for future
installment payments. These provisions require the loan holder or the
Department to treat a prepayment that equals or exceeds the borrower's
scheduled monthly payment amount under the borrower's repayment plan as
intended for a future installment payment by advancing the due date of
the next payment, unless the borrower requests otherwise. As a result,
we do not believe it is necessary to revise the IBR and ICR regulations
governing prepayments.
Finally, we disagree that the IBR and Pay As You Earn regulations
governing recalculation of borrower payment
[[Page 66111]]
amounts need to be modified to prevent a borrower who currently has a
PFH and who makes excess payments from losing PFH status and being
converted to a 10-year standard (permanent standard) payment amount.
The regulations clearly provide that borrowers will be determined to no
longer have a PFH and converted to the permanent standard payment
amount only based on: (1) The loan holder's annual evaluation of the
borrower's income and family size; (2) the borrower's failure to
provide the required information annually that is necessary to
determine continued PFH status and recalculate the borrower's scheduled
monthly payment; (3) the borrower's notice to the loan servicer that
the borrower no longer chooses to make income-based payments; or (4)
the borrower's request to leave the IBR or Pay As You Earn repayment
plan. The Secretary encourages borrowers to make excess payments if
they can and to exercise their options under the regulations on the
treatment of those payments.
Changes: None.
Leaving the IBR Plan (Sec. Sec. 682.215(d)(3) and 685.221(d)(2)(ii))
Comments: Many commenters requested that the Department modify the
IBR regulations to permit borrowers to exit the IBR plan without what
the commenters believe is a prohibitive penalty. These commenters
requested that borrowers not be required to repay their loans under the
standard repayment plan when exiting the IBR plan or, if they are
required to enter the standard plan, that borrowers not be required to
make a payment under the standard repayment plan before being allowed
to move to another repayment plan for which the borrower is eligible.
Commenters asserted that requiring borrowers to exit the IBR plan and
enter the standard repayment plan, or requiring such borrowers to make
one payment under the standard plan before switching to another
repayment plan for which the borrower is eligible, constitutes a
prohibitive penalty because the borrower's payment amount under the
standard repayment plan would be far higher than under the IBR plan or
another repayment plan for which the borrower may be eligible.
These same commenters also requested that the FFEL regulations be
revised to require FFEL holders to grant a reduced-payment forbearance
to borrowers who exit the IBR plan if the borrower is unable to make
the scheduled monthly payment under the standard repayment plan. The
commenters requested this revision to ensure that FFEL borrowers would
receive the same treatment as Direct Loan borrowers. In the Direct Loan
program, the Secretary will grant a reduced-payment forbearance to
borrowers in this circumstance. These commenters also requested that
the Department set a ceiling on the payment amount required under the
reduced-payment forbearance agreement, require that interest accruing
during such a forbearance period not be capitalized, and clarify that
the reduced-payment forbearance period may be as short as the time
needed for a borrower to make one reduced payment.
Several commenters also requested that the Department clarify that
the reduced-payment forbearance granted to such borrowers could result
in a payment of any amount greater than $0.
Discussion: Section 493C(b)(8) of the HEA requires a borrower who
leaves the IBR plan to repay the loans formerly repaid under the IBR
plan under the standard repayment plan. The borrower also becomes
subject to the maximum statutory repayment period under the standard
plan with the time spent in the IBR plan counted against that statutory
maximum repayment period. The Department has interpreted the statutory
requirement that borrowers exiting the IBR plan must repay under the
standard repayment plan to be satisfied if the borrower makes one full
monthly payment under the standard plan before the borrower switches to
another repayment plan. Because the time spent repaying in IBR counts
against the statutory maximum repayment periods applicable to the other
repayment plans, the outstanding balance of the loan at the time the
borrower exits the IBR plan must be amortized over the remaining years
available to the borrower under the standard plan to determine the
standard plan payment amount. Any unpaid accrued interest the borrower
may have is also capitalized when the borrower leaves the IBR plan. As
a result, the resulting payment calculated for the borrower under the
standard repayment plan may be quite large. Other borrowers whose time
repaying under IBR already exceeds the maximum repayment periods
available under other repayment plans may not be able to leave the IBR
plan, which provides for a longer repayment period.
During negotiated rulemaking, the Department acknowledged that
borrowers exiting IBR may be required to make a large payment under the
standard plan before requesting to move to another repayment plan. As a
result, the proposed IBR regulations permit the borrower to make a
lesser payment under a reduced-payment forbearance agreement to satisfy
the one-payment requirement under the standard repayment plan.
With regard to the commenters' request that the Department require
FFEL loan holders to grant a reduced-payment forbearance to borrowers
exiting IBR, section 428(c)(3)(A) of the HEA requires loan holders to
grant forbearances in limited circumstances specified in the HEA.
Otherwise, section 428(c)(3)(B) of the HEA states that lenders may
grant forbearance for the benefit of the borrower as permitted under
regulations of the Secretary. Under the proposed regulations, FFEL
holders are authorized to grant reduced-payment forbearances to
borrowers in these circumstances and we strongly recommend and expect
that they will do so. However, we do not believe that under the HEA we
can mandate that FFEL holders grant forbearances in these
circumstances.
With regard to the comments that sought clarification on the
payment amount required under the reduced-payment forbearance for such
a borrower, the amount of any reduced-payment forbearance is a matter
negotiated between the borrower and the loan holder. The Department
believes that for these borrowers it can be any amount that is greater
than $0 and less than the borrower's scheduled monthly payment under
the standard repayment plan. For example, one approach to determining
the reduced payment amount in this circumstance would be to require the
borrower to pay the scheduled monthly payment amount the borrower would
pay under the repayment plan the borrower seeks to pay under after
leaving the standard repayment plan. If the borrower is eligible for
and wants to enter the extended repayment plan, the reduced-payment
forbearance amount could be set at the amount the borrower would
otherwise be required to pay under the extended repayment plan.
With regard to the commenters' request for clarification that the
reduced-payment forbearance period need not be longer than one month,
we agree that the forbearance period can be limited to the time
associated with the one required monthly payment under the standard
repayment plan. Finally, because the forbearance is granted while the
borrower is repaying under the standard repayment plan, and not when
the borrower is transferring to the standard repayment plan, there is
no basis under the for not capitalizing any unpaid accrued interest
related to the forbearance period.
Changes: None.
[[Page 66112]]
Income-Based and Income-Contingent Repayment Plans: Other Issues
Treatment of Married Borrowers
Comments: Several commenters requested that the Department remove
the so-called ``marriage penalty'' associated with the IBR plan.
Specifically, the commenters objected to the requirement that borrowers
who are married and who file a joint Federal income tax returns must
include the income of both the borrower and the borrower's spouse for
use in determining eligibility for IBR and calculating the scheduled
monthly payment amount under the plan regardless of whether the spouse
has loans eligible under the plan or requests to pay under the plan.
Many commenters believed that the spouse's income should not be
considered because the spouse has no legal responsibility for repayment
of the borrower's debt. Many commenters also stated that married
borrowers would need to decide whether to file their Federal income tax
returns separately and forego the various benefits in the Internal
Revenue Code associated with filing their Federal income tax returns
jointly with their spouse, or to file their Federal income tax returns
jointly with the prospect that this could result in a higher calculated
monthly payment amount under the plan or making them ineligible for
IBR.
Discussion: The treatment of married borrowers under IBR is
specified in section 493C(a)(3)(B)(i) of the HEA, which states that the
borrower's and the borrower's spouse's AGI is used when determining a
PFH for borrowers who are married and file a joint Federal income tax
return. In addition, section 493C(d) of the HEA specifies that only the
borrower's AGI and eligible Federal student loan debt are used if the
borrower is married, but files a separate Federal income tax return.
Changes: None.
Comments: Some commenters who are married and reside in States that
treat income and property acquired during the marriage as community
property strongly objected to the fact that they are required, as a
general matter, to pool all community income on their Federal income
tax return if they file their taxes jointly or to split all community
income equally between them if they file their taxes separately, thus
significantly affecting their eligibility for IBR and the calculated
scheduled monthly payment amount under the IBR plan in comparison with
other married borrowers residing in non-community property states.
Discussion: As described in the response to the previous comment on
married borrowers, the treatment of income of married borrowers when
determining IBR eligibility is specified in the HEA. The Department
acknowledges, however, that application of these requirements to
married borrowers who reside in community property states and who file
separately from their spouse results in a different outcome than for
similarly situated married borrowers residing in other states.
As an example, a married couple resides in a community property
state and has no dependents. The borrower earns $40,000 and the spouse
earns $60,000. They filed their income tax returns separately and have
no pre-tax deductions from pay, no other income, and no adjustments to
income when filing their Federal income tax returns. Only the borrower
has IBR-eligible Federal student loans, which total $50,000. Each
spouse would be considered to have an AGI of $50,000. The borrower is
eligible for the IBR plan, with a calculated monthly payment amount of
$341.31. If the same couple did not reside in a community property
state and filed separately, the borrower would have an AGI of $40,000
and the spouse an AGI of $60,000. Because the borrower's AGI would only
be $40,000, the borrower would be eligible for the IBR plan, but would
have a lower IBR scheduled monthly payment amount of $216.31.
The Department understands that married borrowers who file their
Federal income tax returns separately from their spouses and who reside
in community property states may be disadvantaged when determining IBR
eligibility when compared to similarly situated married borrowers in
non-community property states. However, Sec. Sec. 682.215(e)(1)(B) and
685.221(e)(1)(i)(B) and Sec. 685.209(a)(5)(i)(B) authorize the use of
alternative documentation of a borrower's income if the Secretary or
the FFEL loan holder believes the borrower's reported AGI does not
reasonably reflect the borrower's current income. Because the
Department believes that it is inequitable to treat married borrowers
who file their Federal income tax returns separately differently based
on where they reside, we encourage FFEL loan holders to use alternative
documentation of the borrower's income under these circumstances. The
Department will take the same approach with the loans it holds.
Changes: None.
Notices to Borrowers in Anticipation of Receiving Forgiveness Under the
IBR, ICR, and Pay As You Earn Repayment Plans (Sec. Sec. 682.215(g),
685.209(a)(6)(v)(A), 685.209(b)(3)(iii)(D), and 685.221(f)(5))
Comments: Several commenters requested that the Department clarify
that the notices required to be sent to borrowers who are approaching
the end of the maximum repayment period necessary for loan forgiveness
under the IBR, ICR, or Pay As You Earn repayment plans would be based
on the information available to the loan holder at the time that the
notice is generated and that later circumstances could affect the
information provided in the notice.
Discussion: The Department agrees that the notices that must be
provided to borrowers who are approaching loan forgiveness under the
IBR, ICR, and Pay As You Earn repayment plans can only be based on
information that is available to the loan holder at the time the notice
is sent to the borrower and that the timeline for forgiveness could
change based on borrower behavior after the notice is sent.
Changes: None.
IBR Plan Maximum Repayment Period
Comments: Some commenters requested that the Department reduce the
maximum period after which a borrower who has repaid under the IBR plan
may receive forgiveness of the borrower's remaining loan balance from
25 years to 10 years. A small number of other commenters suggested that
a borrower's remaining principal balance should be automatically
forgiven in IBR when the original principal balance of the loan has
been satisfied, regardless of the length of time the borrower has been
in repayment.
Discussion: The Department appreciates these comments and
understands that commenters want to reduce loan burden for borrowers
paying under IBR. However, the Department declines to adopt the
commenters' suggestions. Although the Department will continue to
examine this issue, we believe the current HEA standard of 25 years of
repayment for current IBR and ICR borrowers, and 20 years of repayment
for new IBR borrowers on or after July 1, 2014, reflect the Congress'
view of an appropriate repayment period prior to a borrower's receipt
of loan forgiveness.
Changes: None.
Repayment of FFEL Program Loans Under the Income-Based Repayment Plan
(Sec. 682.215(b)(3))
Comments: Several commenters servicing commercially-held FFEL
[[Page 66113]]
program loans asked the Department to clarify how the change to Sec.
682.215(b)(3) of the FFEL regulations, which will require FFEL
borrowers who choose the IBR plan to repay all of their loans under the
IBR plan unless some of the borrower's loans are not eligible for the
plan, would apply to borrowers already repaying under the IBR plan. The
commenters noted that many FFEL borrowers had excluded IBR-eligible
loans when they entered the IBR plan, as permitted by the current FFEL
regulations. These commenters recommended that we continue to recognize
borrower choices made prior to the effective date of the change. The
commenters noted that not recognizing prior borrower choices would
require revisions to previously agreed-upon repayment plans without
borrower consent or request, and could cause borrower confusion,
concern, and possible defaults. The commenters urged the Department to
apply the change to borrowers who enter the IBR plan on or after July
1, 2013.
Discussion: We agree that a borrower's choice made prior to the
effective date of the regulatory change should continue to be
recognized and that the change should apply to borrowers who begin
repayment of a loan under the IBR plan on or after July 1, 2013.
Changes: Section 682.215(b)(3) has been revised to specify that the
requirement that borrowers entering the IBR plan repay all of their
loans under that plan, except for those that are ineligible for IBR,
applies to borrowers who elect the IBR plan on or after July 1, 2013.
Spousal Consent for Loan Holder Access to NSLDS Information (Sec.
682.215(e)(1)(iii)(A))
Comments: Several commenters requested that the proposed regulation
that requires a borrower applying for IBR to provide consent to a loan
holder's access to the borrower's spouse's information in the National
Student Loan Data System (NSLDS) be modified to clarify that the
borrower's spouse, not the borrower, must authorize such access. Other
commenters recommended that a comparable provision be added to the IBR
and ICR regulations in the Direct Loan program.
Discussion: We agree with the commenters that the spouse, not the
borrower, must authorize a loan holder's access to NSLDS information on
the spouse's loans in cases where the lender does not hold one of the
spouse's loans and would otherwise not have authority to access the
information. A comparable provision is not required in the Direct Loan
program regulations because the Secretary has access to all borrower
data in NSLDS.
Changes: Section 682.215(e)(1)(iii)(A) has been revised to provide
that the borrower must ensure that the borrower's spouse has provided
the necessary consent for the loan holder to access NSLDS information
on the spouse's eligible loans to determine the borrower's eligibility
for IBR.
Executive Order 12866
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 regulatory action will have an annual effect on the economy of
more than $100 million because the availability of the Pay As You Earn
repayment plan is estimated to transfer from the Federal government to
students in reduced principal and interest payments over the 2012 to
2021 loan cohorts approximately $10.6 billion and $10.2 billion on a
cash basis at 3 percent and 7 percent discount rates, respectively. As
discussed in the Net Budget Impacts section, this is expected to have a
net budget impact of approximately $2.1 billion over the 2012 to 2021
loan cohorts. Therefore, this final 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 final 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 final regulations are consistent with the
principles in Executive Order 13563.
We also have determined that this regulatory action will not unduly
[[Page 66114]]
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.
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 final regulations,
the Department enhances the income-driven repayment options available
to borrowers so borrowers can repay their loans, student loan debt will
be manageable, and students will continue to pursue postsecondary
education that makes sense for them. In addition, the Department will
improve the TPD 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 plan.
Student loan indebtedness and 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 the IBR
student loan payment cap to 10 percent of the borrower's discretionary
income and to provide loan forgiveness after 20 years of qualifying
payments for new borrowers in 2014.
Concerned about the current and future students with student loans,
President Obama proposed the Pay As You Earn repayment plan initiative.
This proposal revises 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 cap and
the shorter loan forgiveness period in the fall of 2012 instead of
waiting until 2014 for the statutory changes to IBR.
To achieve the goals of the President's Pay As You Earn initiative
and provide the maximum benefit to borrowers, the Secretary is revising
the ICR repayment plan while implementing the statutory IBR changes.
The revisions 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. Some commenters disagreed with the
inclusion of this moral hazard statement, noting that the aspect of
more generous income-based repayment plans causing increased borrowing
has not been established. The Department has not found any definitive
studies on the matter but since some analysts, academics, and others
have suggested the possibility of this inducement effect, we wanted to
address it to ensure comprehensive coverage of this issue.
Table 2 summarizes the differences in eligibility between the
existing and final IBR and ICR programs.
Table 2--Summary of Existing and Final IBR and ICR Plans
----------------------------------------------------------------------------------------------------------------
Final IBR (with Final Pay as You
Current IBR 07/01/2014 Current ICR Earn repayment
statutory changes) (proposed ICR-B) plan
----------------------------------------------------------------------------------------------------------------
Loan Program and Eligible Direct Direct Direct Direct
Borrowers. Loan program. Loan program only. Loan program only Loan program
FFEL Only new (FEEL Borrowers only.
program. borrowers as of who consolidate Only new
July 1, 2014:. into the Direct borrowers in 2008
[cir] Must have no Loan Program are who receive a
outstanding considered Direct Direct Loan
Direct Loan or Loan borrowers disbursement in
FFEL balance as and therefore 2012 or later:
of July 1, 2014 qualify). [cir] Must have no
or on the date a outstanding
new Direct Loan Direct Loan or
is received after FFEL balance as
July 1, 2014. of 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 new
borrowers in 2008
may qualify
through
consolidation
into the Direct
Loan program.
[[Page 66115]]
Graduate/Professional PLUS Loans Yes............... Yes............... Yes............... Yes.
eligible?
Parent PLUS Loans eligible? No................ No................ No................ No.
Consolidation Loans that repaid No................ No................ Yes............... No.
Parent PLUS Loans eligible?
Partial Financial Hardship Yes............... Yes............... No................ Yes.
Required?
Partial Financial Hardship 10-year standard 10-year standard N/A............... 10-year standard
Definition. payment amount on payment amount on payment amount on
eligible loans eligible loans eligible loans
(annual amount (annual amount (annual amount
owed) exceeds 15% owed) exceeds 10% owed) exceeds 10%
of difference of difference of difference
between AGI and between AGI and between AGI and
150% of poverty 150% of poverty 150% of poverty
line amount. line amount. line amount.
Forgiveness Period.............. 25 years of 20 years of 25 years of 20 years of
qualifying qualifying qualifying qualifying
payments/months payments/months payments/months payments/months
of economic of economic of economic of economic
hardship hardship hardship hardship
deferment. deferment. deferment. deferment.
Estimated Borrowers Eligible for 1.53.............. 1.03.............. 0.39.............. 1.67.
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 above those already eligible for existing programs. 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
TPD 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 described the application process and monitoring period
requirements as burdensome. The revisions will address these problems
by requiring borrowers to submit applications for disability discharges
directly to the Secretary, rather than to individual lenders; ensuring
that borrowers whose applications for a discharge are rejected receive
a more thorough explanation of the reasons for the rejection and
adequate information about their options; permitting a TPD discharge
based on a borrower's SSA notice of award for SSDI or SSI benefits
indicating that the borrower's eligibility for disability benefits will
be reviewed on a five- to seven-year schedule, which classifies the
borrower as permanently impaired--medical improvement not expected.
Borrowers will still be subject to the three-year discharge review that
is currently in place; and, simplifying the income verification process
during the three-year monitoring period. The final regulations also
eliminate the necessity for FFEL lenders and guaranty agencies to
evaluate disability discharge applications and ensure that the
disability discharge application process is also expedited for
veterans.
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 increase in college costs, the resulting increased
need for student loans, and the potential difficulty in repaying them.
The Secretary's goal in regulating is to provide borrowers with maximum
repayment options to ensure that borrowers are able to repay their debt
and to improve the process for considering applications for disability
discharges on Federal student loans.
As noted in the NPRM there has been a steep increase in the cost of
tuition in America. 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 140% between 1980 and 2010 when
controlled for inflation.\1\ 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. The average
price of tuition and required fees at graduate and professional schools
has doubled since 1988, even when adjusted for inflation.\3\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
As discussed in detail in the preamble to the NPRM, the combination
of increased enrollment and college costs has contributed to a
significant increase of student loan debt in America. Enrollments have
grown as more students are enrolling in college each
[[Page 66116]]
year with hopes of building a career or changing job fields. This has
led to a growth in outstanding debt as students are increasingly
relying 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. College graduates on average fare better economically than their
high school educated counterparts as discussed in detail in the Need
For Regulatory Action Section of the NPRM. According to the Bureau of
Labor Statistics, even those individuals who attended college but never
received a degree have higher weekly earnings, on average, than those
with only a high-school diploma. For the Nation, higher levels of
educational attainment increase economic productivity and raise gross
domestic product, among many other benefits.
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.\6\ 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.\7\ For
these graduates and in particular, for borrowers who do not complete a
degree, repaying their student loans can be especially daunting.
---------------------------------------------------------------------------
\6\ 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.
\7\ 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 revised ICR and IBR plans will provide borrowers with improved
income-related payment management options. They will also encourage
borrowers to honor their debt commitments by offering loan forgiveness
after a significant period of repayment in an income related payment
plan.
In addition to implementing statutory changes in the IBR plan and
revising the ICR plan, the final regulations will 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. Currently, borrowers who have
suffered a TPD 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
TPD. Also, the current reporting requirements during the monitoring
period have proved to be burdensome on borrowers with disabilities and
many who may meet all other eligibility requirements are having their
loans reinstated due to their failure to meet the current reporting
requirements.
The Secretary is revising the regulations governing disability
discharges in the different title IV student loan programs to
standardize the process. Under the final regulations, all discharge
applications will 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 will ensure consistency in the administration of
the disability discharge process. A more detailed analysis of these
changes is provided in the Significant Final 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 final 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 Pay As You Earn repayment plan will 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 will be consistent with
the statutory changes to IBR that become effective in 2014. The Pay As
You Earn repayment plan will be available to eligible borrowers in the
fall of 2012. A detailed breakdown of the qualifications needed for
participation in either plan is provided earlier in Table 2.
Accurately predicting or forecasting transfers or costs from the
ICR changes is difficult because these costs depend heavily on borrower
trends and participation. Traditionally, there has been low
participation in ICR, and many participants only participated because
they wanted to consolidate defaulted loans. The Pay As You Earn
repayment plan may see significant enrollment as a result of the
publicity it has received as part of the President's student loan
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 demonstrate a PFH. There was an in-depth analysis of how first
year payments under the Pay As You Earn repayment plan (referred to as
ICR-A in the NPRM) would compare to first year payments under ICR
(referred to as ICR-B in the NPRM), standard, and extended payment
plans in the NPRM; interested parties can refer to that document for
more information.
The following chart compares first year payments under the Pay As
You Earn repayment plan and ICR for borrowers based on family size and
[[Page 66117]]
income. ICR payments are calculated using the lesser amount of the
amount borrowers would pay if 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 (referred to as ICR-B
in the NPRM) on the Federal Student Aid Web site at (http://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp). Pay As You Earn repayments 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 (the Pay
As You Earn repayment plan requires PFH for initial qualification so
first-year calculations will assume PFH).
Sample First-Year Monthly Repayment Amounts for a Borrower With $26,000 in Student Loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
Family size
Income ------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
$15,000.................................... ICR.......................... $64 $0 $0 $0 $0 $0
PAYE......................... 0 0 0 0 0
20,000..................................... ICR.......................... 147 81 15 0 0 0
PAYE......................... 27 0 0 0 0
25,000..................................... ICR.......................... 184 165 99 33 0 0
PAYE......................... 69 19 0 0 0
30,000..................................... ICR.......................... 204 204 182 116 50 0
PAYE......................... 110 61 11 0 0 0
35,000..................................... ICR.......................... 221 221 221 199 133 67
PAYE......................... 152 103 53 4 0 0
40,000..................................... ICR.......................... 235 235 235 235 217 151
PAYE......................... 194 144 95 45 0 0
45,000..................................... ICR.......................... 249 249 249 249 249 234
PAYE......................... 235 186 136 87 37 0
50,000..................................... ICR.......................... 264 264 264 264 264 264
PAYE......................... 277 228 178 129 79 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sample repayment amounts are based on an interest rate of 6.80%.
The Pay As You Earn repayment plan offers loan forgiveness after 20
years of payments compared to 25 years under ICR. Consequently,
eligible borrowers may have as much as five fewer years of payments
under the Pay As You Earn repayment plan. The effects of this change
will 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 the Pay As You Earn repayment plan and ICR. The
job struggles of new graduates have been well documented. Those
borrowers who enter into lower paying jobs or struggle to find
employment may benefit from participating in the Pay As You Earn
repayment plan. The average single borrower entering repayment with a
$30,000 salary and 6.8 percent interest rate could qualify for the Pay
As You Earn repayment plan with approximately $10,000 in debt.
Leaving ICR open to all Direct Loan borrowers ensures that the
majority of borrowers will 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 the Pay As You Earn repayment plan. This will 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)
All of the examples used above are only estimates. While these
examples are able to paint a relatively clear picture of how the final
regulations will 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 payments and payments over time will vary based
on borrower behavior. ICR borrowers may see their payments fluctuate
because of marriage, pay raises, or children. As in IBR, under the Pay
As You Earn repayment plan 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 will have more disposable income and possibly have a net
positive impact on the economy. However, some borrowers will pay more
money overall in order to have smaller payments up front.
There will also be other small costs and transfers associated with
the Pay As You Earn repayment plan. For example, those borrowers under
PFH with calculated payments less than $5 will not have to pay at all,
while there is a $5 minimum payment under ICR.
Borrowers with a PFH would have $10 monthly payments if their
calculated payments are greater than $5 but less than $10. There is no
PFH determination under ICR.
Interest will be capped at 10 percent of the original principal
balance at the time the borrower enters the Pay As You Earn repayment
plan compared to ICR, 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 the Pay As You Earn repayment plan. Current
ICR uses joint AGI and eligible loan debt regardless of filing status.
Income-Based Repayment
The statutory changes to the Income-Based Repayment (IBR) Plan
reduce the discretionary income payment cap to 10 percent and the loan
forgiveness period to 20 years for new borrowers effective July 1,
2014. IBR participants may have
[[Page 66118]]
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 will heavily
depend on borrower trends. 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 IBR for another one of the repayment
plans, particularly if they no longer demonstrate PFH.
The chart below shows how first year payments will differ after 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.\8\ The IBR plan will use 10 percent of the difference between
150 percent of the applicable HHS poverty guidelines and the borrower's
AGI, divided by 12.
---------------------------------------------------------------------------
\8\ Repayment Plans and Calculators, Government, n.d., http://studentaid.ed.gov/PORTALSWebApp/students/english/OtherFormsOfRepay.jsp.
Sample First-Year Monthly Repayment Amounts for a Borrower With $26,000 in Student Loans
--------------------------------------------------------------------------------------------------------------------------------------------------------
Family Size
Income -----------------------------------------------------------------------------
1 2 3 4 5 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
$15,000.................................... IBR.......................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
IBR-Revised.................. 0 0 0 0 0 0
20,000..................................... IBR.......................... 41 0 0 0 0 0
IBR-Revised.................. 27 0 0 0 0 0
25,000..................................... IBR.......................... 103 29 0 0 0 0
IBR-Revised.................. 69 19 0 0 0 0
30,000..................................... IBR.......................... 166 91 17 0 0 0
IBR-Revised.................. 110 61 11 0 0 0
35,000..................................... IBR.......................... 228 154 80 5 0 0
IBR-Revised.................. 152 103 53 4 0 0
40,000..................................... IBR.......................... 291 216 142 68 0 0
IBR-Revised.................. 194 144 95 45 0 0
45,000..................................... IBR.......................... No-PFH 279 205 130 56 0
IBR-Revised.................. 235 186 136 87 37 0
50,000..................................... IBR.......................... No PFH No PFH 267 193 119 44
IBR-Revised.................. 277 228 178 129 79 30
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sample repayment amounts are based on an interest rate of 6.80%.
Overall, the IBR revisions will 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
will allow borrowers to have more disposable income and will likely
have a net positive impact on the economy. Some borrowers may pay more
money overall however, to have lower payments up front.
A detailed analysis of how borrowers would fare under the revised
IBR plan was included in the Regulatory Impact Analysis section of the
NPRM. Please note that all examples used here and in the NPRM are
calculated with constant dollars only. Some commenters voiced concerns
over how inflation and the annual update of the HHS Poverty Guidelines
would affect payment amounts over time. We acknowledge that inflation
could affect actual payment amounts over time but any attempt to
calculate this would be subjective. Borrowers who participate in the
income driven plans will be given information about their options
annually during the evaluation process. Any borrower, who wishes to
learn more about the HHS Poverty Guidelines or track their annual
updates, can visit the HHS Poverty Guidelines Web site at http://aspe.hhs.gov/poverty/index.shtml.
As mentioned earlier, borrowers who no longer demonstrate PFH may
very well opt to leave IBR for another payment plan. The final
regulations will 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 streamlined TPD discharge process
will provide many benefits to borrowers.
The final regulations will--
Simplify the process for the borrower;
Permit a TPD discharge based on a borrower's SSA
disability notice of award for SSDI or SSI benefits indicating that the
borrower's eligibility for disability benefits will be reviewed on a
five- to seven-year schedule, which classifies the borrower as
permanently impaired--medical improvement not expected. Borrowers will
still be subject to the three-year discharge review that is currently
in place.
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 TPD 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 borrowers whose discharge applications are denied
have adequate information about the reasons for the denial and their
future options,
[[Page 66119]]
borrowers will 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 reinstated for their failure to
provide income information, but who may be otherwise eligible, the
Secretary will provide economic relief for many of the country's most
vulnerable citizens.
In 2011, approximately 78,000 borrowers applied for the TPD
discharge of 179,454 loans across the Direct, FFEL, and Perkins loan
programs. The revised TPD process will offer many benefits to borrowers
with disabilities and possibly reduce the number of reinstatements. The
increase 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 through the elimination of
their debt. Also, by allowing direct application to the Secretary, all
applications will be reviewed according to the same standard. This will
drastically reduce the chance of inconsistencies in the review process.
The elimination of multiple medical evaluations will relieve
administrative burden on title IV providers and reduce the application
review time.
Also, the Department believes that veterans will benefit because
the changes to the non-veterans TPD discharge will also apply to the
process for disability discharges based on VA documentation.
Like those applying with documentation from the VA, borrowers using
the SSA notice of award for SSDI or SSI benefits that indicates a
continuing medical review period of 5-to-7 years as the basis for a TPD
discharge will benefit from the process changes such as the single
application point for all loans and enhanced uniformity in
communications.
Borrowers will benefit from the elimination of the requirement that
a physician provide a letter requesting more time for the borrower to
submit a TPD discharge application.
As noted, while the Department does believe that the final
regulations will ultimately benefit truly eligible borrowers, it cannot
accurately predict applicant behavior as a result.
Regulatory Alternatives Considered and Analysis of Significant Comments
Alternatives to the regulations were considered as part of the
rulemaking process. These alternatives were reviewed in detail in the
preamble to the proposed regulations under both the Regulatory Impact
Analysis and the Reasons sections accompanying the discussion of each
proposed regulatory provision. To the extent that they were addressed
in response to comments received on the proposed regulations,
alternatives are also considered elsewhere in the preamble to these
final regulations under the Discussion sections related to each
provision. We did not receive any comments related to the Regulatory
Impact Analysis discussion of these alternatives.
As discussed above in the Analysis of Comments and Changes section,
the final regulations reflect minor revisions in response to public
comments. None of these changes result in revisions to cost estimates
prepared for and discussed in the Regulatory Impact Analysis of the
proposed regulations.
One alternative considered in response to public comments was
changing the date for defining a ``new borrower'' and a ``new loan''
for eligibility for Pay As You Earn repayment plan from the Federal
fiscal year basis with an October 1 start to an academic year or
calendar year basis to be more consistent with other dates governing
the loan programs and to prevent confusion for students. As discussed
in the NPRM, a cut-off point for eligibility for Pay As You Earn
repayment plans is required and from the budgeting perspective, the
Federal fiscal year is the point for determining loan cohorts. Student
confusion should be limited by the Web site that will inform them of
the repayment plans for which they may be eligible and will make the
dates clear. The Department estimated that an additional 90,000
borrowers would be eligible for Pay As You Earn repayment plans if the
date for defining a new borrower was changed from October 1, 2007, to
July 1, 2007, and the estimated cost for expanding Pay As You Earn
repayment plans to these borrowers would be approximately $125 million
over the 2012 to 2021 loan cohorts. While the suggested change is a
reasonable alternative, the Department believes the use of the Federal
fiscal year is appropriate and balances the offering of an improved ICR
option to eligible borrowers and the resources available to support the
program.
Another alternative considered in response to proposals in public
comments was changing the capitalization of accrued interest for
students who are removed from IBR or Pay As You Earn repayment plan
because they fail to submit their annual paperwork on time. Under
current regulations, students who do not submit the required income and
family size paperwork on time so that the borrower's PFH can be
determined by the borrower's annual deadline, are treated as having
elected to end paying under IBR and are subject to the capitalization
of all accrued interest. The proposed and final regulations provide a
10-day grace period from the paperwork submission deadline and provide
for enhanced borrower notifications about the annual paperwork
requirements. Many commenters argued that capitalization of all accrued
interest is too great a penalty for late submission of annual paperwork
and proposed several options to reduce the effect on borrowers. The
alternatives the commenters proposed included: limiting capitalization
to the interest accrued on the loan between day 11 after the paperwork
submission deadline to the day the borrower's new payment is
calculated; applying a cap on overall capitalization in IBR;
authorizing lenders to limit interest capitalization for exceptional
circumstances; requiring lenders to grant forbearance for overdue
payments for all late borrowers; not capitalizing accrued interest
associated with past due payments for this period; and recognizing
payments that continue to be made for IBR/ICR and PSLF forgiveness.
While the Department acknowledges that capitalization of accrued
interest is a significant consequence for failing to submit the
required annual paperwork within the timeframe allowed, the proposed
alternatives do not work because of operational implications that are
discussed in the Analysis of Comments and Changes section of the
preamble related to this subject. The improved notifications and grace
period should reduce the number of borrowers affected by the
capitalization provision for the reason of late paperwork submission.
[[Page 66120]]
Additionally, as discussed in the Analysis of Comments and Changes
in the preamble, the Department will accept an SSA disability notice of
award for SSDI or SSI benefits indicating that the borrower's next
scheduled disability review will be within five to seven years, which
classifies the borrower as permanently impaired with medical
improvement not expected, as proof of the borrower's TPD. The
Department believes this SSA standard for permanent impairment overlaps
with the Department's existing standard and that this change will
reduce the application burden on borrowers who have already gone
through the SSA disability application process. This could also reduce
the administrative burden on the Department in processing TPD
applications.
Net Budget Impacts
The final 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. As discussed in the Regulatory
Alternatives Considered and Analysis of Significant Comments, some
commenters suggested changes to the dates for defining eligibility for
the new ICR-A plan, amending the capitalization of accrued interest for
borrowers who submit their annual income and family size paperwork
late, and using SSA determinations as proof for a TPD discharge. None
of the changes the Department made in response to those proposals had
an effect on the Net Budget Impact section included in the NPRM.
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. 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 two-year), two-year
institutions, freshmen/sophomores at four-year institutions, juniors/
seniors at four-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
As described in the NPRM, the budget impact in this package of
regulations is related to the changes in the ICR plan. These final
regulations, based on the President's Pay As You Earn initiative,
create the Pay As You Earn repayment plan, a new income-contingent
option that mirrors the changes made to the IBR plan by SAFRA. The Pay
As You Earn repayment plan allows new borrowers in FY 2008 or later
with a new loan in FY 2012 or later who demonstrate a PFH to use an
income contingent repayment plan based on 10 percent of their
discretionary income and with a 20-year forgiveness period. The terms
and conditions of the Pay As You Earn repayment plan are based on IBR,
including the treatment of married borrowers and the timing of interest
capitalization, except the Pay As You Earn repayment plan maintains the
cap on interest capitalization from existing ICR and does not require
borrowers leaving the plan to make a payment under standard repayment.
The existing ICR plan would remain available for those borrowers who do
not qualify for or choose the Pay As You Earn or IBR repayment plans
because of timing, not demonstrating PFH, or individual preference. The
availability of the Pay As You Earn repayment plan, with its reduced
income percentage and shorter forgiveness period, is estimated to cost
$2.1 billion over the 2012 to 2021 loan cohorts.
In evaluating the changes to the ICR and IBR programs, the
Department assumes that, if possible, income-contingent borrowers would
elect the Pay As You Earn repayment 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 the improved IBR program will choose the Pay As
You Earn repayment plan. The availability of the Pay As You Earn
repayment plan results in an estimated average savings of $4,250 per
borrower. Assuming all those in the Pay As You Earn repayment plan
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/disability/bankruptcy discharges). The actual
number of borrowers receiving forgiveness will be significantly less
than would be obtained by multiplying the 1.7 million borrowers
estimated to repay under 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 will
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 in the NPRM, 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 Pay As You Earn repayment plan
(referred to as
[[Page 66121]]
the ICR-A repayment plan in the NPRM) 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 2018 2019 2020 2021 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Budget Authority.............................................. 134 199 208 255 235 239 249 224 177 2,173
Outlays....................................................... 114 191 208 253 235 234 254 218 178 2,132
--------------------------------------------------------------------------------------------------------------------------------------------------------
Income-Based Repayment
The budgetary impact of the changes to the IBR program that
implement the statutory changes in SAFRA are incorporated into the
budget baseline. 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 final 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
As detailed in the NPRM, the final regulations will establish a
single application process through the Department for borrowers seeking
a TPD discharge of their Federal loans, specify requirements for more
detailed information in TPD discharge denial letters, and modify the
process and documentation requirements for the post-discharge
monitoring period. Additionally, as described in the Analysis of
Comments and Changes section of the preamble, in response to comments
about aligning the Department's determinations of disability with those
of other agencies and allowing borrowers with a disability
determination from the SSA to receive a TPD discharge, the Department
will accept an SSA disability notice of award for SSDI or SSI benefits
indicating that the borrower's next scheduled disability review will be
within five to seven years, which classifies the borrower as
permanently impaired with medical improvement not expected, as proof of
the borrower's TPD. The Department believes this will reduce the
application burden on borrowers who have already gone through the SSA
process. Because the final regulations are not expected to expand the
pool of borrowers potentially eligible for discharge, there is no
expected effect on the Federal student loan budget. The Department will
continue to closely monitor the TPD discharge process and any
significant changes in the frequency or magnitude of disability
discharges will be reflected in future budget estimates.
In the NPRM, the Department requested comments about the estimated
net budget impacts described above. No such comments were received.
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 final 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 final
regulations. Expenditures are classified as transfers from the Federal
Government to borrowers in the revised ICR repayment plan. The
transfers presented below represent the annualized estimated reductions
in principal and interest payments from borrowers in cohorts 2012 to
2021 in the Pay As You Earn plan on a cash basis and not the subsidy
cost presented in the Net Budget Impacts section of the preamble. The
nominal dollars of principal and interest payment reductions were
converted to constant dollars using an estimated GDP inflator of 1.9
percent.
Accounting Statement Classification of Estimated Expenditures at 3
Percent and 7 Percent Discount Rates
[In millions]
------------------------------------------------------------------------
Category Costs
------------------------------------------------------------------------
Costs of compliance with paperwork requirements....... $1.34 (7%).
1.35 (3%).
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized reduced payments to Federal Government from $1,357 (7%)
borrowers in the Pay As You Earn repayment plan...... 1,210 (3%)
------------------------------------------------------------------------
Regulatory Flexibility Act Certification
The Secretary certifies that these final regulations will not have
a significant economic impact on a substantial number of small
entities. These final 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 final
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,
[[Page 66122]]
or as small entities if they are institutions controlled by
governmental entities with populations below 50,000. In the NPRM, the
Secretary invited comments from small entities as to whether they
believe the proposed changes would have a significant economic impact
on them and requested evidence to support that belief. No comments were
received.
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, 682.221, 682.402, 685.213, and 685.215
contain information collection requirements. Under the PRA, the
Department submitted a copy of these sections to OMB for its review at
the time the Department published the notice of proposed rulemaking.
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.
These final regulations display the control numbers assigned by OMB
to any information collection requirements adopted in the final
regulations.
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))
These final regulations 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 TPD discharges. In the Direct Loan program, borrowers
will continue to apply directly to the Department for TPD discharges,
as they do under the current Direct Loan program regulations.
Under the final TPD discharge process, if a Perkins Loan program
school or a FFEL lender is contacted by a borrower intending to apply
for a TPD 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 TPD application for each holder. Under the streamlined
process in these final regulations, a borrower would submit one TPD
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 TPD applications
was as follows:
----------------------------------------------------------------------------------------------------------------
Number of Number of Number of
Year Program borrowers Loans loans/borrower
----------------------------------------------------------------------------------------------------------------
2011.................................. Direct Loans............ 29,777 65,823 ..............
2011.................................. FFEL Loans.............. 48,518 114,040 ..............
2011.................................. Perkins Loans........... 95 95 ..............
-----------------------------------------------
78,390 179,958 2.3
----------------------------------------------------------------------------------------------------------------
Borrower Burden: 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. These regulations provide
that a borrower with a single loan holder must still provide the
Secretary with a single TPD discharge application for all the affected
title IV, HEA program loans held by that holder. However, borrowers
with multiple loan holders would no longer have to complete and submit
TPD 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 TPD
discharges has increased to 78,390 borrowers on 179,958 title IV, HEA
loans. Using the 2011 number of loan applications and the current
process requiring borrowers to file applications separately with each
lender, the burden would have expanded to 89,979 hours (179,958 times
0.5 hours equal 89,979 hours). That would have created an increase in
burden of 74,979 hours (89,979 burden hours in 2011 minus 15,000 hours
under the current collection).
However, because the final regulations do not require borrowers to
file separate applications for each lender, the increase in burden is
significantly less. We estimate that half of the 48,313 increase in the
number of borrowers (24,157 borrowers) have all of their 24,157 title
IV, HEA loans held by single holders. Therefore, the burden associated
with the group of borrowers with single holders is an increase of
12,079 burden hours (24,157 times 0.5 hours per application).
We estimate that the other half of the 48,313 increase in the
number of borrowers (24,156 borrowers) have multiple holders for their
125,801 title IV, HEA loans. We obtained this number of loans by taking
the 179,958 affected loans in 2011 and subtracting the 30,000 loans
already accounted for in the current ICR. We then subtracted the 24,157
loans held by 24,157 borrowers that hold only a single loan, which
leaves the remaining 125,801 loans held by multiple holders. Under the
final TPD application process the remaining 24,156 borrowers with loans
held by multiple holders would only need to submit a single TPD
application. Therefore, the burden associated with the group of
borrowers with multiple holders is an increase of 12,078 burden hours
(24,156 times 0.5 hours per application). The total amount of burden
for these two groups of
[[Page 66123]]
borrowers is an increase of 24,157 burden hours under OMB Control
Number 1845-0065.
Loan Holder Burden: Under the final regulations, lenders and
guaranty agencies will no longer perform a number of functions in the
TPD discharge process. Lenders and guaranty agencies will no longer:
Distribute the TPD discharge application, receive the completed and
submitted TPD applications, review the completed and submitted TPD
application forms, evaluate the TPD application forms, request
additional information necessary to complete or resolve open issues
regarding the TPD applications, review and evaluate supplemental
information provided by the applicants, and make a determination
whether the application supports the conclusion that the borrower is
totally and permanently disabled.
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 TPD
discharge has increased from an average of 62 to 95 borrowers. Thus,
absent these proposed regulations, the burden hours would increase to
47.5 hours.
Instead, the final regulations in Sec. Sec. 674.61(b)(2) and
682.402(c)(2) require institutions that participate in the Perkins Loan
program and FFEL program loan holders to provide borrowers seeking a
TPD 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. 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 (31 hours in the currently approved
collection minus 3 hours) hours under OMB Control Number 1845-0019.
Section 682.402 does not contain any burden attributed to the
regulation for the TPD 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 TPD 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 previous regulations, we estimated that the holder
providing the TPD 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 on holders of FFEL
loans not held by the Department.
However, under the final regulation in Sec. 682.402(c)(2), the
holder only has to provide information to the borrower telling the
borrower how to notify the Secretary. Under these regulations, we
estimate that providing the required information to the borrower so the
borrower can notify the Secretary would take 0.03 hours (2 minutes) per
borrower request. At this rate, the total burden is 913 hours (30,440
borrowers times 0.03 hours). This would be a reduction of 14,307 burden
hours for lenders (15,220 hours less 913 hours). However, we note that
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, these regulations 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 TPD
discharges. In the Direct Loan program, borrowers continue to apply
directly to the Department for TPD discharges.
Under 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 TPD discharge application certified by a physician to the
Department within 90 days of the date of the physician's certification.
After receiving the TPD 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.
These changes do 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 TPD discharge
application process is transferred to the Department, but since the
burden associated with receiving the TPD application with the
physician's certification, revaluating the application for
completeness, and requesting additional missing information was not
estimated under the prior regulations, no burden reduction can be
established as a result of the changes in the final regulations.
Changes to the TPD discharge application form must be made to
implement the new regulations. The TPD discharge application form
currently in use expires on February 28, 2015. These final regulations
are effective July 1, 2013. A revised TPD discharge application form
associated with OMB Control Number 1845-0065 will be submitted for OMB
review in late 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 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 TPD, 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
will require a certification from the borrower and will require the
borrower to submit documentation to support the certification. The
documentation may include income tax returns, documentation of
eligibility for Social Security disability benefits, or other
documentation that supports the borrower's certification.
These 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 PRA forms clearance process.
Collectively, the regulatory changes in Sec. Sec. 674.61 and
682.402 increase burden by 25,042 hours. The burden in OMB Control
Number 1845-0065 increases from 15,000 to 24,157. The burden in OMB
Control Number 1845-0019 decreases by 28 hours from 31 hours to 3
hours. The burden in OMB Control
[[Page 66124]]
Number 1845-0020 increases by 913 hours.
Income-Based Repayment Plan (Sec. Sec. 682.215(e)(2) and
685.221(e)(2)--Eligibility Documentation, Verification, and
Notifications)
Under Sec. 682.215(e)(2), a FFEL loan holder, after making a
determination that a borrower has a PFH 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 PFH, sends the borrower a written
notification. A portion of the required notifications is established
under OMB 1845-NEWA and other information and notifications are
included under OMB 1845-0102, the Income-Based/Income-Contingent
Repayment Plan Request form.
The required notifications under OMB 1845-NEWA include the
following information: The borrower's scheduled monthly payment amount,
the time period during which that monthly payment amount will apply
(annual payment period); 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 sends 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 Department's 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.
The following required information is provided to the borrower
through the Income-Based/Income-Contingent Repayment Plan Request form
(OMB 1845-0102). 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; and An
explanation of the consequences if the borrower does not annually
provide the required information.
Section 682.215(e) places further notification requirements on loan
holders for subsequent years which are outside the scope of this burden
analysis and require future burden analysis.
Loan Forgiveness Processing and Payment
Section 682.215(g) under the FFEL program, clarifies that 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.
These 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 explains that the borrower is approaching the date he or she is
expected to qualify for loan forgiveness, reminds the borrower that he
or she must continue to make scheduled monthly payments, and provides
general information on the current treatment of the forgiveness amount
for tax purposes, including instructions to contact the IRS for more
information.
The prior Sec. 682.215(g)(4) (redesignated as Sec. 682.215(g)(5)
under the final regulations) 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 the final
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 (in
approximately 2031), they are outside the scope of this burden
analysis.
Consistent with the discussions above, the following chart
describes the sections of these regulations involving information
collections, the information being collected, and 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 lender/guaranty agencies and institutions, using wage data
developed using BLS data, available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $593,248.66 as shown below. This cost was based on an
hourly rate of $24.61. The monetized cost of the additional burden on
students is $431,927.16 based on an hourly rate of $17.88.
[[Page 66125]]
Collection of Information
----------------------------------------------------------------------------------------------------------------
OMB Control Number and
Regulatory section Information collection estimated change in the Estimated costs
burden
----------------------------------------------------------------------------------------------------------------
674.61.................. This section requires Perkins borrowers OMB 1845-0065............ $431,927.16
to apply directly to the Department for A separate 60-day Federal -$689.08
TPD discharges. Under the final Register notice will be
regulations, institutions no longer published to solicit
distribute the Total and Permanent public comment on the
Disability Discharge application, form that would be used
receive the completed form, review and to collect this
evaluate the request, request information. The burden
supplemental information where would increase by 24,157
indicated, evaluate the supplemental hours.
application, and make a determination OMB 1845-0019............
whether the application supports the The burden would decrease
conclusion that the borrower is totally by 28 hours to 3 hours.
and permanently disabled. The burden
associated with the completion and
submission of the application form is
found in OMB 1845-0065. Instead, the
institution is required to provide the
borrower seeking a TPD discharge with
the information to notify the Secretary.
682.215................. This section requires FFEL loan holders, OMB 1845-NEWA............ $571,468.81
after making a determination that a This would be a new
borrower has a PFH to qualify for the collection. A separate
IBR plan, to send the borrower for the 60-day Federal Register
initial year or any subsequent year, notice will be published
written information to include the to solicit public
scheduled monthly payment amount, the comment on the form used
time period during which the monthly to collect the
payment will apply, and other information. The burden
information. would increase by 23,221
hours.
682.402................. This section requires FFEL loan holders OMB 1845-0020............ $ 22,468.93
to provide information to the borrower The burden would increase
so the borrower can notify the by 913 hours.
Secretary about their interest in
applying for a TPD 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.
Assessment of Educational Impact
In the NPRM we requested comments on whether the proposed
regulations would require transmission of information to that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have
determined that these final regulations do not 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: October 23, 2012.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
parts 674, 682, and 685 of title 34 of the Code of Federal Regulations
as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
0
1. The authority citation for part 674 continues to read as follows:
Authority: 20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise
noted.
0
2. Section 674.61 is amended by:
0
A. Revising paragraph (b).
0
B. Revising paragraph (c).
0
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 paragraph (b) of this section, 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
[[Page 66126]]
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 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) 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);
or
(B) A Social Security Administration (SSA) notice of award for
Social Security Disability Insurance (SSDI) or Supplemental Security
Income (SSI) benefits indicating that the borrower's next scheduled
disability review will be within five to seven years.
(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, if applicable.
(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 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 or the SSA notice of award for SSDI or SSI benefits
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--
(A) The physician certified the borrower's application; or
(B) The Secretary received the SSA notice of award for SSDI or SSI
benefits.
(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 or the date the Secretary received the SSA
notice of award for SSDI or SSI benefits 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 or the date the Secretary received the SSA notice of award
for SSDI or SSI benefits 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 physician's certification
or the SSA notice of award for SSDI or SSI benefits 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
[[Page 66127]]
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 provided to
the Secretary in connection with the prior application 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 or the date the Secretary received the
SSA notice of award for SSDI or SSI benefits 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
or before the date the Secretary received the SSA notice of award for
SSDI or SSI benefits and a disbursement of that loan or grant is made
during the period from the date of the physician's certification or the
date the Secretary received the SSA notice of award for SSDI or SSI
benefits 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 or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits. 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 or on or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits 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;
(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; or
(D) Receives a notice from the SSA indicating that the borrower is
no longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period indicated in the SSA
notice of award for SSDI or SSI benefits.
(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 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;
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment on a form approved by
the Secretary; and
(iv) Promptly notify the Secretary if the borrower receives a
notice from the SSA indicating that the borrower is no longer disabled
or that the borrower's continuing disability review will no longer be
the five- to seven-year period indicated in the SSA notice of award for
SSDI or SSI benefits.
(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.
[[Page 66128]]
(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 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 disability 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 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
0
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]
0
4. Section 682.209 is amended in paragraph (a)(6)(v)(C), by adding the
words ``through (e)(1)(iii)'' between the citation ``682.215(e)(1)(i)''
and the word ``within''.
0
5. Section 682.211 is amended in paragraph (f) by:
0
A. In paragraph (f)(15), removing the punctuation ``.'' at the end of
the paragraph and adding, in its place, the punctuation and word ``;
or''.
0
B. Adding a new paragraph (f)(16).
The addition reads as follows:
Sec. 682.211 Forbearance.
* * * * *
(f) * * *
(16) For the periods described in Sec. 682.215(e)(9) in regard to
the income-based repayment plan.
* * * * *
0
6. Section 682.215 is amended by:
0
A. In paragraph (b)(1)(i), adding the words ``the borrower's''
immediately after the words ``outstanding principal amount of''.
0
B. In paragraph (b)(1)(ii)(C), adding the words ``the borrower's''
immediately after the words ``outstanding principal amount of''.
0
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''.
0
D. Revising paragraph (b)(3).
0
E. In paragraph (b)(7), removing the words ``an income-based repayment
[[Page 66129]]
plan'' and adding, in their place, the words ``the income-based
repayment plan''.
0
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''.
0
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''.
0
H. Revising paragraph (d).
0
I. Revising paragraph (e).
0
J. Revising paragraph (f)(1)(i).
0
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 ``;''.
0
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''.
0
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,''.
0
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''.
0
O. Revising paragraph (f)(5).
0
P. Revising paragraph (g).
0
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 on or
after July 1, 2013, 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 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) Ensure that the borrower's spouse has provided consent for the
loan holder to obtain information about the spouse's eligible loans
from the National Student Loan Data System; 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
[[Page 66130]]
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, unless the loan holder
is able to determine the borrower's new monthly payment amount before
the end of the borrower's current annual payment period.
(8) 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--
(i) The loan holder must promptly determine the borrower's new
monthly payment amount.
(ii) 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.
(A) 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 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 paragraph (c)(1) of this section.
(B) 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.
(iii) The new annual payment period begins on the day after the end
of the most recent annual payment period.
(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)(iii)
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 six 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--
[[Page 66131]]
(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.)
* * * * *
0
7. Section 682.402 is amended by:
0
A. Revising paragraph (c).
0
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''.
0
C. In paragraph (g)(2)(i), removing the punctuation and words ``, or
the lender determines that the borrower is totally and permanently
disabled''.
0
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.
0
E. Adding a new paragraph (g)(2)(ii).
0
F. In paragraph (h)(1)(i)(A), adding the punctuation and word ``,
disability,'' after the word ``death''.
0
G. In paragraph (h)(1)(i)(B), removing the words and punctuation
``disability, closed school,'' and adding, in their place, the words
``closed school''.
0
H. Revising paragraph (h)(1)(v).
0
I. In paragraph (h)(3)(iii)(A), adding the punctuation and word ``,
disability,'' after the word ``death''.
0
J. In paragraph (h)(3)(iii)(B), removing the words and punctuation
``disability, closed school,'' and adding, in their place, the words
``closed school''.
0
K. Revising paragraph (k)(2)(i).
0
L. Revising paragraph (k)(2)(ii).
0
M. In paragraph (k)(2)(iii), adding the words ``by the Secretary''
after the words ``is determined''
0
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''.
0
O. Revising paragraph (r)(2).
0
P. Revising paragraph (r)(3).
The revisions and additions read as follows:
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 (c)(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 this paragraph (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 guarantees 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
[[Page 66132]]
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 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 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 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) 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); or
(B) An SSA notice of award for Social Security Disability Insurance
(SSDI) or Supplemental Security Income (SSI) benefits indicating that
the borrower's next scheduled disability review will be within five to
seven years.
(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, if applicable.
(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 or the SSA notice of award for SSDI or SSI benefits
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--
(A) As of the date the physician certified the borrower's
application; or
(B) As of the date the Secretary received the SSA notice of award
for SSDI or SSI benefits.
(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 borrower's loan discharge application
or the date the Secretary received the SSA notice of award for SSDI or
SSI benefits 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 or
received the SSA notice of award for SSDI or SSI benefits to the person
who made the payment.
(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 physician's certification
or SSA notice of award for SSDI or SSI benefits 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;
[[Page 66133]]
(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 provided to
the Secretary in connection with the prior application 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 or the date the Secretary received the
SSA notice of award for SSDI or SSI benefits 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
or before the date the Secretary received the SSA notice of award for
SSDI or SSI benefits and a disbursement of that loan or grant is made
during the period from the date of the physician's certification or the
Secretary's receipt of the SSA notice of award for SSDI or SSI benefits
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 or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits. 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 or the date the Secretary received the SSA notice
of award for SSDI or SSI benefits 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; or
(D) Receives a notice from the SSA indicating that the borrower is
no longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period indicated in the SSA
notice of award for SSDI or SSI benefits.
(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;
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment, on a form approved by
the Secretary; or
(iv) Promptly notify the Secretary if the borrower receives a
notice from the SSA indicating that the borrower is no longer disabled
or that the borrower's continuing disability review will no longer be
the five- to seven-year period indicated in the SSA notice of award for
SSDI or SSI benefits.
(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 paragraph (g)(1) of
this section and Sec. 682.406, 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 or after the date the Secretary received the SSA notice of
award for SSDI or SSI benefits as well as any 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
[[Page 66134]]
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 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 the 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 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 and Sec. 682.406, 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
[[Page 66135]]
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 application 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 paragraphs (c)(3)(iii) or (c)(9)(ix) of
this section.
* * * * *
(h) * * *
(1) * * *
(v) In the case of a disability claim based on a veteran's
discharge application processed in accordance with paragraph (c)(9) of
this section, 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 paragraph
(c)(9)(xi)(B) of this section.
* * * * *
(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 paragraph (c) of this section, 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
0
8. The authority citation for part 685 continues to read as follows:
Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
0
9. Section 685.200 is amended by revising paragraph (a)(1)(iv)(A)(3).
The revision reads 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.
* * * * *
0
10. Section 685.202 is amended by:
0
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)''.
0
B. Revising paragraph (b)(4).
The revision reads as follows:
Sec. 685.202 Charges for which Direct Loan Program 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.
* * * * *
0
11. Section 685.208 is amended by:
0
A. Revising paragraph (a)(1).
0
B. Revising paragraph (a)(2).
0
C. Revising paragraph (k).
The revisions read as follows:
Sec. 685.208 Repayment plans.
(a) * * *
(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;
[[Page 66136]]
(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 repayment 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 plans, 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 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.
* * * * *
0
12. Section 685.209 is revised to read as follows:
Sec. 685.209 Income-contingent repayment plans.
(a) Pay As You Earn repayment plan: The Pay As You Earn repayment
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 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
[[Page 66137]]
(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 Pay As You Earn repayment 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 Pay As You Earn repayment 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 Pay As You Earn repayment plan. (i) A borrower may
select the Pay As You Earn repayment 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 Pay As You Earn
repayment plan. Any period during which the Secretary has previously
not charged the borrower accrued interest on an eligible loan under the
income-based repayment plan counts toward the maximum three years of
subsidy a borrower is eligible to receive under the Pay As You Earn
repayment 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 Pay As You Earn
repayment 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 Pay As You Earn repayment 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 Pay As You Earn repayment 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 Pay As You Earn
repayment plan or no longer has a partial financial hardship.
(vi) The repayment period for a borrower under the Pay As You Earn
repayment plan may be greater than 10 years.
(3) Payment application and prepayment. (i) The Secretary applies
any payment made under the Pay As You Earn repayment 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 Pay As You Earn 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
[[Page 66138]]
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 Pay As You
Earn repayment 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 Pay As You
Earn repayment 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 Pay As You Earn 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 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 Pay As You Earn repayment 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 Pay As You Earn
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;
(C) An explanation of the consequences, as described in paragraphs
(a)(5)(i)(C) and (a)(5)(vii) 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
(a)(5)(ii)(D) of this section.
(iii) For each subsequent year that a borrower who currently has a
partial financial hardship remains on the Pay As You Earn repayment
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 at the end of the
borrower's current annual payment period 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
(a)(5)(ii)(D) of this section.
(v) For each subsequent year that a borrower who does not currently
have a partial financial hardship remains on the Pay As You Earn
repayment 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 Pay As You Earn repayment plan but does not
provide the documentation described in paragraphs (a)(5)(i)(A) or
(a)(5)(i)(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 Pay As You Earn 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, unless
the Secretary is able to determine the borrower's new monthly payment
amount before the end of the borrower's current annual payment period.
(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--
(A) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current
[[Page 66139]]
scheduled monthly payment amount until the new scheduled monthly
payment amount is determined.
(1) If the new monthly payment amount is less than the borrower's
previously calculated Pay As You Earn repayment plan 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(a)(3), unless the
borrower requests otherwise, 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).
(2) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated Pay As You Earn repayment plan
monthly payment amount, and the borrower made payments at the
previously calculated payment amount after the end of the most recent
annual payment period, the Secretary does not make any adjustment to
the borrower's account.
(3) 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).
(B) The new annual payment period begins on the day after the end
of the most recent annual payment period.
(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 Pay As You Earn repayment plan 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 Pay As You Earn
repayment 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) with a 10-year repayment period.
(D) Made monthly payments 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 borrower first selected the
Pay As You Earn repayment plan.
(E) Made monthly payments under the income-contingent repayment
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 Pay As You Earn
repayment plan, the beginning date for the 20-year period is--
(A) If the borrower made payments under the income-contingent
repayment 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 income-
contingent repayment 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
Pay As You Earn repayment 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 Pay As You Earn repayment
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 Pay As You Earn repayment 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 six
[[Page 66140]]
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) Income-contingent repayment plan: The income-contingent
repayment (ICR) 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 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 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, for the borrower's family size as defined in Sec.
685.209(a)(1)(iv).
(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
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 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 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 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 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 plan is 25 years.
(B) The repayment period includes--
(1) Periods in which the borrower makes payments under the ICR plan
on loans that are not in default;
[[Page 66141]]
(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
Pay As You Earn repayment plan;
(4) 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);
(5) Periods in which the borrower makes payments under the standard
repayment plan described in Sec. 685.208(b);
(6) 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);
(7) 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
(8) Periods of economic hardship deferment after October 1, 2007.
(C) 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.
(D) If a borrower has not repaid a loan in full at the end of the
25-year repayment period under the ICR plan, the Secretary cancels the
outstanding balance and accrued interest on that loan. No later than
six 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 for tax purposes, 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 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 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)(ii) of this section, the borrower may
contact the Secretary at any time during the borrower's current annual
payment period 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 and certification of family size. (A)
For the initial year that a borrower selects the ICR plan and for each
subsequent year that the borrower remains on the plan, the borrower
must--
(1) Provide to the Secretary, for purposes of calculating a monthly
repayment amount and servicing and collecting the borrower's loan,
acceptable documentation, as determined by the Secretary, of the
borrower's AGI or alternative documentation of income in accordance
with paragraph (b)(3)(i) of this section; and
(2) Certify the borrower's family size. If the borrower fails to
certify family size, the Secretary assumes a family size of one for the
year.
(B) For each subsequent year that a borrower remains on the ICR
plan, the Secretary notifies the borrower in writing of the
requirements 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 plan but does not comply with
the requirement in paragraph (b)(3)(vi)(A)(1) of this section.
(D) If, during a subsequent year that a borrower remains on the ICR
plan, the Secretary does not receive the documentation described in
paragraph (b)(3)(vi)(A)(1) of this section within 10 days of the
specified annual deadline, the Secretary recalculates the borrower's
required monthly payment amount, unless the Secretary is able to
determine the borrower's new monthly payment amount before the end of
the borrower's current annual payment period. 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
[[Page 66142]]
under the ICR 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)(1) of this section within 10 days of the
specified annual deadline--
(1) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current scheduled
monthly payment amount until the new scheduled monthly payment amount
is determined.
(i) 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. Notwithstanding Sec.
685.211(a)(3), 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.
(ii) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated monthly payment amount, and the
borrower made payments at the previously calculated payment amount
after the end of the most recent annual payment period, the Secretary
does not make any adjustment to the borrower's account.
(iii) Any payments 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).
(2) The new annual payment period begins on the day after the end
of the most recent annual payment period.
(F)(1) If the Secretary receives the documentation described in
paragraph (b)(3)(vi)(A)(1) 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
plan for the borrower but the borrower fails to comply with the
requirements in 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.)
0
13. 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]
0
14. 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]
0
15. 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''.
0
16. 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 this section, 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
permanent disabled prior to submitting a total and permanent disability
discharge application, the Secretary--
(i) Provides the borrower with information needed for the borrower
to apply for a total and permanent disability discharge;
(ii) 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
[[Page 66143]]
borrower's title IV loans for a period not to exceed 120 days; and
(iii) Informs the borrower that the suspension of collection
activity 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.
(2) Physician certification or Social Security Administration (SSA)
disability notice of award. The application must contain--
(i) 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); or
(ii) An SSA notice of award for Social Security Disability
Insurance (SSDI) or Supplemental Security Income (SSI) benefits
indicating that the borrower's next scheduled disability review will be
within five to seven years.
(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, if applicable. 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 or the SSA notice of award for SSDI or SSI
benefits 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--
(A) As of the date the physician certified the borrower's
application; or
(B) As of the date the Secretary received the SSA notice of award
for SSDI or SSI benefits.
(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 or the date the Secretary received the SSA notice of award
for SSDI or SSI benefits. 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 physician's certification
or the SSA notice of award for SSDI or SSI benefits 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. 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 provided to
the Secretary in connection with the prior application 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 or the date the Secretary received the
SSA notice of award for SSDI or SSI benefits 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
or before the date the Secretary received the SSA notice of award for
SSDI or SSI benefits and a disbursement of that loan or grant is made
during the period from the date of the physician's certification or the
receipt of the SSA notice of award for SSDI or SSI benefits 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 or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits. 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 or on or after the date the Secretary received
the SSA notice of award for SSDI or SSI benefits and before the date
the Secretary grants
[[Page 66144]]
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;
(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; or
(D) Receives a notice from the SSA indicating that the borrower is
no longer disabled or that the borrower's continuing disability review
will no longer be the five- to seven-year period indicated in the SSA
notice of award for SSDI or SSI benefits.
(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;
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment on a form provided by
the Secretary; and
(iv) Promptly notify the Secretary if the borrower receives a
notice from the SSA indicating that the borrower is no longer disabled
or that the borrower's continuing disability review will no longer be
the five- to seven-year period indicated in the SSA notice of award for
SSDI or SSI benefits.
(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 the 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 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.)
[[Page 66145]]
0
17. 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).
* * * * *
0
18. Section 685.221 is amended by:
0
A. Redesignating paragraphs (a)(4) and (a)(5) as paragraphs (a)(5) and
(a)(6), respectively.
0
B. Adding a new paragraph (a)(4).
0
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''.
0
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''.
0
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''.
0
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''.
0
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''.
0
H. Revising paragraph (b)(3).
0
I. Revising paragraph (c).
0
J. Revising paragraph (d).
0
K. Revising paragraph (e).
0
L. 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.
* * * * *
(b) * * *
(3) 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 income-based
repayment plan. Any period during which the Secretary has previously
not charged the borrower accrued interest on an eligible loan under the
Pay As You Earn repayment plan counts toward the maximum three years of
subsidy a borrower is eligible to receive under the income-based
repayment 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.
* * * * *
(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
repayment 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 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
[[Page 66146]]
(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)(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 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 (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 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, unless the Secretary
is able to determine the borrower's new monthly payment amount before
the end of the borrower's current annual payment period.
(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--
(i) The Secretary promptly determines the borrower's new scheduled
monthly payment amount and maintains the borrower's current scheduled
monthly payment amount until the new scheduled monthly payment amount
is determined.
(A) 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(a)(3), unless the borrower requests
otherwise, the Secretary applies the excess payment amounts made after
the end of the most recent annual payment period in accordance with the
requirements of paragraph (c)(1) of this section.
(B) If the new monthly payment amount is equal to or greater than
the borrower's previously calculated monthly payment amount, and the
borrower made payments at the previously calculated payment amount
after the end of the most recent annual payment period, the Secretary
does not make any adjustment to the borrower's account.
(C) 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
[[Page 66147]]
otherwise meet the requirements described in Sec. 685.219(c)(1).
(ii) The new annual payment period begins on the day after the end
of the most recent annual payment period.
(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 otherwise meet the requirements described in
Sec. 685.219(c)(1).
(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)(iii) 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) with a 10-year repayment period.
(iv) Made monthly payments 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 borrower first selected the
income-based repayment plan.
(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, 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 six 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. 2012-26348 Filed 10-31-12; 8:45 am]
BILLING CODE 4000-01-P