[Federal Register Volume 80, Number 131 (Thursday, July 9, 2015)]
[Proposed Rules]
[Pages 39608-39641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16623]



[[Page 39607]]

Vol. 80

Thursday,

No. 131

July 9, 2015

Part IV





Department of Education





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34 CFR Parts 668, 682, and 685





Student Assistance General Provisions, Federal Family Education Loan 
Program, and William D. Ford Federal Direct Loan Program; Proposed Rule

  Federal Register / Vol. 80 , No. 131 / Thursday, July 9, 2015 / 
Proposed Rules  

[[Page 39608]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 682, and 685

RIN 1840-AD18
[Docket ID ED-2014-OPE-0161]


Student Assistance General Provisions, Federal Family Education 
Loan Program, and William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations governing the 
William D. Ford Federal Direct Loan (Direct Loan) Program to create a 
new income-contingent repayment plan in accordance with the President's 
initiative to allow more Direct Loan borrowers to cap their loan 
payments at 10 percent of their monthly incomes. The Secretary is also 
proposing changes to the Federal Family Education Loan (FFEL) Program 
and Direct Loan Program regulations to streamline and enhance existing 
processes and provide additional support to struggling borrowers. These 
proposed regulations would also amend the Student Assistance General 
Provisions regulations by expanding the circumstances under which an 
institution may challenge or appeal a draft or final cohort default 
rate based on the institution's participation rate index.

DATES: We must receive your comments on or before August 10, 2015.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments submitted by fax or by email or those submitted after 
the comment period. To ensure that we do not receive duplicate copies, 
please submit your comments only once. In addition, please include the 
Docket ID at the top of your comments.
    If you are submitting comments electronically, we strongly 
encourage you to submit any comments or attachments in Microsoft Word 
format. If you must submit a comment in Adobe Portable Document Format 
(PDF), we strongly encourage you to convert the PDF to print-to-PDF 
format or to use some other commonly used searchable text format. 
Please do not submit the PDF in a scanned format. Using a print-to-PDF 
format allows the U.S. Department of Education (the Department) to 
electronically search and copy certain portions of your submissions.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``Are you new to the site?''
     Postal Mail, Commercial Delivery, or Hand Delivery: The 
Department strongly encourages commenters to submit their comments 
electronically. However, if you mail or deliver your comments about the 
proposed regulations, address them to Jean-Didier Giana, U.S. 
Department of Education, 1990 K Street NW., Room 8055, Washington, DC 
20006-8502.

    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to 
include in their comments only information that they wish to make 
publicly available.


FOR FURTHER INFORMATION CONTACT: For further information related to the 
Servicemembers Civil Relief Act (SCRA), the treatment of lump sum 
payments made under Department of Defense student loan repayment 
programs for the purposes of public service loan forgiveness, and 
expanding the use of the participation rate index (PRI) challenge and 
appeal, Barbara Hoblitzell at (202) 502-7649 or by email at: 
[email protected]. For information related to loan 
rehabilitation, Ian Foss at (202) 377-3681 or by email at: 
[email protected]. For information related to the Revised Pay As You Earn 
repayment plan, Brian Smith or Jon Utz at (202) 502-7551 or (202) 377-
4040 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.

SUPPLEMENTARY INFORMATION: 

Executive Summary

    Purpose of This Regulatory Action: These proposed regulations would 
amend the Student Assistance General Provisions regulations governing 
Direct Loan cohort default rates (CDRs) to expand the circumstances 
under which an institution may challenge or appeal the potential 
consequences of a draft or final CDR based on the institution's PRI. In 
addition, we are proposing changes to the FFEL Program regulations to 
streamline and enhance existing processes and provide support to 
borrowers by establishing new procedures for FFEL Program loan holders 
to identify servicemembers who may be eligible for benefits under the 
SCRA. We are proposing regulations that would require guaranty agencies 
to provide FFEL Program borrowers who are in the process of 
rehabilitating a defaulted loan with information on repayment plans 
available to them after the loan has been rehabilitated as well as 
additional financial and economic education materials. We are also 
proposing several technical changes to the loan rehabilitation 
provisions contained in Sec.  682.405. In addition, these proposed 
regulations would add a new income-contingent repayment plan, called 
the Revised Pay As You Earn repayment plan (REPAYE plan), to Sec.  
685.209 of the Direct Loan Program regulations. The REPAYE plan is 
modeled on the existing Pay As You Earn repayment plan, and would be 
available to all Direct Loan student borrowers regardless of when the 
borrower took out the loans. Finally, the proposed regulations would 
also allow lump sum payments made through student loan repayment 
programs administered by the Department of Defense to count as 
qualifying payments for purpose of the Public Service Loan Forgiveness 
Program.
    Summary of the Major Provisions of This Regulatory Action:
    To expand the circumstances under which an institution may 
challenge or appeal the potential consequences of a draft or official 
CDR based on the institution's PRI, the proposed regulations would--
     Permit an institution to bring a timely PRI challenge or 
appeal in any year that the institution's CDR is less than or equal to 
40 percent, but greater than or equal to 30 percent, for any of the 
three most recently calculated fiscal years.
     Provide that an institution will not lose eligibility 
based on three years of official CDRs that are less than or equal to 40 
percent, but greater than or equal to 30 percent, and will not be 
placed on provisional certification based on two such rates, if it 
timely brings an appeal or challenge with respect to any of the 
relevant rates and demonstrates a PRI less than or equal to 0.0625, 
provided that the institution has not brought a PRI challenge or appeal 
with respect to that rate before, and that the institution has not 
previously lost eligibility or been placed on provisional certification 
based on that rate.
     Provide that a successful PRI challenge with respect to a 
draft CDR is effective in preventing the institution from being placed 
on provisional certification or losing eligibility in

[[Page 39609]]

subsequent years based on the official CDR for that year if the 
official rate is less than or equal to the draft rate.
    To reduce the burden on active duty servicemembers who may be 
entitled to an interest rate reduction under the SCRA, the proposed 
regulations would--
     Require FFEL Program loan holders to proactively use the 
authoritative database maintained by the Department of Defense to 
begin, extend, or end, as applicable, the SCRA interest rate limit of 
six percent.
     Permit a borrower to use a form developed by the Secretary 
to provide the loan holder with alternative evidence of active duty 
service to demonstrate eligibility when the borrower believes that the 
information contained in the Department of Defense database may be 
inaccurate or incomplete.
    In regard to loan rehabilitation, the proposed regulations would--
     To assist with the transition to loan repayment for a 
borrower who rehabilitates a defaulted loan, require a guaranty agency 
to: Provide each borrower with whom it has entered into a loan 
rehabilitation agreement with information on repayment plans available 
to the borrower after rehabilitating the defaulted loan; explain to the 
borrower how to select a repayment plan; and provide financial and 
economic education materials to borrowers who successfully complete 
loan rehabilitation.
     To conform with the Higher Education Act of 1965, as 
amended (HEA), amend Sec.  682.405 with respect to the cap on 
collection costs that may be added to a rehabilitated loan when it is 
sold to a new holder and the treatment of rehabilitated loans for which 
the guaranty agency cannot secure a buyer.
    To establish a new widely available income-contingent repayment 
plan targeted to the neediest borrowers, the proposed REPAYE 
regulations would--
     In the case of a married borrower filing a separate 
Federal income tax return, use the adjusted gross income (AGI) of both 
the borrower and the borrower's spouse to determine whether the 
borrower has a partial financial hardship (PFH) and to calculate the 
monthly payment amount. A married borrower filing separately who is 
separated from his or her spouse or who is unable to reasonably access 
his or her spouse's income is not required to provide his or her 
spouse's AGI.
     Limit the amount of interest charged to the borrower of a 
subsidized loan to 50 percent of the remaining accrued interest when 
the borrower's monthly payment is not sufficient to pay the accrued 
interest (resulting in negative amortization). This limitation applies 
after the consecutive three-year period during which the Secretary does 
not charge the interest that accrues on subsidized loans during periods 
of negative amortization.
     Limit the amount of interest charged to the borrower of an 
unsubsidized loan to 50 percent of the remaining accrued interest when 
the borrower's monthly payment is not sufficient to pay the accrued 
interest (resulting in negative amortization).
     For a borrower who only has loans received to pay for 
undergraduate study, provide that the remaining balance of the 
borrower's loans that have been repaid under the REPAYE plan is 
forgiven after 20 years of qualifying payments.
     For a borrower who has at least one loan received to pay 
for graduate study, provide that the remaining balance of the 
borrower's loans that have been repaid under the REPAYE plan is 
forgiven after 25 years of qualifying payments.
     Provide that, for each year a borrower is in the REPAYE 
plan, the borrower's monthly payment amount is recalculated based on 
income and family size information provided by the borrower. If a 
process becomes available in the future that allows borrowers to give 
consent for the Department to access their income and family size 
information from the Internal Revenue Service (IRS) or another Federal 
source, the proposed regulations would allow use of such a process for 
recalculating a borrower's monthly payment amount.
     Provide that, for each year after a borrower's initial 
year on the REPAYE plan, the Secretary determines whether the borrower 
has a PFH. If the borrower does not have a PFH, but previously had a 
PFH, any accrued interest would be capitalized.
     Provide that, if the borrower does not provide the income 
information needed to recalculate the monthly repayment amount, the 
borrower is removed from the REPAYE plan and placed in an alternative 
repayment plan. The monthly payment amount under the alternative 
repayment plan would equal the amount required to pay off the loan 
within 10 years from the date the borrower begins repayment under the 
alternative repayment plan, or by the end date of the 20- or 25-year 
REPAYE plan repayment period, whichever is earlier.
     Allow the borrower to return to the REPAYE plan if the 
borrower provides the Secretary with the income information for the 
period of time that the borrower was on the alternative repayment plan 
or another repayment plan. If the payments the borrower was required to 
make under the alternative repayment plan or the other repayment plan 
are less than the payments the borrower would have been required to 
make under the REPAYE plan, the borrower's monthly REPAYE payment 
amount would be adjusted to ensure that the excess amount owed by the 
borrower is paid in full by the end of the REPAYE plan repayment 
period.
     Provide that payments made under the alternative repayment 
plan would not count as qualifying payments for purposes of the Public 
Service Loan Forgiveness Program, but may count in determining 
eligibility for loan forgiveness under the REPAYE plan, the income-
contingent repayment plan, the income-based repayment plans, or the Pay 
As You Earn repayment plan (each of these plans may be referred to as 
an ``income-driven repayment plan'' or ``IDR plan'') if the borrower 
returns to the REPAYE plan or changes to another income-driven 
repayment plan.
    The proposed regulations also would allow lump sum payments made on 
a borrower's behalf through the student loan repayment programs 
administered by the Department of Defense to count as qualifying 
payments for purposes of the Public Service Loan Forgiveness Program in 
the same manner as lump sum payments made by borrowers using Segal 
Education Awards after AmeriCorps service or Peace Corps transition 
payments after Peace Corps service.
    Please refer to the Summary of Proposed Changes section of this 
notice of proposed rulemaking (NPRM) for more details on the major 
provisions contained in this NPRM.
    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis, the benefits of the proposed regulations, which would require 
guaranty agencies to provide additional information to borrowers in the 
process of rehabilitating a defaulted loan, include a reduction of the 
risk that the borrower would re-default on the loan after having 
successfully completed loan rehabilitation.
    There would be costs incurred by guaranty agencies under the 
proposed regulations. In particular, guaranty agencies would be 
required to make information about repayment plans available to 
borrowers during the rehabilitation process.
    Invitation to Comment: We invite you to submit comments regarding 
these proposed regulations.
    To ensure that your comments have maximum effect in developing the 
final regulations, we urge you to identify

[[Page 39610]]

clearly the specific section or sections of the proposed regulations 
that each of your comments addresses, and provide relevant information 
and data whenever possible, even when there is no specific solicitation 
of data and other supporting materials in the request for comment. We 
also urge you to arrange your comments in the same order as the 
proposed regulations. Please do not submit comments that are outside 
the scope of the specific proposals in this notice of proposed 
rulemaking, as we are not required to respond to such comments.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
proposed regulations. Please let us know of any further ways we could 
reduce potential costs or increase potential benefits while preserving 
the effective and efficient administration of the Department's programs 
and activities.
    During and after the comment period, you may inspect all public 
comments about the proposed regulations by accessing Regulations.gov. 
You may also inspect the comments in person in room 8055, 1990 K Street 
NW., Washington, DC, between 8:30 a.m. and 4:00 p.m., Washington, DC 
time, Monday through Friday of each week except Federal holidays. To 
schedule a time to inspect comments, please contact one of the persons 
listed under FOR FURTHER INFORMATION CONTACT.
    Assistance to Individuals with Disabilities in Reviewing the 
Rulemaking Record: On request, we will provide an appropriate 
accommodation or auxiliary aid to an individual with a disability who 
needs assistance to review the comments or other documents in the 
public rulemaking record for the proposed regulations. To schedule an 
appointment for this type of accommodation or auxiliary aid, please 
contact one of the persons listed under FOR FURTHER INFORMATION 
CONTACT.

Background

    The Secretary proposes to amend Sec. Sec.  668.16, 668.204, 
668.208, 668.214, 682.202, 682.208, 682.405, 682.410, 685.202, 685.208, 
685.209, 685.219, and 685.221 of title 34 of the Code of Federal 
Regulations (CFR). The regulations in 34 CFR part 668 pertain to 
Student Assistance General Provisions. The regulations in 34 CFR part 
682 pertain to the FFEL Program. The regulations in 34 CFR part 685 
pertain to the Direct Loan Program. We are proposing these amendments 
to: (1) Establish a new income-contingent repayment plan in the Direct 
Loan Program; (2) establish procedures for FFEL Program loan holders to 
use to identify U.S. military servicemembers who may be eligible for a 
lower interest rate on their FFEL Program loans under section 527 of 
the SCRA; (3) expand availability of PRI challenges and appeals from 
the potential consequences of an institution's CDR; (4) provide 
guaranty agency support for borrowers who are rehabilitating a 
defaulted FFEL Program loan; (5) make two technical corrections to 
reflect the statutory changes to the provisions governing loan 
rehabilitation in the FFEL Program; and (6) amend the application of 
lump sum student loan payments by the Department of Defense on behalf 
of borrowers pursuing public service loan forgiveness.

Public Participation

    On September 3, 2014, we published a notice in the Federal Register 
(79 FR 52273) announcing our intent to establish a negotiated 
rulemaking committee under section 492 of the HEA to develop proposed 
regulations to allow more student borrowers of Federal Direct Loans to 
use a ``Pay as You Earn'' repayment plan in accordance with the 
Presidential Memorandum issued on June 9, 2014. We also announced two 
public hearings at which interested parties could comment on the topic 
suggested by the Department and suggest additional topics for 
consideration for action by the negotiated rulemaking committee. The 
hearings were held on--
    October 23, 2014, in Washington, DC; and
    November 14, 2014, in Los Angeles, California.
    Transcripts from the public hearings are available at www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html.
    We also invited parties unable to attend a public hearing to submit 
written comments on the proposed topics and to submit other topics for 
consideration. Written comments submitted in response to the September 
3, 2014, Federal Register notice may be viewed through the Federal 
eRulemaking Portal at www.regulations.gov, within docket ID ED-2014-
OPE-0161. Instructions for finding comments are also available on the 
site under ``How to Use Regulations.gov'' in the Help section.
    On December 19, 2014, we published a notice in the Federal Register 
(79 FR 75771) requesting nominations for negotiators to serve on the 
negotiated rulemaking committee and setting a schedule for committee 
meetings.

Negotiated Rulemaking

    Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to 
obtain public involvement in the development of proposed regulations 
affecting programs authorized by title IV of the HEA. After obtaining 
extensive input and recommendations from the public, including 
individuals and representatives of groups involved in the title IV, HEA 
programs, the Secretary in most cases must subject the proposed 
regulations to a negotiated rulemaking process. If negotiators reach 
consensus on the proposed regulations, the Department agrees to publish 
without alteration a defined group of regulations on which the 
negotiators reached consensus unless the Secretary reopens the process 
or provides a written explanation to the participants stating why the 
Secretary has decided to depart from the agreement reached during 
negotiations. Further information on the negotiated rulemaking process 
can be found at: www2.ed.gov/policy/highered/reg/hearulemaking/hea08/neg-reg-faq.html.
    On December 19, 2014, the Department published a notice in the 
Federal Register (79 FR 52273) announcing its intention to establish a 
negotiated rulemaking committee to prepare proposed regulations 
governing the Direct Loan Program authorized under title IV of the HEA. 
The notice set forth a schedule for the committee meetings and 
requested nominations for individual negotiators to serve on the 
negotiating committee.
    The Department sought negotiators to represent the following 
groups: Students; legal assistance organizations that represent 
students; consumer advocacy organizations; groups representing U.S. 
military servicemembers or veterans; financial aid administrators at 
postsecondary institutions; State attorneys general and other 
appropriate State officials; institutions of higher education eligible 
to receive Federal assistance under title III, parts A, B, and F, and 
title V of the HEA, which include Historically Black Colleges and 
Universities, Hispanic-Serving Institutions, American Indian Tribally 
Controlled Colleges and Universities, Alaska Native and Native 
Hawaiian-Serving Institutions, Predominantly Black Institutions, and 
other institutions with a substantial enrollment of needy students as 
defined in title III of the HEA; two-year public institutions of higher 
education; four-year public institutions of higher education; private, 
nonprofit institutions of higher education; private, for-profit 
institutions of higher

[[Page 39611]]

education; FFEL Program lenders and loan servicers; and FFEL Program 
guaranty agencies and guaranty agency servicers (including collection 
agencies). The Department considered the nominations submitted by the 
public and chose negotiators who would represent the various 
constituencies.
    The negotiating committee included the following members:

    Devon Graves, California State Student Association, and Jessi 
Morales (alternate), Generation Progress, representing students.
    Toby Merrill, Project on Predatory Student Lending, The Legal 
Services Center, Harvard Law School, and Johnson Tyler (alternate), 
South Brooklyn Legal Services, representing legal assistance 
organizations that represent students.
    Jennifer Wang, Young Invincibles, and Suzanne Martindale 
(alternate), Consumers Union, representing consumer advocacy 
organizations.
    Samuel Levine, Consumer Fraud Bureau, Office of the Attorney 
General of Illinois, and Tyler Stewart (alternate), Consumer 
Protection Division, Kentucky Office of the Attorney General, 
representing State attorneys general and other appropriate State 
officials.
    Matthew Randle, Student Veterans of America, and Chris Cate 
(alternate), Student Veterans of America, representing U.S. military 
servicemembers or veterans.
    Scott Cline, California College of the Arts, and Clair Jacobi 
(alternate), New York Institute of Technology College of Osteopathic 
Medicine, representing financial aid administrators.
    Patricia Hurley, Glendale Community College, representing 
minority serving institutions.
    Shannon Sheaff, Mohave Community College, and Helen Faith 
(alternate), Lane Community College, representing two-year public 
institutions.
    Craig Fennell, Temple University, and Rachelle Feldman 
(alternate), University of California, Berkeley, representing four-
year public institutions.
    Marian Dill, Lee University, and David DeBoer (alternate), 
Davenport University, representing private, non-profit institutions.
    Melvina Johnson, Laureate Education, Inc., and Robert Mills 
(alternate), Ohio Centers for Broadcasting, Miami and Colorado Media 
Schools, representing private, for-profit institutions.
    William Shaffner, MOHELA--Higher Education Loan Authority of 
Missouri, and Darin Katzberg (alternate), Nelnet, representing FFEL 
Program lenders and loan servicers.
    Nancy Masten, Great Lakes Higher Educational Guaranty 
Corporation, and Diane Freundel (alternate), American Education 
Services/Pennsylvania Higher Education Assistance Agency, 
representing FFEL Program guaranty agencies and guaranty agency 
servicers.
    Gail McLarnon, U.S. Department of Education, representing the 
Department.

    The negotiated rulemaking committee met to develop proposed 
regulations on February 24-26, 2015, March 31-April 2, 2015, and April 
28-30, 2015.
    At its first meeting, the negotiating committee reached agreement 
on its protocols and proposed agenda. The protocols provided, among 
other things, that the committee would operate by consensus. Consensus 
means that there must be no dissent by any member in order for the 
committee to have reached agreement. Under the protocols, if the 
committee reached a final consensus on all issues, the Department would 
use the consensus-based language in its proposed regulations. 
Furthermore, the Department would not alter the consensus-based 
language of its proposed regulations unless the Department reopened the 
negotiated rulemaking process or provided a written explanation to the 
committee members regarding why it decided to depart from that 
language.
    During the first meeting, the negotiating committee agreed to 
negotiate an agenda of six issues related to student financial aid. 
These six issues were: PRI challenges and appeals of potential 
institutional CDR sanctions, implementation of the SCRA in the FFEL 
Program, guaranty agency support for borrowers completing 
rehabilitation of a defaulted loan, two technical corrections to the 
loan rehabilitation regulations, the REPAYE plan, and the application 
of Department of Defense lump sum payments for borrowers seeking public 
service loan forgiveness. Under the protocols, a final consensus would 
have to include consensus on all six issues.
    During the meeting, the Department explained that it planned to 
implement the provisions of the final REPAYE plan regulations in 
December 2015 and the final PRI challenge and appeal regulations in 
February 2017; the remaining regulatory changes would take effect in 
July 2016. Although non-Federal negotiators expressed concern that the 
projected implementation date for the expanded PRI challenge and 
appeals process could result in some community colleges choosing to 
leave the Direct Loan Program in the intervening period, the 
Department's capacity to provide increased opportunities for CDR 
challenges and appeals is predicated in the first instance on the 
automated support that will be provided through development of its 
planned computerized data challenge and appeals solution system(DCAS) 
within Federal Student Aid. DCAS is slated [to come on line?] for 
implementation in 2017.
    During committee meetings, the committee reviewed and discussed the 
Department's drafts of regulatory language and the committee members' 
alternative language and suggestions. At the final meeting on April 30, 
2015, the committee reached consensus on the Department's proposed 
regulations. For this reason, and according to the committee's 
protocols, all parties who participated or were represented in the 
negotiated rulemaking and the organizations that they represent have 
agreed to refrain from commenting negatively on the consensus-based 
regulatory language. For more information on the negotiated rulemaking 
sessions, please visit: www2.ed.gov/policy/highered/reg/hearulemaking/2012/programintegrity.html#info.

Summary of Relevant Data

Income-Driven Repayment Data

    At the request of the non-Federal negotiators, the Department 
provided certain data on borrower participation in the existing income-
driven repayment or IDR plans. Specifically, we provided data on the 
tax filing status of borrowers applying for any IDR plan to show how 
many and what percentage are married and file separate Federal tax 
returns. We also provided data on borrowers who did not timely provide 
income documentation for the annual recertification of their income, 
including to what extent they recertified their income late or went 
delinquent, and information about borrowers who were in the PAYE 
repayment plan and who left that plan for another plan. We also 
provided the non-Federal negotiators data on year-to-year income 
changes for borrowers repaying their loans through an IDR plan. These 
data are available at: http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html#2.
    The non-Federal negotiators expressed support for a process that 
would allow borrowers to give authorization to the Department to access 
their IRS income information for multiple years for the purposes of 
maintaining IDR enrollment. The Department would also support such a 
process, and in an Executive Memorandum dated March 10, 2015, the 
President tasked the Department to work with the IRS and Treasury to 
develop a plan to create this process. The non-Federal negotiators also 
expressed concern that the timing, contents, and methods of 
communicating with borrowers who must submit annual documentation of 
their income to recalculate their payment under an IDR plans were 
contributing to borrowers missing the deadline for submitting income

[[Page 39612]]

documentation. The Department announced it would conduct a pilot to 
test enhanced messaging techniques that will inform whether the current 
process should be modified to prevent more borrowers from missing their 
annual deadline. More information about the pilot is available at: 
www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html#2.

Summary of Proposed Changes

    The proposed regulations would--
     Expand the provisions of Sec. Sec.  668.16, 668.204, 
668.208, and 668.214 regarding the circumstances under which an 
institution may challenge or appeal the potential consequences of a 
draft or final CDR based on the institution's PRI.
     Amend Sec. Sec.  682.202, 682.208, and 682.410 to require 
loan holders to determine a borrower's active duty military status for 
purposes of applying the SCRA maximum interest rate based on 
information from the authoritative database maintained by the 
Department of Defense.
     Amend Sec.  685.202 to remove language that refers to the 
borrower's request for application of the SCRA interest rate limit and 
provide instead that the Secretary applies the SCRA interest rate limit 
``upon receipt'' of evidence of the borrower's eligibility.
     Modify Sec.  682.405 to require a guaranty agency to 
provide information to a borrower who is in the process of 
rehabilitating a defaulted FFEL Program loan to help ensure that the 
borrower understands the available repayment options upon successfully 
completing the loan rehabilitation.
     Make a technical correction to Sec.  682.405 to conform 
with the HEA to reflect that the cap on collection costs that may be 
added to the unpaid principal of a rehabilitated loan when the loan is 
sold or assigned is 16 percent and require guaranty agencies to assign 
to the Secretary rehabilitated loans that they have been unable to sell 
to an eligible lender.
     Amend Sec. Sec.  685.208, 685.209, 685.219, and 685.221 to 
provide for the REPAYE plan.
     Amend Sec.  685.219 to provide for the application of lump 
sum payments made on a borrower's behalf through student loan repayment 
programs administered by the Department of Defense for purposes of the 
Public Service Loan Forgiveness Program in the same manner as lump sum 
payments made by borrowers using Segal Education Awards after 
AmeriCorps service or Peace Corps transition payments after Peace Corps 
service.

Significant Proposed Regulations

    We discuss substantive issues under the sections of the proposed 
regulations to which they pertain. Generally, we do not address 
proposed regulatory provisions that are technical or otherwise minor in 
effect.

Participation Rate Index Challenges and Appeals (Sec. Sec.  668.16, 
668.204, 668.208, and 668.214)

    Statute: Sections 435(a)(2), (a)(8), and (m) of the HEA prescribe 
how PRIs are to be calculated and contain provisions regarding how and 
when an institution may challenge or appeal potential sanctions 
resulting from an institution's CDRs based on an applicable PRI.
    Current Regulations: Section 668.204(c) provides the circumstances 
under which an institution may challenge the potential consequences of 
a draft or official CDR during the draft rate process, including 
challenges based on the institution's applicable PRI. Specifically, 
under Sec.  668.204(c)(1), institutions with CDRs high enough to 
trigger sanctions (30 percent for two years for provisional 
certification, or, for loss of eligibility, either 30 percent for three 
consecutive years or 40 percent in a single year) may challenge those 
anticipated sanctions based on their PRI--that is, if the proportion of 
regular students enrolled on at least a half time basis who borrow 
certain Federal student loans is equal to or lower than the applicable 
statutory or regulatory threshold. Under Sec.  668.204(c)(1)(ii) and 
(iii), institutions may only bring a PRI-based challenge in the year a 
sanction would be imposed.
    Section 668.214 defines the conditions under which and the process 
by which an institution may appeal from the potential consequences of a 
CDR based on the PRI of Federal student loan borrowers relative to the 
institution's total enrollment of regular students who attended half 
time or more during a relevant twelve-month period selected by the 
school. Again, under Sec.  668.214(a), PRI appeals may only be brought 
in the year a sanction would be imposed.
    Section 668.16(m) specifies the circumstances in which the 
Department may provisionally certify an institution's program 
participation agreement based on the institution's CDRs, and the impact 
of requests for adjustment and appeals on imposition of that sanction.
    Section 668.208 provides general requirements for institutions 
seeking to adjust their official CDRs and to bring certain appeals from 
their consequences, including provisions preventing institutions from 
bringing the same type of appeal twice from the same CDR, and from 
appealing from a CDR after sanctions have already been imposed based on 
it.
    Proposed Regulations: The proposed regulations would modify Sec.  
668.204 to permit an institution to bring a timely challenge, based on 
the relevant PRI (the number of regular students enrolled on at least a 
half time basis who borrow, divided by the total number of regular 
students enrolled on at least a half time basis) being equal to or less 
than 0.0625, in any year the institution's draft or official CDR was 
less than or equal to 40 percent but greater than or equal to 30 
percent, for any of the three most recently calculated fiscal years 
(counting the draft rate as the most recent rate), provided that the 
institution had not brought a PRI challenge or appeal with respect to 
that rate before, and that the institution had not previously lost 
eligibility or been placed on provisional certification based on that 
rate. The rule would retain the existing provision permitting an 
institution to challenge the potential consequences of a draft rate 
exceeding 40 percent, if the PRI is less than or equal to 0.0832.
    Section 668.204 would also be modified to provide that a successful 
PRI challenge from a draft CDR that exceeds the sanction thresholds of 
40 percent or 30 percent avoids provisional certification and loss of 
eligibility based on the corresponding official CDR, as long as the 
official CDR is less than or equal to the draft CDR. In such a case, 
the institution would not be required to bring a PRI appeal with 
respect to the official CDR it had successfully challenged at the draft 
rate stage, and no sanctions would be imposed, either in that year or a 
later year, based on the official CDR. Moreover, as under current law, 
a successful PRI challenge with respect to a draft CDR would preclude 
the imposition of sanctions in the year the official CDR was issued, 
regardless of whether the official CDR was higher or lower than the 
draft CDR. However, if the official CDR was higher than the draft CDR, 
the institution would need to bring a PRI appeal or challenge from the 
official, higher CDR, to avoid that higher CDR possibly resulting in 
provisional certification or loss of eligibility, as applicable, in a 
later year. An earlier challenge to a lower, draft CDR would not be 
sufficient to avoid sanctions from being based on the higher official 
rate in later years if that official rate was one of three successive 
official rates of 30 percent or higher.
    The proposed regulations would also amend Sec.  668.214 to provide 
that an

[[Page 39613]]

institution will not lose eligibility based on three years of official 
CDRs that are less than or equal to 40 percent, but greater than or 
equal to 30 percent, and will not be placed on provisional 
certification based on two such rates, if it has timely brought an 
appeal with respect to any of the relevant rates and demonstrated a PRI 
less than or equal to 0.0625. As in current law, the institution may 
make this appeal only if it has not brought a PRI challenge or appeal 
with respect to that rate before, and if it has not previously lost 
eligibility or been placed on provisional certification based on that 
rate. The rule would retain the existing provision for an institution 
to appeal from loss of eligibility if its most recent official CDR 
exceeds 40 percent, if the PRI is less than or equal to 0.0832. The 
time for appealing would run from the date of receipt of notice of the 
rate or, if the most recent official rate exceeds 40 percent, the date 
of receipt of notice of loss of eligibility.
    The proposed regulations would amend Sec.  668.16 to clarify that 
if an institution brought a PRI challenge or appeal with respect to a 
CDR under the expanded circumstances described in the proposed 
regulations, provisional certification would not be imposed based on 
that CDR as long as the challenge or appeal was either pending or 
successful.
    The proposed regulations would also amend Sec.  668.208 to 
incorporate references to PRI challenges and appeals in existing 
provisions relating to the effect of, and limitations on, CDR appeals.
    Reasons: Community college administrators and advocates, including 
a non-Federal negotiator, have requested an annual challenge and 
appeals process that would permit institutions to appeal or challenge 
based on PRI in any year following issuance of a draft or official rate 
equaling or exceeding 30 percent, rather than only in years in which a 
sanction would be imposed. They argued that an annual PRI challenge and 
appeals process would provide institutions with more certainty about 
whether they will be subject to sanctions or the loss of title IV aid 
eligibility as a result of their CDRs. The negotiator suggested that 
enabling schools to receive a PRI exemption at any point during the 
reporting process would mitigate the impact of negative reports 
regarding their borrower repayment rate and encourage more community 
colleges to participate in the title IV loan programs. The negotiator 
further requested that the PRI appeal process be simplified to reduce 
the administrative burden on both institutions and the Department.
    We are proposing to provide additional opportunities for 
institutions to bring PRI challenges and appeals to lessen the 
likelihood that an institution will, through its failure to bring a 
challenge or appeal in one of the opportunities available under 
existing law, experience sanctions based on a CDR that includes only a 
relatively small proportion of its full-time enrollment of regular 
students, and to permit the institution an opportunity to more swiftly 
establish that a high CDR is not reflective of the bulk of its student 
body. Under the proposed regulations, there would be multiple 
timeframes in which a challenge or appeal could be brought to prevent 
imposition of sanctions, subject only to provisions limiting the 
institution to one PRI challenge or appeal per draft or official CDR, 
and precluding the institution from challenging or appealing a CDR on 
which a sanction has already been imposed. The proposed regulations 
would meet the request that we reduce administrative burden by 
relieving institutions of the responsibility for bringing a PRI appeal 
in a later year, if the institution already challenged the draft rate, 
and the official rate was equal to or lower than that draft rate. (If 
the official rate were higher than a draft rate, the institution would 
still need to bring a PRI appeal.)
    Non-Federal negotiators were concerned that the delayed 
implementation of the changes to the PRI challenge and appeals process 
coincident would result in some community colleges choosing to leave 
the Direct Loan Program in the intervening period. However, the ability 
to provide increased opportunities for CDR challenges and appeals is 
predicated on the automated support that will be provided through the 
implementation of the data challenge and appeals solution (DCAS) within 
Federal Student Aid. DCAS is slated for implementation in 2017.

Servicemembers Civil Relief Act (Sec. Sec.  682.202, 682.208, 682.410, 
and 685.202)

    Statute: Section 428(d) of the HEA provides that the maximum 
interest rate that may be charged to certain servicemembers under 
section 207 of the SCRA, 50 U.S.C. App. Sec.  527, applies to loans 
under the Direct Loan Program and the FFEL Program.
    Current Regulations: Section 682.202(a)(8) of the FFEL Program 
regulations and Sec.  685.202(a)(11) of the Direct Loan Program 
regulations provide that once a loan holder (the Secretary or a FFEL 
Program loan holder) receives a borrower's written request for 
application of the SCRA maximum interest rate and a copy of the 
borrower's military orders, the maximum interest rate on any Direct 
Loan or FFEL Program loan made prior to the borrower entering active 
duty status is six percent, as provided in 50 U.S.C. 527, App. section 
207(a), while the borrower is on active duty status.
    Section 682.410(b)(3) of the FFEL Program regulations establishes 
the interest rate guaranty agencies may charge borrowers on defaulted 
loans they hold.
    Proposed Regulations: The proposed regulations would modify Sec.  
682.202(a)(8) to require FFEL Program loan holders to determine a 
borrower's active duty military status for application of the SCRA 
maximum interest rate based on information obtained from the 
authoritative electronic database maintained by the Department of 
Defense and to clarify that, under the SCRA, the interest rate includes 
any other charges or fees applied to the loan.
    The proposed regulations would add new paragraph Sec.  682.208(j) 
to define the requirements for FFEL Program loan holders to use the 
official electronic database maintained by the Department of Defense to 
identify all borrowers who are active duty servicemembers and who are 
eligible for the SCRA interest limit, confirm the dates of the 
borrower's active duty status, and begin, extend, or end, as 
applicable, the use of the SCRA interest rate limit of six percent. 
These requirements would include--
     Applying the SCRA interest rate limit of six percent for 
the longest eligible period verified with the official electronic 
database or alternative evidence of active duty service received by the 
loan holder, using the combination of evidence that provides the 
borrower with the earliest active duty start date and the latest active 
duty end date;
     In the case of a reservist, using the reservist's 
notification date as the start date of the military service period;
     For PLUS loans with an endorser, applying the SCRA 
interest limit on the loan based on the borrower's or endorser's active 
duty status, regardless of whether the loan holder is currently 
pursuing the endorser for repayment of the loan;
     In cases where both the borrower and the endorser are 
eligible for the SCRA interest rate limit of six percent on a loan, 
specifying that the loan holder must use the earliest active duty start 
date of either party and the latest

[[Page 39614]]

active duty end date of either party to begin, extend, or end, as 
applicable, the SCRA interest rate limit;
     For joint consolidation loans, applying the SCRA interest 
rate limit on the loan if either of the borrowers is eligible for the 
limit;
     If both borrowers on a joint consolidation loan are 
eligible for the SCRA interest rate limit, specifying that the loan 
holder must use the earliest active duty start date of either party and 
the latest active duty end date of either party to begin, extend, or 
end, as applicable, the SCRA interest rate limit;
     If the application of the SCRA interest rate limit of six 
percent results in an overpayment on a loan that is subsequently paid 
in full through consolidation, specifying that the underlying loan 
holder must return the overpayment to the holder of the consolidation 
loan; and
     For any other circumstances where application of the SCRA 
interest rate limit of six percent results in an overpayment of the 
remaining balance on the loan (i.e., where the SCRA benefit is granted 
just before a loan is paid in full), specifying that the loan holder 
must refund the amount of that overpayment to the borrower.
    The proposed regulations would amend Sec.  682.410(b)(3) of the 
FFEL Program regulations to include a requirement that guaranty 
agencies apply the SCRA interest rate to the loans of eligible 
borrowers.
    The proposed regulations would also amend Sec.  685.202(a)(11) to 
clarify that, in regard to Direct Loans, the Secretary will apply the 
SCRA interest rate limit upon the receipt of evidence from the official 
electronic database maintained by the Department of Defense or other 
information provided by the borrower of the borrower's active duty 
military service and that, under SCRA, the interest rate includes any 
other charges or fees applied to the loan.
    Reasons: In 2011, we allowed servicers to use the DMDC database to 
clarify beginning and end dates of military service, where orders were 
unclear. The proposed regulations would formalize a process that the 
Department and many FFEL Program lenders have been using since 2014 to 
confirm that a borrower with an outstanding loan who is (or has been) 
in military service and the dates of that service, for the purposes of 
the SCRA interest rate limitation. The proposed regulations also 
reflect input from the negotiating committee.

Background

    In June 2011, we sent a letter to organizations representing FFEL 
Program lenders, guaranty agencies, and loan servicers in response to 
their questions regarding the requirements for applying the SCRA 
interest rate limit. In that letter, we noted that under the SCRA, a 
borrower (or the borrower's representative) must provide the lender or 
servicer with a copy of the borrower's military orders that reflect the 
borrower's active duty status and the borrower must make a written 
request to the lender to apply the lower interest rate under the SCRA. 
In response to a series of later inquiries, the Department clarified 
that the borrower could submit the written request for the SCRA 
interest rate benefit through electronic means (such as an email or 
text message).
    On August 25, 2014, we issued a Dear Colleague Letter (DCL) (http://ifap.ed.gov/dpcletters/GEN1416.html) to announce that we had adopted 
new procedures for determining which borrowers with loans held by the 
Department are eligible for the interest rate limit under the SCRA and 
for what periods.
    Under the new procedures, the Department's loan servicers use the 
Department of Defense's SCRA Web site, which is available at 
www.dmdc.osd.mil/appj/scra, to access the Defense Manpower Data Center 
(DMDC) database. The DMDC database provides sufficient supporting 
documentation of an individual's eligibility for the SCRA interest rate 
limitation by identifying borrowers who are or have been in military 
service and the dates of that service. We directed our loan servicers 
to check the names of the borrowers of the loans they service against 
the DMDC database and to apply the interest rate limitation to the 
accounts of eligible borrowers without a request from the borrower.
    At the same time, we authorized and encouraged FFEL Program lenders 
and lender-servicers to use the DMDC's SCRA Web site to identify 
borrowers who are eligible for the interest rate limitation under the 
SCRA and to apply that limitation. We encouraged FFEL Program loan 
holders and servicers to check the names of all borrowers whose loans 
they service against the DMDC database to identify borrowers who 
qualify for the SCRA interest rate limitation. Once a borrower's status 
and service dates had been confirmed using the DMDC database, we 
authorized the loan holder to use the DMDC database-generated 
certification information in lieu of requiring a request from the 
borrower and a copy of the servicemember's military orders to support 
the borrower's receipt of the SCRA interest rate limitation.
    The DCL instructed the loan servicer to retain the supporting 
information from the DMDC database in the borrower's file and to notify 
the borrower when the interest rate on the loan has been changed.
    Under the process described in the DCL, the applicant does not need 
to request the lower interest rate or provide any notice to the loan 
servicer, and the loan servicer would rely on the DMDC database and not 
on information from the servicemember. Under these circumstances, and 
under these proposed regulations, the 180-day time limit is deemed no 
longer applicable in any situation.
    Reservists who receive orders to report for military service or who 
are in military service are also entitled to the interest rate 
limitation under the SCRA. In the DCL, we clarified that a lender may 
confirm the eligibility of a reservist using the DMDC database and rely 
on the dates reflected in the system as the active duty service period 
for which the borrower is eligible for the reduced interest rate, using 
the reservist's order notification date as the start date of the 
service period.
    The DCL also noted that there are two important limitations on the 
application of the SCRA's interest rate limitation to FFEL Program 
loans and Direct Loans. First, the SCRA applies only to loans taken out 
by a servicemember before the servicemember entered active duty 
military service. It does not apply to loans taken out after the 
borrower's active duty military service began. Second, because a 
consolidation loan is a new loan, a consolidation loan made after the 
borrower has started active duty military service is not eligible for 
benefits under the SCRA even if the underlying loans were taken out 
prior to the start of active duty service. For this purpose, a 
consolidation loan is considered eligible for benefits under the SCRA 
as long as the borrower applied for the consolidation loan before 
starting active duty military service.
    In the DCL we assured FFEL Program lenders that, if they used the 
DMDC database to confirm a borrower's SCRA status and apply the 
interest rate limitation, and maintained the supporting information 
from the DMDC database, they would not be liable to the Department of 
Education for any financial liabilities if any information provided by 
the DMDC database is found to be incorrect.
    The Department has used the DMDC database to begin, extend, or end, 
as appropriate, the use of the SCRA interest rate limit of six percent 
since August of 2014. The proposed

[[Page 39615]]

regulations would require FFEL Program loan holders and guaranty 
agencies to use the DMDC database in the same manner, so that FFEL and 
Direct Loan Program borrowers receive equitable treatment on all of 
their Federal student loans.

Discussions With Negotiators

    Non-Federal negotiators expressed concern that a borrower's active 
duty service record may be missing from or inaccurately reflected in 
the DMDC database, particularly in cases where the borrower's name has 
changed. While the draft proposed regulations presented to the 
committee provided that a borrower could submit alternative evidence, 
including a copy of military orders or certification of the borrower's 
military service from an authorized official in connection with the 
borrower's request for another benefit on the loan, the non-Federal 
negotiators requested that a broader array of evidence be permitted for 
this purpose. While the Department declined to include letters or other 
attestations as acceptable evidence of active duty service, we agreed 
to develop a form that could be used by a servicemember seeking to 
provide evidence of his or her active duty service.
    Some negotiators asked whether the proposed regulations would have 
an effect on a servicemember's private right of action under the SCRA. 
The Department affirmed that the proposed regulations are not intended 
to affect any private right of action that a borrower may have under 
the SCRA.
    A non-Federal negotiator expressed concern that the reference to 
the SCRA interest rate limit of six percent might be interpreted by 
some loan holders to mean that a borrower's interest rate could be 
raised to six percent during periods of qualifying active duty military 
service. We assured the negotiator that holders and servicers of 
Federal student loans cannot raise the interest rate on a FFEL or 
Direct Loan Program loan to six percent if the statutory interest rate 
on the loan is lower than six percent.
    Representatives of the FFEL Program community raised several points 
related to the applicability of current HEA and SCRA statutory 
provisions during the discussions. First, they asked whether the $600 
annual ($50 monthly) payment rule in the HEA still applies. We 
confirmed that the minimum payment amount requirement in the HEA does 
apply. Second, they asked if the rule that requires a borrower to 
request SCRA benefits within 180 days of the servicemember's 
termination or release date from military service is no longer 
applicable when the benefit is being requested by the servicemember and 
not limited to when the servicer uses the DMDC database. We reiterated 
that the 180-day time limit is no longer applicable in any situation 
and not just when the servicer is using the database. Finally, they 
suggested that the effective date of August 14, 2008, be retained in 
the heading to Sec.  682.202(a)(8) to ensure a universal understanding 
that SCRA benefits cannot precede that date. We declined to retain the 
historical date in the regulatory language, but agree that SCRA 
benefits cannot predate the effective date of the Higher Education 
Opportunity Act (HEOA) of August 14, 2008, which brought the SCRA 
benefit into the HEA.
    Representatives of the FFEL Program community also submitted a 
series of hypothetical scenarios to clarify their understanding of how 
the SCRA interest rate limit would be applied under varying borrower 
and active duty service circumstances. The Department provided 
responses to each of these hypothetical scenarios and offered to 
continue to provide this kind of guidance and support when the loan 
holders encounter actual borrower circumstances where the appropriate 
application of the SCRA interest rate limit is not immediately clear.
    Because the SCRA language includes references to ``other charges or 
fees applied to the loan'' that would be covered by the interest rate 
limit, the non-Federal negotiators requested that this preamble 
discussion include the specific charges associated with the Federal 
student loan programs that would be covered by SCRA. The possible 
additional charges that may be applied to Federal student loans are 
late fees and collection costs.
    The non-Federal negotiators requested clarification on the meaning 
of ``active duty military service.'' Based on 50 U.S.C. App. Sec.  511 
and 10 U.S.C. 101 the Department determined that, for purposes of the 
SCRA interest rate limit, the term ``active duty'' means full-time duty 
in the active military service of the United States. It also includes 
full-time training duty, annual training duty, and attendance, while in 
active military service, at a school designated as a service school by 
law or by the Secretary of a branch of the military. Active military 
service for a member of a National Guard includes service under a call 
to active service authorized by the President or the Secretary of 
Defense for a period of more than 30 consecutive days for purposes of 
responding to a national emergency declared by the President and 
supported by Federal funds. The non-Federal negotiators also requested 
clarification on the minimum term of active duty service to qualify for 
the SCRA interest rate limit. Under 10 U.S.C. 101 the term ``active 
duty for a period of more than 30 days'' means active duty under a call 
or order that does not specify a period of 30 days or less.
    The non-Federal negotiators also requested that the preamble 
address the possibility that an endorser of a Stafford loan may seek 
the SCRA interest rate limit. The Department noted that there have not 
been endorsers on Stafford loans since 1992 and that it is very 
unlikely that one of these individuals will still be liable on the loan 
and will request the SCRA interest rate limit. However, if this 
unlikely event did occur, the Department would expect these endorsers 
to receive the same treatment as endorsers of PLUS loans.
    A non-Federal negotiator asked why a borrower who submits a 
combination of evidence to establish his or her active duty service for 
the purpose of the SCRA interest rate limit should be provided the 
interest rate limit for the longest eligible period verified with the 
official electronic database, or alternative evidence of active duty 
service received by the loan holder, using the combination of evidence 
that provides the borrower with the earliest active duty start date and 
the latest active duty end date. We believe that, when the data are 
inconsistent, the most effective way to ensure the servicemember 
receives the benefit to which she or he is entitled is to use the 
earliest active duty start date and the latest active duty end date.
    The committee also discussed how to address situations in which the 
lender learns, after the effective date of these regulations, that a 
borrower may have been eligible for the SCRA interest rate limit but 
the loan has been paid in full before the lender learned that the 
borrower was eligible. The Department and the loan servicers noted that 
they may not have current contact information for these borrowers and 
would not have a means of providing a refund. The proposed regulations 
do not specifically address this situation but do not preclude a lender 
from making a refund if it can.

Guaranty Agency Counseling for Repayment Transition (Sec.  682.405)

    Statute: Under section 428F of the HEA, a borrower may rehabilitate 
a defaulted FFEL Program loan once by making nine on-time payments over 
a 10-month period. The payments are to be ``reasonable and affordable'' 
and are to be based on the borrower's ``total financial 
circumstances.'' Upon the

[[Page 39616]]

successful rehabilitation of the defaulted loan, all of the terms, 
conditions, and benefits of the loan, such as repayment plans like the 
Income-Based Repayment (IBR) Plan and deferments, are available to the 
borrower.
    Current Regulations: Section 682.405 provides for a guaranty agency 
to, after entering into an agreement with a FFEL Program borrower to 
rehabilitate a defaulted loan, limit contact with the borrower on the 
loan being rehabilitated to collection activities that are required by 
law or regulation and to communications that support the 
rehabilitation. It does not specifically require or authorize a 
guaranty agency to counsel the borrower concerning the borrower's 
rights and responsibilities after the borrower has rehabilitated the 
defaulted loan.
    Proposed Regulations: Proposed Sec.  682.405(c) would require a 
guaranty agency to provide information to a FFEL Program borrower with 
whom it has entered into a rehabilitation agreement regarding the 
repayment options that will be available to the borrower after loan 
rehabilitation is completed.
    Reasons: Some guaranty agencies have reportedly interpreted the 
existing regulatory language concerning the limitation of contact with 
the borrower to mean that they are not permitted to provide information 
to the borrower about repayment options after loan rehabilitation. This 
approach may have contributed to misunderstandings among some borrowers 
who have rehabilitated their defaulted FFEL Program loans. For 
instance, borrowers in such circumstances may not fully understand 
that, if they do not specifically choose another plan, the new holder 
of their loan will place the loan on the 10-year standard repayment 
plan, which generally results in a much higher payment than the payment 
the borrower made to rehabilitate the defaulted loan. Being placed on 
the 10-year standard repayment plan could be confusing for a borrower, 
and the payments may not be affordable.
    During the negotiations, non-Federal negotiators representing FFEL 
Program guaranty agencies and servicers requested that they be 
permitted to engage in a practice equivalent to what occurs in the 
Direct Loan Program for borrowers who rehabilitate a defaulted Direct 
Loan. In the Direct Loan Program, borrowers who rehabilitate a 
defaulted Direct Loan are initially placed on an alternative repayment 
plan. The payment amount that the borrower made to rehabilitate the 
loan is maintained for three months under the alternative repayment 
plan while the Department's loan servicer provides information to the 
borrower about the availability of other repayment plans. If the 
borrower does not choose a new repayment plan during the three-month, 
post-rehabilitation period, the borrower's loan is removed from the 
alternative repayment plan and is placed on the standard repayment 
plan. In the FFEL Program, there is no designated ``alternative 
repayment plan,'' and there is no statutory authority for the 
Department to create a repayment plan in the FFEL Program that is 
comparable to the alternative repayment plan. Therefore, in these 
negotiations we initially proposed requiring FFEL Program lenders to, 
after purchasing a rehabilitated FFEL Program loan from the guaranty 
agency, place the borrower on the standard repayment plan and 
simultaneously provide the borrower with a non-capitalizing, mandatory 
administrative reduced-payment forbearance with a payment equal to the 
payment amount that the borrower paid to rehabilitate the FFEL Program 
loan. During the mandatory administrative reduced payment forbearance, 
the FFEL Program lender would counsel the borrower on repayment options 
and, as in the Direct Loan Program, attempt to get the borrower to 
choose a new repayment plan. If the borrower did not make a choice 
after a period of time, the forbearance would be removed. Non-Federal 
negotiators expressed concerns about using forbearance as a tool to 
achieve the desired outcome of maintaining the rehabilitation payment 
amount for a period of time while giving the borrower an opportunity to 
choose a repayment plan. The non-Federal negotiators representing FFEL 
Program participants expressed concerns that forbearances may carry 
negative connotations, and are also generally associated with the 
borrower not making any payments instead of a reduced payment. These 
negotiators also raised operational concerns about treating a borrower 
as delinquent on the loan if the borrower did not make the payment 
under a reduced-payment forbearance. They contended that most FFEL 
Program lenders do not treat a borrower as delinquent if the borrower 
does not make a payment under a reduced-payment forbearance agreement, 
and, accordingly, non-Federal negotiators representing the FFEL Program 
contended that our proposal would have required significant 
modifications to servicing systems. We indicated that current 
regulations already provide the authority for granting a reduced-
payment forbearance under Sec.  682.211(a) and a non-capitalizing 
administrative forbearance under Sec.  682.211(f)(11) if it is 
necessary to provide additional time for a borrower to select a 
repayment plan option. Ultimately, the Department and non-Federal 
negotiators agreed that it would be preferable to adopt a less 
burdensome proposal. Therefore we are proposing to require guaranty 
agencies to provide the borrower with information on all of the 
repayment options available to the borrower after loan rehabilitation.

Loan Rehabilitation (Sec.  682.405)

    Statute: Section 428F of the HEA was amended by the Bipartisan 
Budget Act of 2013 (Pub. L. 113-67) to, effective July 1, 2014, require 
a guaranty agency to assign an otherwise rehabilitated loan to the 
Secretary if it is unable to find a FFEL Program lender to purchase the 
loan, and to reduce the amount of collection costs that can be added to 
the balance of the loan upon rehabilitation from 18.5 percent to 16 
percent.
    Current Regulations: Current Sec.  682.405 does not reflect the 
changes made to the HEA by the Bipartisan Budget Act of 2013.
    Proposed Regulations: The proposed regulations would change Sec.  
682.405 to reduce the amount of collections costs that may be added to 
the balance of the loan upon rehabilitation from 18.5 percent to 16 
percent of the unpaid principal and accrued interest at the time of the 
sale and to reflect that an otherwise rehabilitated FFEL Program loan 
must be assigned to the Secretary if the guaranty agency is unable to 
find a FFEL Program lender to purchase the loan.
    Reasons: The FFEL Program loan rehabilitation regulations need to 
reflect the changes made to the HEA by the Bipartisan Budget Act of 
2013.

Income-Contingent Repayment Plans

    Background: On June 9, 2014, the President issued a Presidential 
Memorandum directing the Secretary of Education to propose regulations 
that would extend the benefits of the Pay As You Earn repayment plan to 
all eligible borrowers, regardless of when they borrowed, and that 
would include new features to target the plan to struggling borrowers.
    To carry out the objective of the Presidential Memorandum, the 
Secretary initiated this rulemaking process to propose the creation of 
the new REPAYE plan as a type of Income-Contingent Repayment (ICR) plan 
in the Direct Loan Program under section 455(d)(1)(D) of the HEA. The 
proposed REPAYE plan would have many of the

[[Page 39617]]

same terms and conditions as the Pay As You Earn repayment plan. Terms 
and conditions of the REPAYE plan that differ from the Pay As You Earn 
repayment plan are explained below.

Revised Pay As You Earn Repayment Plan (Sec. Sec.  685.208, 685.209, 
685.219, and 685.221)

    Statute: Section 455(d)(1)(D) of the HEA authorizes the Secretary 
to offer Direct Loan borrowers (except parent PLUS borrowers) an ICR 
plan with varying annual repayment amounts based on the income of the 
borrower, for a period of time prescribed by the Secretary, not to 
exceed 25 years. Section 455(e)(1) of the HEA authorizes the Secretary 
to establish ICR plan repayment schedules through regulations.
    Current Regulations: Section 685.209 establishes the Pay As You 
Earn repayment plan and the ICR plan.
    Proposed Regulations: The proposed regulations would add a new 
Sec.  685.209(c), establishing the REPAYE plan as a third ICR plan 
under which a borrower's monthly payment amount is determined based on 
the borrower's adjusted gross income (AGI) and family size.
    Reasons: The proposal to establish an income-contingent repayment 
plan available to all student Direct Loan borrowers is consistent with 
the President's Memorandum to the Secretary.
    The non-Federal negotiators supported expanding the availability of 
the benefits of the Pay As You Earn repayment plan to all eligible 
Direct Loan borrowers regardless of when they borrowed.
    However, the non-Federal negotiators initially did not support 
creating a third income-contingent repayment plan. They pointed out 
that, in addition to the two current income-contingent repayment plans, 
the IBR plan is also available for many borrowers. Instead of adding a 
new plan, these negotiators recommended modifications to the Pay As You 
Earn repayment plan to make it available to more borrowers, while 
allowing borrowers who are currently repaying under that plan to 
continue doing so under the existing Pay As You Earn repayment plan 
terms and conditions. They believed that this approach would be simpler 
for the Department and its loan servicers to administer, and simpler 
for schools to explain to borrowers.
    The Department stated that it was committed to adding the REPAYE 
plan to the existing choices of income-driven repayment plans and 
believed that the current Pay As You Earn repayment plan should be 
retained until proposed reforms can be implemented that would establish 
a single income-driven repayment plan targeted to struggling borrowers. 
While we appreciate the concerns raised by the negotiators, we do not 
believe that adding a third plan will significantly increase burden for 
servicers or confuse borrowers.

Access to the REPAYE Plan

    Statute: Section 455(d)(1)(D) of the HEA authorizes the Secretary 
to promulgate regulations governing access of Direct Loan borrowers 
(except parent PLUS borrowers) to an income-contingent repayment plan.
    Current Regulations: Under Sec.  685.209(a), the Pay As You Earn 
repayment plan is limited to ``eligible new borrowers.'' ``Eligible new 
borrower'' is defined in Sec.  685.209(a)(1)(iii) as an individual who 
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 who receives a disbursement of a Direct Subsidized Loan, 
Direct Unsubsidized Loan, or student Direct PLUS Loan on or after 
October 1, 2011.
    Under Sec.  685.209(a)(2), an eligible new borrower may select the 
Pay As You Earn repayment plan only if he or she has a PFH, as defined 
in Sec.  685.209(a)(1)(v).
    Proposed Regulations: Proposed Sec.  685.209(c)(2)(i) would allow a 
student Direct Loan borrower to select the REPAYE plan regardless of 
when the borrower received the Direct Loan, and regardless of whether 
the borrower has a PFH.
    Reasons: Consistent with the President's Memorandum to the 
Secretary, the REPAYE plan would be available to any Direct Loan 
student borrower, regardless of when the borrower obtained his or her 
loans. The non-Federal negotiators were overwhelmingly supportive of 
not establishing any limitation on eligibility for the REPAYE plan 
based on when the borrower received his or her Direct Loans.
    Initially, the Department proposed retaining PFH as an eligibility 
criterion for borrowers selecting the REPAYE plan. The Department's 
view was that the PFH eligibility criterion would help meet the 
President's objective of targeting the benefits of the new repayment 
plan to struggling borrowers. The non-Federal negotiators argued that 
other features of the REPAYE plan, such as the absence of a limit on 
the borrower's monthly payment amount, would effectively target the 
benefits of the REPAYE plan to struggling borrowers. The non-Federal 
negotiators thought that establishing PFH as an entry requirement for 
the REPAYE plan would limit the number of borrowers who could repay 
their loans through the REPAYE plan, and might exclude some of the 
struggling borrowers that the REPAYE plan is intended to benefit, 
particularly some middle-income borrowers.
    Some non-Federal negotiators suggested various alternative 
approaches to meet the President's goal, such as only counting years 
when a borrower is experiencing a PFH towards the 20- or 25-year 
forgiveness periods.
    We found the arguments of the non-Federal negotiators persuasive, 
and agreed to withdraw our proposal to establish PFH as an eligibility 
criterion for the REPAYE plan.
    Some non-Federal negotiators recommended expanding eligibility for 
the REPAYE plan to parent Direct PLUS Loan borrowers. However, the 
Department noted that the statutory authority governing all of the 
income-contingent repayment plans specifically excludes parent PLUS 
borrowers from repaying their PLUS loans under such plans.
    Treatment of Married Borrowers Under the REPAYE Plan Statute: 
Section 455(e)(2) of the HEA requires the Secretary to establish 
income-contingent repayment amounts based on the AGI of the borrower 
and, if applicable, the borrower's spouse. Section 455(e)(4) of the HEA 
authorizes the Secretary to establish income-contingent repayment 
schedules through regulations.
    Current Regulations: Under Sec.  685.209(a)(2), the monthly payment 
for a borrower in the Pay As You Earn repayment plan is 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. Under Sec.  685.209(a)(1)(i), for a married borrower 
filing separately, AGI includes only the borrower's income.
    Proposed Regulations: Under proposed Sec.  685.209(c)(2), the 
monthly payment for a borrower in the REPAYE plan would generally be 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 monthly payment amount may be adjusted, 
as discussed under the Borrowers Repaying Under the REPAYE Plan Who Do 
Not Provide Required Documentation of Income section in this preamble.

[[Page 39618]]

    Proposed Sec.  685.209(c)(1)(i) would define the term ``adjusted 
gross income'' to mean the borrower's adjusted gross income as reported 
to the IRS. For a married borrower who files a joint Federal tax 
return, AGI would include both the borrower's and spouse's income and 
would be used to calculate the monthly payment amount. For a married 
borrower who files a Federal tax return separately from his or her 
spouse, the AGI for each spouse would be combined to calculate the 
monthly payment amount. For a married borrower who files a tax return 
separately from his or her spouse, the AGI of the borrower's spouse 
would not be required however if the borrower certifies that the 
borrower is separated from his or her spouse or is unable to reasonably 
access the income information of his or her spouse. The borrower would 
provide the appropriate certification on a form approved by the 
Secretary.
    The definition of ``family size'' in proposed Sec.  
685.209(c)(1)(iii) would be consistent with the definition of that term 
in the Pay As You Earn repayment plan regulations, with one exception. 
Family size would not include a married borrower's spouse if the 
borrower filed a Federal income tax return separately from his or her 
spouse and the borrower is separated from his or her spouse, or if the 
borrower filed a separate Federal income tax return from his or her 
spouse and the borrower is unable to reasonably access the spouse's 
income information.
    Reasons: In the Pay As You Earn repayment plan, the IBR plan, and 
the ICR plan, the combined AGI for married borrowers is used if the 
couple files a joint Federal tax return. However, if the couple files 
separately, only the borrower's AGI is used in the payment calculation. 
The REPAYE plan would treat married borrowers filing separately 
differently. We believe that the proposal to combine the AGI of the 
borrower and the spouse when they are filing separately, except in 
certain circumstances, would provide more equitable treatment for 
borrowers. In the current IDR plans, whether a spouse's income is taken 
into consideration when determining the borrower's payment amount is 
dependent on the tax filing decisions of the married couple. We believe 
that, for married borrowers, it is more equitable to count the spouse's 
AGI even when the borrower and spouse file separate tax returns, except 
under the circumstances described earlier under Proposed Regulations.
    The non-Federal negotiators generally agreed with this treatment of 
married borrowers. However, they raised serious concerns about married 
borrowers who would be unable to obtain the AGI of their spouses. They 
raised the issue of borrowers who are separated from their spouses--
either legally separated or simply living apart. The non-Federal 
negotiators argued that the requirement for a married borrower filing 
separately to provide his or her spouse's AGI could prevent the 
borrower from participating in the REPAYE plan due to circumstances 
beyond the borrower's control. For instance, they noted that borrowers 
who are victims of domestic abuse could be forced to attempt to obtain 
the AGI information from their abuser.
    The Department agreed that exceptions should be made for borrowers 
who are separated from their spouses, or who are unable to obtain their 
spouse's AGI for other reasons. We agreed to include a certification on 
the Income-Driven Repayment Plan Request application form that will 
allow borrowers to certify that they meet the conditions for this 
exception. This process would be modeled after the Department's 
instructions to individuals completing the Free Application for Federal 
Student Aid.
    The non-Federal negotiators also argued that the exception to 
providing a spouse's AGI in cases of separated or abused spouses should 
be reflected in the definition of ``family size.'' The Department 
agreed with this position. If a borrower certifies on the Income-Driven 
Repayment Plan Request application that the borrower is separated from 
his or her spouse or is unable to reasonably obtain the spouse's AGI 
information, the spouse would not be counted as part of the borrower's 
family size for the REPAYE plan.

Absence of a Cap on Monthly Payment Amounts Under the REPAYE Plan

    Statute: The HEA does not address capping the monthly payment 
amount for a loan repaid under an income-contingent repayment plan.
    Current Regulations: Under Sec.  685.209(a)(4)(i)(A), if a borrower 
making payments under the Pay As You Earn repayment plan no longer has 
a PFH, the Department recalculates the borrower's monthly payment 
amount. The maximum monthly payment amount the borrower is required to 
repay as a result of this recalculation may not exceed 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 outstanding at the time the borrower began repayment under the 
Pay As You Earn repayment plan.
    Proposed Regulations: Under proposed Sec.  685.209(c)(2)(i)(A), the 
calculated monthly payment amount under the REPAYE plan would not be 
capped at the amount the borrower would have paid under a standard 
repayment plan based on a 10-year repayment period.
    Reasons: The absence of a standard repayment plan cap for payments 
under the REPAYE plan would serve the President's goal of ensuring that 
high-income, high-balance Direct Loan borrowers pay an equitable share 
of their earnings as their income rises. Non-Federal negotiators 
supported the proposal not to have a cap on the calculated monthly 
payment amount under the REPAYE plan, to better target the benefits of 
the REPAYE plan to struggling borrowers.

Accrued Interest Charged Under the REPAYE Plan

    Statute: The HEA does not address interest charges under an income-
contingent repayment plan.
    Current Regulations: Under Sec.  685.209(a)(2)(iii), if a 
borrower's monthly payment amount under the Pay As You Earn repayment 
plan 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 Department 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.
    Proposed Regulations: Under proposed Sec.  685.209(c)(2)(iii)(A), 
if a borrower's monthly payment amount under the REPAYE plan is not 
sufficient to pay the accrued interest on the borrower's loan, the 
Department would 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 a Direct Subsidized Loan or the 
subsidized portion of a Direct Consolidation Loan under the REPAYE 
plan. Following this three-year period, the Department would charge the 
borrower 50 percent of the remaining accrued interest on the Direct 
Subsidized Loan or the subsidized portion of a Direct Consolidation 
Loan.
    Under proposed Sec.  685.209(c)(2)(iii)(C), the three-year period 
would not include any period during which the borrower receives an 
economic hardship deferment. The three-year period would include any 
prior period of repayment under the IBR

[[Page 39619]]

plan or the Pay As You Earn repayment plan, and, for a Direct 
Consolidation Loan, would include any period in which the underlying 
loans were repaid under the IBR plan or the Pay As You Earn repayment 
plan.
    Under proposed Sec.  685.209(c)(2)(iii)(B), if a borrower's monthly 
payment amount is not sufficient to pay the accrued interest on the 
borrower's Direct Unsubsidized Loan, Direct PLUS Loan, or on the 
unsubsidized portion of a Direct Consolidation Loan, the Department 
would charge the borrower 50 percent of the remaining accrued interest. 
In addition, the Department would charge the borrower 50 percent of the 
remaining accrued interest on a Direct Subsidized Loan or the 
subsidized portion of a Direct Consolidation Loan for which the 
borrower has become responsible for accruing interest under Sec.  
685.200(f)(3).
    Reasons: The proposal to limit the amount of interest charged to a 
borrower in the REPAYE plan during periods when the calculated monthly 
payment is not sufficient to cover accrued interest is consistent with 
the goals of the President's Memorandum to the Secretary.
    The non-Federal negotiators supported this proposal, but questioned 
how subsidized loans that have lost their interest subsidy due to the 
borrower exceeding the 150 percent Direct Subsidized Loan Limits would 
be handled. The Department determined that, in the case of a Direct 
Subsidized Loan or the subsidized portion of a Direct Consolidation 
Loan for which the borrower has become responsible for paying the 
interest, the Department would charge the borrower 50 percent of the 
remaining accrued interest that accrues after the effective date of the 
loss of interest subsidy.
    Non-Federal negotiators also recommended allowing the period when 
interest is not charged on Direct Subsidized loans or the subsidized 
portion of a Consolidation Loan to be for any three years rather than 
for three consecutive years from the start date of the repayment 
period. Non-Federal negotiators also recommended decreasing the amount 
of interest that would be charged to a borrower after a three-year 
period from 50 percent of the remaining accrued interest to 10 percent 
of the remaining accrued interest. However, the Department determined 
that this proposal would significantly increase costs to the taxpayers.

Interest Capitalization Under the REPAYE Plan

    Statute: Section 455(e)(5) of the HEA authorizes the Secretary to 
promulgate regulations limiting the amount of interest that may be 
capitalized on loans repaid under an income-contingent repayment plan, 
and specifying the timing of capitalization under the plan.
    Current Regulations: Under Sec.  685.209(a)(2)(iv)(A), accrued 
interest is capitalized for a borrower in the Pay As You Earn repayment 
plan when the borrower is determined to no longer have a PFH, or at the 
time the borrower chooses to leave the Pay As You Earn repayment plan.
    Proposed Regulations: Under proposed Sec.  685.209(c)(2)(iv), in 
the REPAYE plan, accrued interest would be capitalized when the 
Secretary determines that a borrower does not have a PFH or at the time 
a borrower leaves the REPAYE plan. The amount of accrued interest 
capitalized when a borrower is determined to not have a PFH would be 
limited to 10 percent of the original principal balance at the time the 
borrower entered repayment under the REPAYE plan. After the amount of 
accrued interest reaches this limit, interest would continue to accrue 
but would not be capitalized while the borrower remains on the REPAYE 
plan.
    Proposed Sec.  685.209(c)(1)(iv) would define the term ``partial 
financial hardship'' to mean a circumstance in which 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 borrower initially entered repayment or at the time 
the borrower elected the REPAYE plan, exceeds 10 percent of the 
difference between the borrower's AGI or, if applicable, the AGI of the 
borrower and the borrower's spouse, and 150 percent of the poverty 
guideline for the borrower's family size.
    Reasons: Although the Department is not proposing to include PFH as 
an eligibility criterion for the REPAYE plan, PFH would be used for 
interest capitalization purposes. Under the proposed regulations, the 
Department would determine each year if the borrower has a PFH. If a 
borrower who had a PFH during one year does not have a PFH the 
following year, accrued interest would be capitalized in accordance 
with Sec.  685.209(c)(2)(iv).
    The non-Federal negotiators supported the proposal to limit the 
amount of interest that may be capitalized under the REPAYE plan. Some 
non-Federal negotiators recommended that the Department eliminate 
interest capitalization entirely. However, this proposal would 
significantly increase the costs to the taxpayer of the REPAYE plan. In 
addition, applying the interest capitalization limitation only to 
borrowers with a PFH would help to target the benefits of the REPAYE 
plan to the neediest borrowers.

Borrowers Repaying Under the REPAYE Plan Who Do Not Provide Required 
Documentation of Income

    Statute: The HEA does not address the treatment of borrowers 
repaying under an income-contingent repayment plan who do not provide 
the annual income information required by the Secretary to determine 
the borrower's monthly payment amount.
    Current Regulations: Under Sec.  685.209(a)(5)(vii), if a borrower 
who is repaying under the Pay As You Earn repayment plan remains on the 
plan for a subsequent year, but the Secretary does not receive the 
income information needed to calculate the borrower's new monthly 
payment amount within 10 days of the annual deadline provided to the 
borrower in the notice described in Sec.  685.209(a)(5)(iii), the 
Secretary recalculates the borrower's monthly payment amount and 
requires the borrower to pay the monthly amount the borrower would have 
paid under a standard repayment plan with a 10-year repayment period, 
based on the borrower's loan balance as of the time the borrower began 
repayment under the Pay As You Earn repayment plan. However, the 
Secretary does not recalculate the borrower's monthly payment amount if 
the Secretary receives the required income documentation more than 10 
days after the annual deadline, but is able to determine the borrower's 
new monthly payment amount before the end of the borrower's current 
annual repayment period as described in Sec.  685.209(a)(5)(ii)(A). If 
the Secretary recalculates the borrower's monthly payment amount, the 
repayment period based on that amount may exceed 10 years.
    Current Sec.  685.209(a)(5)(ix) provides that if the Secretary 
receives the required income documentation more than 10 days after the 
specified annual deadline and the borrower's payment amount is 
recalculated as described earlier, the Secretary uses the income 
documentation to determine the borrower's new Pay As You Earn repayment 
plan monthly payment amount. If the new payment amount is $0.00 or is 
less than the borrower's

[[Page 39620]]

previously calculated income-based payment amount, the Secretary 
applies a forbearance with respect to any payments that are overdue or 
that would be overdue at the time the new Pay As You Earn repayment 
plan monthly payment amount is determined. Interest that accrues during 
the portion of the forbearance period that occurred prior to the end of 
the borrower's prior annual payment period is not capitalized.
    Proposed Regulations: Under proposed Sec.  685.209(c)(4)(vi), if a 
borrower who is repaying under the REPAYE plan remains on the plan for 
a subsequent year but the Secretary does not receive the income 
documentation needed to determine the borrower's new monthly payment 
amount within 10 days of the specified annual deadline provided to the 
borrower in the notice described in proposed Sec.  685.209(c)(4)(iii), 
the Secretary would remove the borrower from the REPAYE plan and place 
the borrower on an alternative repayment plan. Under this alternative 
repayment plan, the borrower's required monthly payment would be the 
amount necessary to repay the borrower's loan in full within 10 years 
from the date the borrower begins repayment under the alternative 
repayment plan, or by the end of the 20-year or 25-year period 
described in proposed Sec.  685.209(c)(5)(i) and (ii), whichever is 
earlier. The Secretary would not take these actions if the Secretary 
receives the required income documentation more than 10 days after the 
annual deadline, but is able to determine the borrower's new monthly 
payment amount before the end of the borrower's current annual 
repayment period as described in Sec.  685.209(c)(4)(ii)(A).
    Under proposed Sec.  685.209(c)(4)(vii)(A) through (C), if the 
Secretary places the borrower on an alternative repayment plan, the 
Secretary would send the borrower a written notice informing the 
borrower that he or she has been placed on an alternative repayment 
plan, that the borrower's monthly payment has been recalculated in 
accordance with proposed Sec.  685.209(c)(4)(vi), and that the borrower 
may change to a different repayment plan in accordance with Sec.  
685.210(b). The notice would also explain the conditions, as described 
in proposed Sec.  685.209(c)(4)(vii)(D) through (G), under which a 
borrower who has been removed from the REPAYE plan because the borrower 
did not provide required income documentation within 10 days of the 
specified annual deadline may return to the REPAYE plan.
    Under proposed 685.209(c)(vii)(D), a borrower who has been removed 
from the REPAYE plan because the borrower did not provide income 
documentation to the Secretary in accordance with proposed Sec.  
685.209(c)(4)(vi), or a borrower who chose to leave the REPAYE plan and 
repay under a different repayment plan in accordance with proposed 
Sec.  685.209(c)(2)(vi), may return to the REPAYE plan if he or she 
provides the income documentation necessary for the Secretary to 
calculate both the borrower's new REPAYE plan monthly payment amount 
and the monthly amount the borrower would have been required to pay 
under the REPAYE plan during the period when the borrower was on the 
alternative repayment plan or any other repayment plan.
    Proposed Sec.  685.209(c)(4)(vii)(E) would provide that if a 
borrower qualifies to return to the REPAYE plan by submitting the 
income documentation described in proposed Sec.  685.209(c)(vii)(D), 
and the Secretary determines that the total amount of the payments the 
borrower was required to make while on the alternative repayment plan 
or any other repayment plan are less than the total amount of the 
payments the borrower would have been required to make under the REPAYE 
plan during that period, the Secretary would adjust the borrower's 
REPAYE plan monthly payment to ensure that the difference between the 
two amounts is paid in full by the end of the 20-year or 25-year period 
described in proposed Sec.  685.209(c)(5)(i) and (ii).
    Under proposed Sec.  685.209(c)(4)(vii)(F), if a borrower who was 
removed from the REPAYE plan and placed on the alternative repayment 
plan described in proposed Sec.  685.209(c)(4)(vi) later returns to the 
REPAYE plan or changes to the Pay As You Earn 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, any 
payments the borrower made under the alternative repayment plan will 
count toward loan forgiveness under the REPAYE plan or the other 
repayment plans under Sec.  685.209(a), Sec.  685.209(b), or Sec.  
685.221.
    Finally, proposed Sec.  685.209(c)(4)(vii)(G) would provide that 
any payments made under the alternative repayment plan described in 
proposed Sec.  685.209(c)(4)(vi) would not count as qualifying payments 
for purposes of the Public Service Loan Forgiveness Program under Sec.  
685.219. To reflect this provision, the proposed regulations would also 
make a conforming change in Sec.  685.219(c)(1)(iv)(D) to provide that 
payments made under an alternative repayment plan do not count toward 
the required 120 monthly payments for public service loan forgiveness.
    Reasons: In the absence of a process that allows borrowers to 
provide consent to access their income information for multiple years, 
the proposed approach for handling borrowers who do not provide 
required income documentation by the annual deadline serves two 
important purposes. First, the proposed regulations should provide an 
incentive for borrowers to comply with the annual income documentation 
requirement in a timely manner. At the same time, allowing payments 
made under the alternative repayment plan to count toward REPAYE plan 
loan forgiveness if the borrower later returns to the REPAYE plan 
ensures that borrowers who do not submit income documentation by the 
annual deadline but later correct the problem are not unduly penalized.
    Second, the proposed approach provides a disincentive for borrowers 
who might intentionally withhold updated income information when there 
is a significant increase in their income so as to avoid a 
corresponding increase in their calculated monthly payment amount. The 
proposed regulations would ensure that, if such borrowers wish to 
return to the REPAYE plan, they must repay the difference between the 
amount they were required to pay during the time they were in repayment 
under the alternative repayment plan or any other repayment plan and 
the amount they would have been required to pay during that same period 
under the REPAYE plan if they had provided the required updated income 
documentation. This is consistent with the Department's goal of 
targeting the REPAYE plan to the neediest borrowers by ensuring that 
the required monthly payment amount for a borrower whose income 
increases over time will always be adjusted upward as the borrower's 
income increases.
    During the negotiations, the Department initially presented this 
issue as a topic for discussion and asked the non-Federal negotiators 
to suggest possible approaches. The non-Federal negotiators suggested 
various options for handling borrowers who do not provide required 
income documentation, including: Setting the borrower's payment at a 
fixed payment amount that would ensure repayment of the loan in full 
over the remaining balance of the borrower's 20-year or 25-year REPAYE 
plan repayment term; increasing the borrower's payment amount based on 
a percentage linked to the remaining amount of time under the

[[Page 39621]]

20-year or 25-year repayment term; increasing the payment amount based 
on projected increases in the borrower's income; and requiring the 
borrower to pay an amount that is no less than the standard plan 
payment amount. Other recommendations from the non-Federal negotiators 
included extending the period during which a borrower can submit income 
documentation from 10 days after the annual deadline to 30 to 60 days 
after the deadline, and establishing an appeal process for borrowers 
who miss the income submission deadline.
    In response to these recommendations, the Department noted that 
some of the suggested approaches would effectively establish a cap on 
the maximum amount a borrower would be required to pay, similar to the 
provision of the Pay As You Earn repayment plan that limits the monthly 
amount a borrower is required to pay to no more than the amount the 
borrower would be required to pay under the 10-year standard repayment 
plan. Such an approach would be contrary to the goal of targeting the 
REPAYE plan to the neediest borrowers by ensuring that the calculated 
monthly payment amount is always a percentage of the borrower's income, 
so that borrowers with higher earnings will have a correspondingly 
higher monthly payment amount.
    The Department also declined to consider the recommendations to 
extend the time after the annual deadline during which a borrower may 
submit income documentation, or establish an appeals process for 
borrowers who do not submit income documentation by the deadline. The 
Department noted that the proposed regulations related to the annual 
deadline for submitting income documentation are the same as the 
corresponding regulations for the Pay As You Earn repayment plan that 
were developed through negotiated rulemaking after extensive 
discussion. Because those regulations have been in effect for less than 
two years, the Department did not believe there was sufficient evidence 
to conclude that the existing timeframes for borrowers to submit income 
documentation should be modified. In addition, the corresponding Pay As 
You Earn repayment plan regulations do not provide an appeal process 
for borrowers who miss the annual deadline, and the Department did not 
believe that establishing an appeal process for the REPAYE plan was 
warranted.
    However, the Department noted that we are conducting a pilot 
program to determine if there may be more effective ways to communicate 
the annual income documentation requirement to borrowers.
    At the third negotiating session the Department presented the 
proposed regulations for handling borrowers who do not provide the 
required annual income documentation. The Department also explained to 
the non-Federal negotiators an alternative approach that the Department 
had initially considered and asked for comments on the two approaches. 
Under the alternative approach, a borrower who did not provide the 
required income documentation within 10 days of the specified annual 
deadline would be removed from the REPAYE plan and placed on an 
alternative repayment plan under which the required monthly payment 
amount would be the amount required to repay the borrower's remaining 
loan balance within 10 years from the date the borrower began repayment 
under the alternative repayment plan. The borrower could return to the 
REPAYE plan if he or she provided the required income documentation 
within 90 days of having been placed on the alternative repayment plan, 
or could choose a different repayment plan during that period. If the 
borrower did not provide the required income documentation or change to 
a different repayment plan within the 90-day period, the borrower would 
be removed from the alternative repayment plan and placed on the 
standard repayment plan. During the discussion, the non-Federal 
negotiators generally expressed the view that the Department's final 
proposal for handling borrowers who do not provide income documentation 
was more fair to borrowers than the alternative approach that the 
Department had initially considered.
    One non-Federal negotiator asked why the proposed REPAYE plan 
regulations did not include a forbearance provision comparable to the 
provision in Sec.  685.209(a)(5)(ix), which provides that, in the Pay 
As You Earn repayment plan, the Department applies a forbearance to 
cover any payments that are past due or that would be overdue when the 
Secretary receives income documentation from the borrower more than 10 
days after the specified annual deadline, and the new calculated 
payment amount is $0.00 or is less than the borrower's previously 
calculated Pay As You Earn repayment plan payment amount. The 
Department explained that a comparable provision is not required in the 
proposed regulations for the REPAYE plan, because the administrative 
forbearance provision in Sec.  685.205(b) would cover this situation. 
Consistent with the FFEL Program administrative forbearance provision 
in Sec.  682.211(f)(14), the Secretary would grant forbearance for a 
period of delinquency that exists at the time a borrower makes a change 
to a different repayment plan. The Department noted that under the Pay 
As You Earn repayment plan, a borrower who does not provide income 
documentation by the annual deadline is not actually removed from the 
Pay As You Earn repayment plan, and would not be covered by the 
administrative forbearance provision in Sec.  685.205(b). Therefore, a 
special forbearance provision was added to the Pay As You Earn 
repayment plan regulations. In contrast, the proposed REPAYE plan 
regulations would remove a borrower from the plan and place the 
borrower on an alternative repayment plan if he or she fails to provide 
the required income documentation by the specified annual deadline. If 
the borrower later meets the requirements for returning to the REPAYE 
plan, the Secretary would grant an administrative forbearance under 
Sec.  685.205(b) to cover any payments that are past due or that would 
be overdue at the time the borrower changes back to the REPAYE plan.

Loan Forgiveness Under the REPAYE Plan

    Statute: Section 455(d)(1)(D) of the HEA authorizes the Secretary 
to offer an income-contingent repayment plan with varying annual 
repayment amounts based on the borrower's income, paid over an extended 
period of time prescribed by the Secretary, not to exceed 25 years.
    Current Regulations: Under Sec.  685.209(a)(6), a borrower repaying 
under the Pay As You Earn repayment plan may qualify for forgiveness of 
any remaining loan balance after 20 years of qualifying monthly 
payments and periods of economic hardship deferment. Qualifying monthly 
payments include payments made under the Pay As You Earn repayment 
plan, the income-contingent repayment plan under Sec.  685.209(b), the 
income-based repayment plan under Sec.  685.221, or the standard 
repayment plan with a 10-year repayment period under Sec.  685.208(b), 
as well as payments made under any other Direct Loan repayment plan 
that were not less than the amount required under the standard 
repayment plan with a 10-year repayment period.
    Proposed Regulations: Under proposed Sec.  685.209(c)(5), a 
borrower repaying under the REPAYE plan would qualify for forgiveness 
of any remaining

[[Page 39622]]

loan balance after either 20 years or 25 years of qualifying monthly 
payments.
    Under proposed Sec.  685.209(c)(5)(ii)(A), a borrower would qualify 
for forgiveness after 20 years if the loans being repaid under the 
REPAYE plan include only loans the borrower received to pay for 
undergraduate study or a consolidation loan that repaid only loans the 
borrower received to pay for undergraduate study.
    Under proposed Sec.  685.209(c)(5)(ii)(B), a borrower would qualify 
for forgiveness after 25 years if the loans being repaid under the 
REPAYE plan include a loan the borrower received to pay for graduate or 
professional study or a consolidation loan that repaid a loan received 
to pay for graduate or professional study.
    Proposed Sec.  685.209(c)(5)(iv) would define a ``qualifying 
monthly payment'' as any payment made under the REPAYE plan, the Pay As 
You Earn repayment plan under Sec.  685.209(a), the income-contingent 
repayment plan under Sec.  685.209(b), the income-based repayment plan 
under Sec.  685.221, or the standard repayment plan with a 10-year 
repayment period under Sec.  685.208(b), or a payment made under any 
other Direct Loan repayment plan if the amount of the payment was not 
less than the amount required under the standard repayment plan with a 
10-year repayment period. The proposed definition of ``qualifying 
monthly payment'' would also include any payment made by a borrower 
under the alternative repayment plan described in proposed Sec.  
685.209(c)(4)(vi) and (vii) before the borrower changed to one of the 
income-contingent repayment plans under Sec.  685.209 or the income-
based repayment plan under Sec.  685.221, or any month during which the 
borrower was not required to make a payment due to receiving an 
economic hardship deferment.
    The proposed regulations would also make conforming changes to the 
regulations for the Pay As You Earn repayment plan under Sec.  
685.209(a), the income-contingent repayment plan under Sec.  
685.209(b), and the income-based repayment plan under Sec.  685.221, to 
provide that a qualifying monthly payment for purposes of loan 
forgiveness under those plans would include a monthly payment made 
under the REPAYE plan or a monthly payment made by a borrower under the 
alternative repayment plan described in proposed Sec.  
685.209(c)(4)(vi) and (vii) before the borrower changed to one of the 
repayment plans under Sec.  685.209 or Sec.  685.221.
    Reasons: The Department initially proposed that a borrower would 
qualify for forgiveness after 20 years if the borrower's total 
outstanding balance on loans being repaid under the REPAYE plan was 
$57,500 or less at the time the borrower initially began repayment 
under the plan, and would qualify for forgiveness after 25 years if the 
total outstanding balance on loans being repaid under the REPAYE plan 
was more than $57,500 at the time the borrower initially began 
repayment under the plan. The rationale for this approach was that 
borrowers with higher loan balances should be expected to repay over a 
longer period of time before receiving forgiveness of any remaining 
loan balance. The $57,500 amount is the statutory aggregate loan limit 
for an independent undergraduate student.
    The non-Federal negotiators strongly objected to the Department's 
initial approach to this issue. One of the negotiators' major concerns 
was that basing the determination of the 20-year or 25-year period on a 
specific dollar amount of outstanding loan would result in a ``cliff 
effect,'' whereby a borrower who had as little as $1.00 in outstanding 
loan debt over the specified amount would have to repay for an 
additional five years before qualifying for loan forgiveness. Some non-
Federal negotiators also suggested that the Department's proposed 
approach would be complicated to explain to borrowers, and that it 
would be difficult for borrowers to know at the time they were taking 
out their loans whether they would have to repay for 20 years or 25 
years before qualifying for forgiveness.
    The non-Federal negotiators also noted that, under the Department's 
proposal, it was unclear what would happen if at some point in the 
future the $57,500 independent undergraduate aggregate loan limit was 
increased. They noted further that the original proposal did not make 
it clear how the repayment period would be determined for a borrower 
who initially entered repayment under the REPAYE plan with less than 
$57,500 in outstanding loan debt, but later returned to school and 
received additional loans that increased the borrower's loan debt to an 
amount in excess of $57,500, nor did it clarify how the repayment 
period would be determined for a borrower who had previously begun 
repaying loans under the REPAYE plan and later consolidated those 
loans.
    Some non-Federal negotiators suggested other approaches for 
determining the repayment period, such as increasing the length of the 
repayment period in one-month increments for each $1,000 in loan debt 
beyond a specified amount, or providing a 20-year repayment period for 
all loans received for undergraduate study and a 25-year period for all 
loans received for graduate or professional study.
    The Department considered the non-Federal negotiators' proposal to 
establish a 20-year repayment period for all loans received for 
undergraduate study and a 25-year period for all loans received for 
graduate or professional study, but determined that the costs to the 
taxpayers would be unacceptably high. Some non-Federal negotiators then 
proposed a 20-year repayment period if all of a borrower's loans being 
repaid under the REPAYE plan were obtained for undergraduate study, and 
a 25-year repayment period if one or more of a borrower's loans was 
obtained for graduate or professional study. The non-Federal 
negotiators believed that the benefits of the suggested alternative in 
terms of simplicity and avoiding the potential ``cliff effect'' 
associated with the Department's original proposal would outweigh any 
potential disadvantages. Although some of the other non-Federal 
negotiators had reservations about setting the repayment period at 25 
years for any borrower with at least one loan received for graduate or 
professional study, and expressed concern that this may discourage some 
students from pursuing graduate degrees, all of the non-Federal 
negotiators eventually supported this approach. Some negotiators said 
that they would support the proposal to set the repayment period at 25 
years for borrowers who obtained one or more loans for graduate or 
professional study because graduate and professional students have the 
option of pursuing public service loan forgiveness.
    A non-Federal negotiator asked if a borrower who received loans for 
both undergraduate and graduate study could qualify for forgiveness 
after 20 years by repaying only the undergraduate loans under the 
REPAYE plan and repaying the graduate loans under a different plan, 
such as the Pay As You Earn repayment plan. The Department noted that 
the proposed regulations for the REPAYE plan do not change the current 
regulation 34 CFR 685.208(a)(4) that requires all Direct Loans obtained 
by a borrower to be repaid together under the same repayment plan, 
except that a borrower with a parent Direct PLUS Loan or Direct 
Consolidation Loan that is not eligible for repayment under an income-
driven repayment plan may repay the ineligible loan separately from 
other loans obtained by the borrower.
    After carefully considering the alternative suggested by the non-
Federal negotiators, the Department agreed to incorporate this approach 
in the proposed regulations, with the addition

[[Page 39623]]

of language to clarify the treatment of borrowers with consolidation 
loans, as explained earlier under Proposed Regulations. In response to 
a question from the non-Federal negotiators, the Department also 
clarified that Direct Loans received by a borrower for preparatory 
coursework or teacher certification coursework under 34 CFR 
685.203(a)(6) or (7) would be considered loans obtained for 
undergraduate study. The approach suggested by the non-Federal 
negotiators balances our interest in having borrowers with higher loan 
balances make payments over a longer period of time before receiving 
loan forgiveness with our interest in having a forgiveness provision 
that is easy for borrowers to understand.

Lump Sum Payments Made Under Department of Defense Student Loan 
Repayment Programs for the Purpose of Public Service Loan Forgiveness

    Statute: Section 455(m) of the HEA provides the statutory framework 
for the Public Service Loan Forgiveness Program, including the 
requirement that a borrower seeking loan forgiveness under this section 
must make 120 monthly payments and have been in public service during 
that 120-month period. The statute provides that after the conclusion 
of the 120-month period, the Secretary of Education will cancel the 
obligation to repay the balance of principal and interest due as of the 
time of the cancellation.
    Current Regulations: Section 685.219(c)(2) of the current 
regulations provides that, for purposes of the Public Service Loan 
Forgiveness Program, lump sum payments made by borrowers using Segal 
Education Awards after AmeriCorps service or Peace Corps transition 
payments after Peace Corps service are applied as the number of 
payments resulting after dividing the amount of the lump sum payment by 
the monthly payment amount the borrower would have otherwise been 
required to make or twelve payments.
    Proposed Regulations: The proposed regulations would amend Sec.  
685.219(c)(1)(iii), (c)(2), and (c)(3) to provide the same treatment to 
lump sum payments made on behalf of a borrower through the student loan 
repayment programs under 10 U.S.C. 2171, 2173, and 2174, or any other 
student loan repayment programs administered by the Department of 
Defense.
    Reasons: A non-Federal negotiator proposed this change to provide 
equity to those borrowers who are seeking public service loan 
forgiveness and whose student loan payments are being made directly 
through lump sum payments by the Department of Defense. The Department 
agrees that providing equitable treatment to such payments is an 
important goal.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

Introduction

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This proposed regulatory action would have an annual effect on the 
economy of more than $100 million because the availability of the 
REPAYE plan is estimated to cost approximately $15.3 billion over loan 
cohorts from 1994 to 2025. Therefore, this proposed action is 
``economically significant'' and subject to review by OMB under section 
3(f)(1) of Executive Order 12866. Notwithstanding this determination, 
we have assessed the potential costs and benefits, both quantitative 
and qualitative, of this regulatory action and determined that the 
benefits would justify the costs.
    We have also reviewed these regulations under 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 its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and 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 the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these proposed regulations only on a reasoned 
determination that their benefits would justify their costs. In 
choosing among alternative regulatory approaches, we selected those 
approaches that maximize net benefits. Based on the analysis that 
follows, the Department believes that these proposed regulations are 
consistent with the principles in Executive Order 13563.
    We also have determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    In this regulatory impact analysis we discuss the need for 
regulatory action, the potential costs and benefits, net budget 
impacts, assumptions, limitations, and data sources, as well as 
regulatory alternatives we considered.
    This regulatory impact analysis is divided into six sections. The 
``Need for Regulatory Action'' section discusses why amending the 
current regulations is necessary.
    The ``Summary of Proposed Regulations'' briefly describes the 
changes the Department is proposing in these regulations.
    The ``Discussion of Costs and Benefits'' section considers the cost 
and

[[Page 39624]]

benefit implications of these regulations for student loan borrowers, 
the public, and the Federal Government.
    Under ``Net Budget Impacts,'' the Department presents its estimate 
that the proposed regulations would have a significant net budget 
impact on the Federal Government of approximately $15.3 billion, $8.3 
billion of which relates to existing loan cohorts from 1994 to 2015 and 
$7 billion relates to loan cohorts from 2016 to 2025 (loans that will 
be made in the future).
    In ``Alternatives Considered,'' we describe other approaches the 
Department considered for key provisions of the proposed regulations, 
including basing the determination of whether a borrower could qualify 
for loan forgiveness after 20 or 25 years on the amount borrowed, the 
treatment of married borrowers who file taxes separately, and the 
appropriate handling of borrowers who do not certify their income as 
required to remain in the REPAYE plan.
    Finally, the ``Regulatory Flexibility Act Certification'' considers 
the effect of the proposed regulations on small entities.

Need for Regulatory Action

    The proposed regulations address several topics related to the 
administration title IV, HEA student aid programs and benefits and 
options for borrowers. The changes to the PRI appeals process to allow 
more timely challenges and appeals would provide institutions with more 
certainty about whether they will be subject to sanctions or the loss 
of title IV aid eligibility as a result of their CDRs. This increased 
certainty could encourage some institutions, especially community 
colleges with low borrowing rates, to continue participating in the 
title IV loan programs.
    In the proposed regulations, the Department seeks to reduce the 
burden on active duty servicemembers and help ensure that those 
eligible for an interest rate reduction receive it.
    The Department has also developed these proposed regulations in 
response to a Presidential Memorandum released on June 9, 2014, for the 
Secretary of Treasury and the Secretary of Education with the subject 
line, ``Helping Struggling Federal Student Loan Borrowers Manage Their 
Debt.'' \1\
---------------------------------------------------------------------------

    \1\ www.whitehouse.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments.
---------------------------------------------------------------------------

    In the memorandum, the President discussed the importance of a 
college education and the Administration's efforts to maintain 
affordability of a college education and expressed concern that many 
borrowers were unable to cap their student loan payments at 10 percent 
of their discretionary income under the current regulations.
    The President also instructed the Secretary to propose regulations 
that would allow additional students who borrowed Federal Direct Loans 
to cap their Federal student loan payments at 10 percent of their 
income. The Secretary was instructed to target this option towards 
borrowers who would otherwise struggle to repay their loans.
    The Department is responsible for administration of the Federal 
student loan programs authorized by title IV of the HEA, and as a 
result, periodically reviews and revises program regulations to ensure 
that the programs operate efficiently and in line with the statutory 
rules set by Congress.
    In 2012, the Department of Education established a new income-
contingent repayment plan called the Pay As You Earn repayment plan. 
The Department developed this plan in response to a growing concern 
about the growth of student loan debt and potential long-term economic 
consequences for student borrowers and the country. As a result, under 
the Pay As You Earn plan, loan payments are limited to 10 percent of 
the borrower's discretionary income and any remaining balance is 
forgiven after 20 years of qualifying payments for borrowers who first 
borrowed on or after October 1, 2007, with a loan disbursement made on 
or after October 1, 2011.
    However, while the original PAYE repayment plan offered relief to 
qualifying recent borrowers, it did not help the millions of existing 
borrowers with student loan debt. As the concerns about American 
student loan debt burdens continue to build, the Department seeks to 
offer payment relief to a larger swath of borrowers than is currently 
possible under the PAYE repayment plan. To achieve that goal, the 
Department has proposed the REPAYE plan. This plan will offer borrowers 
many of the same benefits as the original PAYE repayment plan, 
regardless of when they originally borrowed.
    As noted in the Consumer Finance Protection Bureau's 2013 report, 
``Public Service & Student Debt: Analysis of Existing Benefits and 
Options for Public Service Organizations,'' the current process of 
applying ``lump sum payments'' made through student loan repayment 
programs administered by the Department of Defense can be detrimental 
to the overall value of the eligible borrower's benefits.\2\ When such 
payments are counted as one single payment in lieu of the borrower 
being given credit for the equivalent number of monthly payments 
covered by the amount, it does not count toward the 120 qualifying 
payments required for public service loan forgiveness.
---------------------------------------------------------------------------

    \2\ Available at: http://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf.
---------------------------------------------------------------------------

    In these proposed regulations, the Department would count lump sum 
payments made by the Department of Defense under certain loan repayment 
programs towards public service loan forgiveness.

Summary of Proposed Regulations

    The Department proposes to establish a new IDR plan that would be 
available to all borrowers; allow for PRI challenges or appeals to CDRs 
between 30 and 40 percent within the three most recent fiscal years; 
reduce the burden on active duty servicemembers who are entitled to an 
interest rate reduction under the SCRA by requiring servicers to use 
the authoritative Department of Defense database or alternative 
evidence provided by the borrower on a form developed by the Secretary; 
treat lump sum payments from Department of Defense loan repayment 
programs as the equivalent monthly payments for public service loan 
forgiveness; and require guaranty agencies to provide information to 
borrowers rehabilitating defaulted loans to help ensure that borrowers 
understand the available repayment options upon successfully completing 
the loan rehabilitation. The table below briefly summarizes the major 
provisions of the proposed regulations.

[[Page 39625]]



                Table 1--Summary of Proposed Regulations
------------------------------------------------------------------------
                                                       Description of
           Provision               Reg section           provision
------------------------------------------------------------------------
Participation rate index        Sec.  Sec.         An institution may
 challenges and appeals.         668.16, 668.204,   bring a timely PRI
                                 668.208, and       challenge or appeal
                                 668.214.           in any year that its
                                                    draft or official
                                                    CDR is greater than
                                                    or equal to 30
                                                    percent and less
                                                    than or equal to 40
                                                    percent for any of
                                                    the three most
                                                    recent fiscal years,
                                                    not just in the year
                                                    that the institution
                                                    faces sanctions.
                                                   Institutions will not
                                                    lose eligibility
                                                    based on three years
                                                    of official CDRs or
                                                    be placed on
                                                    provisional
                                                    certification based
                                                    on two years if the
                                                    timely appeal with
                                                    respect to any of
                                                    the relevant rates
                                                    demonstrates a PRI
                                                    less than or equal
                                                    to .0625 percent.
SCRA..........................  Sec.  Sec.         Loan holders must
                                 682.202,           proactively consult
                                 682.208,           the authoritative
                                 682.410, 685.202.  Department of
                                                    Defense DMDC
                                                    database to apply
                                                    the SCRA interest
                                                    rate limit of six
                                                    percent.
                                                   Allows borrowers to
                                                    supply alternative
                                                    evidence of active
                                                    duty service to
                                                    demonstrate
                                                    eligibility for the
                                                    SCRA interest rate
                                                    limit through a form
                                                    developed by the
                                                    Secretary when the
                                                    borrower believes
                                                    the database is
                                                    inaccurate or
                                                    incomplete.
Loan rehabilitation...........  Sec.   682.405...  Makes changes to
                                                    reflect statutory
                                                    change in maximum
                                                    collection costs
                                                    that may be added to
                                                    the balance of a
                                                    loan upon
                                                    rehabilitation from
                                                    18.5 percent to 16
                                                    percent and to
                                                    reflect the
                                                    requirement that GAs
                                                    assign a loan to the
                                                    Secretary if it
                                                    qualifies for
                                                    rehabilitation and
                                                    the GA cannot find a
                                                    buyer.
                                                   Requires guaranty
                                                    agencies to provide
                                                    information to
                                                    borrowers about
                                                    their repayment
                                                    options during and
                                                    after loan
                                                    rehabilitation.
------------------------------------------------------------------------
                               REPAYE Plan
------------------------------------------------------------------------
Eligibility...................  Sec.   685.209...  Available to all
                                                    Direct Loan student
                                                    borrowers.
Repayment period..............  Sec.   685.209...  For a borrower who
                                                    has loans for
                                                    undergraduate
                                                    education only, the
                                                    balance of the loans
                                                    will be forgiven
                                                    after 20 years of
                                                    qualifying payments.
                                                   For a borrower who
                                                    has at least one
                                                    loan for graduate
                                                    study, the balance
                                                    of the loans will be
                                                    forgiven after 25
                                                    years of qualifying
                                                    payments.
                                                   Payments made under
                                                    the alternative
                                                    repayment plan would
                                                    count towards
                                                    forgiveness under
                                                    income-driven plans
                                                    if the borrower
                                                    returns to such a
                                                    plan, but not
                                                    towards public
                                                    service loan
                                                    forgiveness.
Treatment of married            Sec.   685.209...  For married borrowers
 borrowers' income for                              filing jointly, AGI
 determining payment.                               includes the
                                                    borrower's and
                                                    spouse's income.
                                                   For married borrowers
                                                    filing separately,
                                                    the spouse's income
                                                    would be included
                                                    unless the borrower
                                                    certifies that the
                                                    borrower is
                                                    separated from the
                                                    spouse or is unable
                                                    to reasonably access
                                                    the spouse's income
                                                    information. In the
                                                    case of separation
                                                    or inability to
                                                    access income
                                                    information, the
                                                    family size for the
                                                    payment calculation
                                                    would not include
                                                    the spouse.
Treatment of borrowers who do   Sec.   685.209...  Borrowers who do not
 not provide income                                 supply income
 documentation annually.                            information can
                                                    choose to leave the
                                                    REPAYE plan and
                                                    select another
                                                    repayment plan for
                                                    which they are
                                                    eligible.
                                                   Borrowers who do not
                                                    supply income
                                                    information within
                                                    10 days of deadline
                                                    are placed on the
                                                    alternative
                                                    repayment plan with
                                                    the monthly payment
                                                    equaling the amount
                                                    necessary to repay
                                                    the loan in full
                                                    within 10 years or
                                                    the end of the 20-
                                                    year or 25-year
                                                    period applicable to
                                                    the borrower under
                                                    the REPAYE plan,
                                                    whichever is
                                                    earlier.
                                                   The borrower may
                                                    return to the REPAYE
                                                    plan if income
                                                    documentation is
                                                    provided for the
                                                    time the borrower
                                                    was on a different
                                                    repayment plan.
                                                    Borrowers whose
                                                    income increased
                                                    during that period
                                                    would be required to
                                                    make an adjusted
                                                    monthly payment so
                                                    the difference
                                                    between what they
                                                    paid under the other
                                                    plan and would have
                                                    paid under the
                                                    REPAYE plan is paid
                                                    in full by the end
                                                    of the 20-year or 25-
                                                    year period.
Interest accrual in periods of  Sec.   685.209...  For borrowers in
 negative amortization.                             negative
                                                    amortization whose
                                                    payments are not
                                                    sufficient to pay
                                                    the accrued interest
                                                    in that period, the
                                                    Department will:
                                                    In the first
                                                    three years of
                                                    repayment, not
                                                    charge the remaining
                                                    interest on Direct
                                                    Subsidized Loans,
                                                    with any periods of
                                                    economic hardship
                                                    deferment not
                                                    included in the
                                                    three year period;
                                                    and
                                                    For Direct
                                                    Unsubsidized Loans,
                                                    Direct PLUS loans to
                                                    graduate or
                                                    professional
                                                    students, the
                                                    unsubsidized portion
                                                    of Direct
                                                    Consolidation Loans,
                                                    Direct Subsidized
                                                    and subsidized
                                                    portions of Direct
                                                    Consolidation loans
                                                    after the three-year
                                                    period, charge the
                                                    borrower 50 percent
                                                    of the remaining
                                                    accrued interest for
                                                    the period.
Treatment of Department of      Sec.   685.219...  Lump sum payments
 Defense lump sum payments for                      made under
 public service loan                                Department of
 forgiveness.                                       Defense loan
                                                    repayment programs
                                                    would be applied as
                                                    the number of
                                                    payments resulting
                                                    after dividing the
                                                    amount of the lump
                                                    sum payment by the
                                                    monthly payment
                                                    amount the borrower
                                                    would have otherwise
                                                    been required to
                                                    make or twelve
                                                    payments.
------------------------------------------------------------------------


[[Page 39626]]

Discussion of Costs and Benefits

    The proposed regulations in large part affect loan repayment 
options and processes, so they would largely affect student borrowers, 
the Federal Government, and loan servicers. The changes to the PRI 
appeal process affect institutions and the Federal Government. The 
following discussion describes the costs and benefits of the proposed 
regulations by key topic area.

REPAYE Plan

    The proposed REPAYE plan would make available to borrowers an IDR 
plan with payments based on 10 percent of discretionary income and, for 
borrowers with only undergraduate loans, a 20-year repayment period to 
all borrowers with loans in repayment. In contrast, under the current 
regulations, only borrowers who received loans during specific time 
periods are eligible for an IDR plan with these benefits, and no 
borrowers who had loans before FY 2008 can take advantage of those 
plans. Additionally, the proposed REPAYE plan would not include the PFH 
requirement that is part of the Pay As You Earn repayment plan for the 
purpose of eligibility, further increasing access to IDR plans. The 
extension of the plan to a broader pool of borrowers would be a primary 
benefit of the REPAYE plan and would give student borrowers another 
tool to manage their loan payments. As detailed in the Net Budget 
Impacts section of this Regulatory Impact Analysis, we estimate that 
six million borrowers would be eligible for the REPAYE plan, although 
not all of them would necessarily choose to enroll. Borrowers repaying 
under the REPAYE plan would also benefit from the plan's 50 percent 
reduction in the accrual of interest for borrowers in negative 
amortization. This would limit the rate at which loan balances increase 
and the amount ultimately owed.
    In offering this increased access, while targeting the plan to the 
neediest borrowers, some features were changed from those in the PAYE 
repayment plan. In particular, there is no cap on the amount of the 
borrower's payment, so borrowers whose income results in a payment 
greater than it would be under standard repayment would have to pay the 
higher amount to maintain eligibility for future loan forgiveness. 
Borrowers who leave the REPAYE plan because they did not meet the 
requirement to annually recertify their income may reenter the REPAYE 
plan at any time, but must provide the income documentation for the 
relevant period and make additional payments if they would have paid 
more under the REPAYE plan.
    To the extent the REPAYE plan reduces payments collected from 
borrowers, there is a cost to the Federal Government. This is described 
in greater detail in the Net Budget Impacts section of this analysis.

Other Provisions

    The proposed regulatory changes to require loan holders to 
proactively use the Department of Defense's DMDC database and to allow 
borrowers to supply alternative evidence of active duty service through 
a form developed by the Secretary would benefit borrowers who are or 
have been in military service, reducing the burden on active duty 
servicemembers in obtaining application of the SCRA interest rate limit 
to their Federal student loans. These proposed changes are intended to 
ensure the six percent interest rate limit is applied for the correct 
time period and that borrowers receive the benefit to which they are 
entitled.
    Similarly, the treatment of lump sum payments made by the 
Department of Defense on behalf of borrowers as the equivalent monthly 
payments for the purpose of public service loan forgiveness would 
ensure that borrowers who are otherwise entitled to public service loan 
forgiveness do not fail to qualify based on the way the Department of 
Defense loan repayment programs are administered. Based on NSLDS data, 
the Department estimates that less than one percent of student loan 
borrowers are affected by this issue.
    The proposed regulations requiring guaranty agencies to provide 
information to FFEL Program borrowers transitioning from rehabilitating 
defaulted loans to loan repayment would benefit borrowers who struggle 
with repayment and could help to prevent those borrowers from 
redefaulting. The proposed regulations require guaranty agencies to 
inform borrowers about different repayment plan options and how the 
borrower can choose a plan. This assistance may help borrowers avoid 
additional negative credit events and allow them to enroll in a 
repayment plan that supports ongoing repayment of their loans.
    Finally, the proposed changes to the PRI challenges and appeals 
process would permit some institutions to challenge their rate in any 
year, not just the one that could result in a loss of eligibility. Some 
non-Federal negotiators and community college advocates suggested these 
changes would encourage more community colleges to participate in the 
title IV loan programs, thus giving students additional options to 
finance their education at those institutions.
    The proposed regulations would have administrative costs for 
guaranty agencies and loan holders that are detailed in the Paperwork 
Reduction Act section of this preamble. As detailed in the Net Budget 
Impacts section of this Regulatory Impact Analysis, the Department does 
not expect that these proposed regulations would have a significant net 
budget impact.

Net Budget Impacts

    The proposed regulations are estimated to have a net budget impact 
of $15.3 billion, of which $8.3 billion is a modification for existing 
cohorts from 1994 to 2015 and $7 billion is related to future cohorts 
from 2016 to 2025. Consistent with the requirements of the Credit 
Reform Act of 1990 (CRA), budget cost estimates for the student loan 
programs reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. A 
cohort reflects all loans originated in a given fiscal year.
    These estimates were developed using the OMB's 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 proposed regulations. In developing the following 
Accounting Statement, the Department also 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 proposed regulations on 
student behavior, budget cost estimates were based on behavior as 
reflected in various Department data sets and longitudinal surveys 
listed under Assumptions, Limitations, and Data Sources. Program cost 
estimates were generated by running projected cash

[[Page 39627]]

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.

REPAYE Plan

    The establishment of the REPAYE plan, which extends a plan with 
payments based on 10 percent of the borrower's discretionary income to 
borrowers with no restriction on when they borrowed, would have a major 
budget impact. The proposed REPAYE plan would differ from the existing 
Pay As You Earn repayment plan in several ways to better target the 
plan to the neediest borrowers and to reduce the costs in some areas to 
allow for the extension of the plan to additional borrowers. Of the 
provisions described in the Summary of the Proposed Regulations, the 
lack of a cap on the borrower's payment amount, the requirement for 25 
years of payments to have loan forgiveness for any borrower with debt 
for graduate education, and the treatment of married borrowers who file 
taxes separately are important provisions to reduce the costs of the 
REPAYE plan, while the reduced interest accrual for borrowers in 
negative amortization and opening the plan to all student borrowers are 
significant drivers of the estimated costs. The availability of the 
proposed REPAYE plan, with its extension of reduced income percentage 
and shorter forgiveness period to earlier cohorts of borrowers, no 
standard repayment cap, limited accrual of interest for borrowers in 
negative amortization, 20-years forgiveness period for undergraduate 
debt and 25-year forgiveness period for graduate debt, process for 
handling borrowers who do not recertify their income annually, and 
treatment of married borrowers filing separately, is estimated to cost 
$15.3 billion.
    To establish the baseline and to evaluate proposals related to IDR 
plans, the Department uses a micro-simulation model consisting of 
borrower-level data obtained by merging data on student loan borrowers 
derived from a sample of the National Student Loan Data System (NSLDS) 
with income tax data from the IRS. Interest and principal payments are 
calculated according to the regulations governing the IDR plans, and 
the payments are adjusted for the likelihood of deferment or 
forbearance; default and subsequent collection; prepayment through 
consolidation; death, disability, or bankruptcy discharges; or public 
service loan forgiveness. The adjusted payment flows are aggregated by 
population and cohort and loaded into the Student Loan Model (SLM). The 
SLM combines the adjusted payment flows with the expected volume of 
loans in income-driven repayment to generate estimates of Federal 
costs.
    In evaluating the costs of the proposed REPAYE plan, the Department 
assumes that, if possible, borrowers would elect the most beneficial 
plan for which they are eligible. Therefore, most borrowers who would 
be eligible for the PAYE repayment plan or the Income Based Repayment 
(IBR) Plan as provided for new borrowers after July 1, 2014 would stay 
in those plans. Many of the borrowers who would choose the REPAYE plan 
would be from earlier cohorts who were ineligible for the PAYE 
repayment plan or the IBR Plan for new borrowers after July 1, 2014. 
Based on this, the Department estimates that for cohorts from 1994 to 
2025, approximately six million borrowers would be eligible for the 
REPAYE plan. We estimate that approximately 2 million borrowers would 
choose the REPAYE plan.
    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 REPAYE plan is estimated to cost approximately $15.3 billion, of 
which $8.3 billion is a modification for existing cohorts from 1994 to 
2015 and $7 billion is related to future cohorts from 2016 to 2025 as 
shown in Table 2.

                                                    Table 2--Estimated Outlays for Cohorts 2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           MOD (1994-
                 Cohorts                     2015)       2016     2017     2018     2019     2020     2021     2022     2023     2024     2025    Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Outlays.................................  ...........    1,100    1,007      901      780      681      612      542      498      477      416    7,014
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................      8,264      1,100    1,007      901      780      681      612      542      498      477      416   15,278
--------------------------------------------------------------------------------------------------------------------------------------------------------

Other Provisions

    The other provisions of the proposed regulations are not estimated 
to have a significant net budget impact. The changes to the SCRA 
servicing requirements so that lenders and loan servicers utilize the 
authoritative Department of Defense database to ensure the SCRA 
interest rate limit is applied appropriately and allowing for 
alternative evidence would make it easier for eligible borrowers to 
receive their SCRA benefit. However, it does not extend eligibility to 
a new set of borrowers and the costs associated with eligible borrowers 
would be in the budget baseline for the President's FY 2016 budget. The 
treatment of lump-sum payments for borrowers who qualify for loan 
repayment under Department of Defense loan repayment programs may allow 
some additional borrowers to qualify for public service loan 
forgiveness. Less than one percent of borrowers are expected to be 
affected by this change, and the lump sum payment must equal the amount 
owed by the borrower for however many months for which the borrower 
receives credit toward forgiveness, so the change in cash flows from 
those estimated to receive public service loan forgiveness for military 
careers is not expected to be significant. We believe it is appropriate 
to allow these borrowers to receive credit towards months of payments 
for public service loan forgiveness in this instance so active duty 
military members receive the forgiveness to which they are entitled and 
already estimated to receive. The PRI challenges and appeals will 
expand the number of

[[Page 39628]]

such actions the Department will be involved with and may result in 
some schools retaining their participation in title IV, HEA programs, 
but we do not expect this to affect program volumes and costs in a 
significant way. Finally, the requirement that guaranty agencies 
provide information to assist borrowers in transitioning from 
rehabilitation of defaulted loans to loan repayment should benefit 
borrowers and may result in improved payment behavior, but we do not 
expect this to materially affect the amount collected from borrowers.

Assumptions, Limitations and Data Sources

    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education and 
Department of Treasury systems; and data from a range of surveys 
conducted by the National Center for Education Statistics such as the 
2008 National Postsecondary Student Aid Survey and the 2004 Beginning 
Postsecondary Student Survey. Data from other sources, such as the U.S. 
Census Bureau, were also used.

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 regulations. This table provides our best estimate of the changes 
in annual monetized transfers as a result of these proposed 
regulations. Expenditures are classified as transfers from the Federal 
Government to affected student loan borrowers.

 Table 3--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                Category                             Benefits
------------------------------------------------------------------------
                                                      7%              3%
                                         -------------------------------
Extension of income-driven repayment
 plan with payment based on 10 percent
 of income and a 20/25-year repayment to
 all cohorts of borrowers...............          Not Quantified.
                                         -------------------------------
Transition assistance for borrowers
 rehabilitating loans.
Easier access for military borrowers to
 SCRA and public service loan
 forgiveness benefits.
------------------------------------------------------------------------
                Category                               Costs
------------------------------------------------------------------------
                                                      7%              3%
                                         -------------------------------
Costs of compliance with paperwork                 $5.95           $5.99
 requirements...........................
------------------------------------------------------------------------
                Category                             Transfers
------------------------------------------------------------------------
                                                      7%              3%
                                         -------------------------------
Reduced payments collected from some              $1,844          $1,661
 borrowers who choose the REPAYE plan...
------------------------------------------------------------------------

Alternatives Considered

    In the interest of promoting good governance and ensuring that 
these proposed regulations produce the best possible outcome, the 
Department reviewed and considered various proposals from both internal 
sources as well as from non-Federal negotiators. We summarize below the 
major proposals that we considered but ultimately declined to implement 
in these proposed regulations.
    The Department and the non-Federal negotiators exchanged proposals 
on the length of the repayment period for different types of borrowers. 
Initially, the Department proposed that borrowers with an outstanding 
loan balance of $57,500 or more when they entered the REPAYE plan would 
be required to make 25 years of qualifying payments to qualify for loan 
forgiveness. Borrowers with an outstanding loan balance below $57,500 
would have to make 20 years of payments. The non-Federal negotiators 
offered several proposals regarding this tiered forgiveness provision, 
including indexing the threshold to any increases in the maximum 
aggregate loan amounts, basing it on the principal amount borrowed as 
opposed to the outstanding balance, or eliminating it and having a 20-
year repayment period for all borrowers. The Department was not willing 
to eliminate the 20- and 25-year distinction entirely for budget and 
policy reasons, but did consider options for the different categories. 
In order to facilitate consensus, the Department agreed to a 20-year 
period for borrowers whose loans were all for undergraduate education 
and a 25-year period for all loans made to borrowers who took out a 
loan for graduate education. The Department was willing to consider 
this approach because the $57,500 amount was derived from the maximum 
loan amount for independent undergraduate borrowers. Compared to the 
original proposal with the $57,500 limit, this proposal from the non-
Federal negotiators would not have a ``cliff effect,'' whereby a 
borrower who had as little as $1.00 in outstanding loan debt over the 
specified amount would have to repay for an additional five years 
before qualifying for loan forgiveness. Undergraduate borrowers who 
take out the maximum loan amount would benefit from this change, while 
low-borrowing graduate students would have a longer time to 
forgiveness.
    The Department also considered alternative approaches with respect 
to borrowers who do not provide the required annual documentation of 
their income. Under the PAYE repayment plan, such a borrower has ten 
days after the deadline to submit payment information and have a new 
payment amount calculated. If the borrower does not provide the income 
documentation within that time, the borrower will have a payment 
calculated based on the standard repayment plan with a 10-year 
repayment period based on the balance at the time the borrower entered 
the PAYE repayment plan. This standard repayment cap was not included 
in the REPAYE plan, and the treatment of borrowers who do not provide 
income

[[Page 39629]]

information was the subject of much discussion. In evaluating options 
for handling such borrowers, the Department sought to provide an 
incentive for timely submission of income documentation and to provide 
a disincentive to those who would withhold updated information 
reflecting a significant increase in income. Options considered 
included an extended grace period for the borrower to submit the 
documentation, placing borrowers who did not submit documentation and 
did not choose an alternative plan into standard repayment with 
amortization over the remainder of the borrower's 20- or 25-year REPAYE 
plan repayment term, or applying the standard repayment plan amount as 
a minimum payment. Because the Department considers the absence of a 
standard repayment cap to be important for targeting the benefits of 
the REPAYE plan to the neediest borrowers and for reducing costs of the 
plan so that it can be extended to all cohorts of borrowers, 
reinstating a cap based on the standard payment was not an option. 
After much discussion, both internally and with the non-Federal 
negotiators, the treatment of borrowers who do not document their 
income summarized in Borrowers Repaying Under the REPAYE Plan Who Do 
Not Provide Required Documentation of Income was agreed upon at the 
third session of negotiations. The Department believes this approach 
allows those who do not provide the documentation because of confusion 
or difficulty in assembling the paperwork time to reenter the program 
and earn credit towards forgiveness for payments made under the 
alternative repayment plan, while those whose income increased in the 
time they did not provide the documentation would have to make up the 
difference by the end of the 20 or 25-year period.

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  668.16.)
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand, see the instructions 
in the ADDRESSES section.

Regulatory Flexibility Act Certification

    The Secretary certifies that these proposed regulations would not 
have a significant economic impact on a substantial number of small 
entities. These proposed regulations concern the relationship between 
certain Federal student loan borrowers and the Federal Government, with 
some of the provisions modifying the servicing and collection 
activities of guaranty agencies and other parties. The Department 
believes that the entities affected by these proposed regulations do 
not fall within the definition of a small entity. Additionally, the 
changes to the PRI challenges and appeals process may affect a small 
number of institutions that would qualify as small entities and 
potentially allow some to continue participating in title IV programs, 
but we do not expect the effect to be economically significant for a 
substantial number of small entities. The U.S. Small Business 
Administration Size Standards define ``for-profit institutions'' as 
``small businesses'' if they are independently owned and operated and 
not dominant in their field of operation with total annual revenue 
below $7,000,000, and defines ``non-profit institutions'' as small 
organizations if they are independently owned and operated and not 
dominant in their field of operation, or as small entities if they are 
institutions controlled by governmental entities with populations below 
50,000. The Secretary invites comments from small entities as to 
whether they believe the proposed changes would have a significant 
economic impact on them and, if so, requests evidence to support that 
belief.

Paperwork Reduction Act of 1995

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department provides 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 668.16, 668.204, 668.208, 668.214, 682.202, 682.208, 
682.405, 685.208, and 682.209 contain information collection 
requirements. Under the PRA, the Department has submitted a copy of 
these sections and an Information Collections Request to OMB for its 
review.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number.
    In the final regulations, we will display the control numbers 
assigned by OMB to any information collection requirements proposed in 
this NPRM and adopted in the final regulations.

Discussion

Sections 668.16, 668.204, 668.208, and 668.214--Participation Rate 
Index Challenges and Appeals

    Requirements: Timelines for submitting a challenge or appeal to the 
potential consequences of an institution's CDR on the basis of its PRI.
    The proposed regulations would permit an institution to bring a 
timely PRI challenge or appeal in any year the institution's draft or 
official CDR is less than or equal to 40 percent, but greater than or 
equal to 30 percent, for any of the three most recently calculated 
fiscal years (for challenges, counting the draft rate as the most 
recent rate), provided that the institution has not brought a PRI 
challenge or appeal from that rate before, and that the institution has 
not previously lost eligibility or been placed on provisional 
certification based on that rate. In addition, if the institution 
brought a successful PRI challenge with respect to a draft CDR that was 
less than

[[Page 39630]]

or equal to the corresponding official CDR, this would preclude 
provisional certification and loss of eligibility from being imposed 
based on the official CDR, without the institution needing to bring a 
PRI appeal in later years.
    Burden Calculation: Because the proposed regulations would not 
fundamentally change an institution's basis for challenging or 
appealing its CDR, and would only alter the timeline in which an 
institution may submit its challenge or appeal, we do not believe that 
these regulations would significantly alter the burden on institutions. 
However, they would prevent a school from needing to appeal a final CDR 
on the basis of its PRI if the final CDR is less than or equal to the 
draft CDR on which a PRI challenge was successful.
    We estimate that the change in the need to appeal a final CDR on 
the basis of PRI when a challenge to a comparable rate on the same 
basis was successful would prevent 50 appeals per year--15 from public 
institutions, 10 from not-for-profit institutions, and 25 from 
proprietary institutions. We have previously estimated that an appeal 
takes each institution 1.5 hours per response.
    Under proposed Sec. Sec.  668.16, 668.204, 668.208, and 668.214, 
therefore, for public institutions, we estimate burden would decrease 
by 23 hours per year (15 public institutions multiplied by 1 appeal 
multiplied by 1.5 hours per appeal). For not-for-profit institutions, 
we estimate burden would decrease by 15 hours per year (10 not-for-
profit institutions multiplied by 1 appeal multiplied by 1.5 hours per 
appeal). For proprietary institutions, we estimate that burden would 
decrease by 37 hours per year (25 proprietary institutions multiplied 
by 1 appeal multiplied by 1.5 hours per appeal).
    Collectively, the total decrease in burden under Sec. Sec.  668.16, 
668.204, 668.208, and 668.214 would be 75 hours under OMB Control 
Number 1845-0022.

Sections 682.202, 682.208, and 682.410--Servicemembers Civil Relief Act 
in the FFEL Program

    Requirements: Matching borrower identifiers in a loan holder's 
servicing system against the Department of Defense's DMDC database.
    Under proposed Sec.  682.208(j)(1), (6), and (7), a FFEL Program 
loan holder, including a guaranty agency, must match information in its 
servicing system, including the identifiers of borrowers, co-borrowers, 
and endorsers, against the Department of Defense's DMDC database to 
determine whether borrowers are eligible to receive an interest rate 
reduction under the SCRA.
    Under proposed Sec.  682.208(j)(5), any FFEL Program loan holder, 
including a guaranty agency, must notify a borrower if an interest rate 
reduction under the SCRA is applied as a result of the loan holder 
having received evidence of the borrower's or endorser's qualifying 
status having begun within 30 days of the date that the loan holder 
applies the interest rate reduction.
    Under proposed Sec.  682.208(j)(8), any FFEL Program loan holder, 
including a guaranty agency, must refund overpayments resulting from 
the application of the SCRA interest rate reduction to a loan that was 
in the process of being paid in full through loan consolidation at the 
time the interest rate reduction was applied by returning the 
overpayment to the holder of the consolidation loan.
    Under proposed Sec.  682.208(j)(9), any FFEL Program loan holder, 
including a guaranty agency, must refund overpayments resulting from 
the application of the SCRA interest rate reduction by returning the 
overpayment to the borrower.
    Burden Calculation: There are approximately 53 public loan holders 
that hold loans for approximately 557,341 borrowers, 151 not-for-profit 
loan holders that hold loans for approximately 2,738,171 borrowers, and 
3,204 proprietary loan holders that hold loans for approximately 
10,524,463 borrowers. We estimate that one percent of borrowers are 
actually eligible for the SCRA interest rate limit.
    Proposed Sec.  682.208(j) would result in a shift in burden from 
borrowers to loan holders. Under the current regulations, a borrower is 
required to submit a written request for his or her loan holder to 
apply the SCRA interest rate limit and a copy of his or her military 
orders to support the request. Because, under the proposed regulations, 
a borrower would no longer be required to submit a written request or a 
copy of his or her military orders, the burden on borrowers would be 
almost completely eliminated. While borrowers would still be able to 
submit other evidence that they qualify for the SCRA interest rate 
limit and loan holders would be required to evaluate it, the Department 
has no data on the likelihood that erroneous or missing data in the 
DMDC database would give rise to the need for a borrower to submit 
alternative evidence of his or her military service. However, anecdotal 
accounts suggest that the error rate of the DMDC database is de 
minimus. Therefore, the proposed regulations would eliminate all but 20 
hours of burden on borrowers associated with the current regulation.
    However, because the Department plans to create a form for 
borrowers to use to certify their active duty service in cases in which 
the borrower believes that the information in the DMDC database is 
incorrect, we estimate that 59 FFEL Program borrowers will submit such 
a form, and that it will take a borrower 20 minutes (0.33 hours) per 
response. We estimate that this form would increase burden by 20 hours 
(59 borrowers multiplied by 0.33 hours per response).
    For proposed Sec.  682.208(j)(1), (6), and (7), we estimate that it 
would take each loan holder approximately three hours per month to 
extract applicable data from their servicing systems, format it to 
conform to the DMDC database file layout, perform quality assurance, 
submit the file to the DMDC database, retrieve the result, import it 
back into their systems, perform quality assurance, and then, to the 
extent that the borrower or endorser is or was engaged in qualifying 
military service, apply, extend, or end the SCRA interest rate 
limitation.
    Under proposed Sec.  682.208(j)(1), (6), and (7), therefore, for 
public loan holders, we estimate that this regulation would increase 
burden by 1,908 hours per year (53 public loan holders multiplied by 3 
hours per month multiplied by 12 months). For not-for-profit loan 
holders, we estimate that this regulation would increase burden by 
5,436 hours per year (151 not-for-profit loan holders multiplied by 3 
hours per month multiplied by 12 months). For proprietary loan holders, 
we estimate that this regulation would increase burden by 115,344 hours 
per year (3,204 proprietary loan holders multiplied by 3 hours per 
month multiplied by 12 months).
    For proposed Sec.  682.208(j)(8), we estimate that it would take 
each loan holder 1 hour per borrower to refund overpayments for 
borrowers who have consolidated their loans. We estimate that, over the 
past six months, 69 percent of the borrowers who consolidated loans 
with an interest rate in excess of 6 percent. We further estimate that 
0.1 percent of those consolidation loans would create an overpayment 
that would require a loan holder to issue a refund to the holder of the 
consolidation loan.
    Under proposed Sec.  682.208(j)(8), therefore, for public loan 
holders, we estimate that this regulation would increase burden by 4 
hours per year (557,341 borrowers with loans held by public loan 
holders multiplied by 1 percent of borrowers who are eligible for

[[Page 39631]]

the SCRA interest rate limit multiplied by 69 percent of borrowers who 
have consolidated multiplied by 0.1 percent). For not-for-profit loan 
holders, we estimate that this regulation would increase burden by 19 
hours per year (2,738,171 borrowers with loans held by not-for-profit 
loan holders multiplied by 1 percent of borrowers who are eligible for 
the SCRA interest rate limit multiplied by 69 percent of borrowers who 
have consolidated multiplied by 0.1 percent). For proprietary loan 
holders, we estimate that this regulation would increase burden by 73 
hours per year (10,524,463 borrowers with loans held by proprietary 
loan holders multiplied by 1 percent of borrowers who are eligible for 
the SCRA interest rate limit multiplied by 69 percent of borrowers who 
have consolidated multiplied by 0.1 percent).
    For proposed Sec.  682.208(j)(9), we estimate that it would take 
each loan holder 1 hour per borrower to refund overpayments for 
borrowers for whom the application of the SCRA interest rate limit 
caused their loan to be overpaid. We estimate that an overpayment would 
result for 0.05 percent of borrowers who have the SCRA interest rate 
limit applied.
    Under proposed Sec.  682.208(j)(9), therefore, for public loan 
holders, we estimate that this regulation would increase burden by 3 
hours per year (557,341 borrowers with loans held by public loan 
holders multiplied by 1 percent of borrowers who are eligible for the 
SCRA interest rate limit multiplied by 0.05 percent). For not-for-
profit loan holders, we estimate that this regulation would increase 
burden by 14 hours per year (2,738,171 borrowers with loans held by 
not-for-profit loan holders multiplied by 1 percent of borrowers who 
are eligible for the SCRA interest rate limit multiplied by 0.05 
percent). For proprietary loan holders, we estimate that this 
regulation would increase burden by 53 hours per year (10,524,463 
borrowers with loans held by proprietary loan holders multiplied by 1 
percent of borrowers who are eligible for the SCRA interest rate limit 
multiplied by 0.05 percent).
    Collectively, the total increase in burden under proposed Sec.  
682.405 would be 122,854 hours under OMB Control Number 1845-0093. The 
burden associated with the form (20 hours) would be associated with OMB 
Control Number 1845--NEW.

Section 682.405--Loan Rehabilitation Agreement

    Requirements: Providing information to borrowers about repayment 
options.
    Under proposed Sec.  682.405(b)(1)(xi) and (c), guaranty agencies 
would be required to provide information to borrowers with whom they 
have entered into a rehabilitation agreement to inform them of the 
repayment options available to them upon successfully completing their 
loan rehabilitation.
    Burden Calculation: There are approximately 2,611,504 borrowers of 
FFEL Program loans who are in default, of which 799,904 have loans held 
by public guaranty agencies and 1,811,600 have loans held by not-for-
profit guaranty agencies. Approximately 4.79 percent of those borrowers 
have entered into a rehabilitation agreement with a guaranty agency to 
rehabilitate their defaulted FFEL Program loans. Therefore, public 
guaranty agencies administer rehabilitation agreements with 
approximately 38,315 borrowers and not-for-profit guaranty agencies 
administer rehabilitation agreements with approximately 86,776 
borrowers.
    We estimate that it would take a guaranty agency 10 minutes (0.17 
hours) per borrower to send the required communication to a borrower 
and respond to borrower inquiries generated by the communication.
    Under proposed Sec.  682.405(c), therefore, for public guaranty 
agencies, we estimate that this regulation would increase burden by 
6,514 hours per year (38,315 borrowers multiplied by 0.17 hours per 
borrower). For not-for-profit guaranty agencies, we estimate that this 
regulation would increase burden by 14,752 hours per year (86,776 
borrowers multiplied by 0.17 hours per borrower).
    Collectively, the total increase in burden under proposed Sec.  
682.405 would be 21,266 hours under OMB Control Number 1845-0020.

Section 685.202--Servicemembers Civil Relief Act in the Direct Loan 
Program

    Requirements: Borrowers would no longer be required to submit a 
written request and a copy of their military orders to receive an 
interest rate reduction under the SCRA; instead, the Department would, 
as in the FFEL Program, query the DMDC database to determine whether a 
borrower is eligible.
    Proposed Sec.  685.202(a)(11) would shift the burden from borrowers 
to the Secretary. Under the current regulations, borrowers are required 
to submit a written request for the Secretary to apply the SCRA 
interest rate limit and a copy of their military orders to support the 
request. Because, under the proposed regulations, borrowers would no 
longer be required to submit a written request or a copy of their 
military orders, the burden on borrowers would be eliminated. While 
borrowers would still be permitted to submit other evidence that they 
qualify for the SCRA interest rate limit, and the Secretary would 
evaluate it, the Department has no data on the likelihood that 
erroneous or missing data in the DMDC database would give rise to a 
borrower needing to submit alternative evidence of his or her military 
service, but anecdotal accounts suggest that the error rate of the DMDC 
database is de minimis. Therefore, the proposed regulations would 
eliminate all but 5 hours of burden on borrowers that are associated 
with the current regulation.
    However, because the Department plans to create a form for 
borrowers to provide a certification of the borrower's authorized 
official in cases where the borrower believes the DMDC database is 
inaccurate or incomplete, we estimate that 141 Direct Loan borrowers 
would submit such a form, and that it would take a borrower 20 minutes 
(0.33 hours) per response. We estimate that this form would increase 
burden by 47 hours (141 borrowers multiplied by 0.33 hours per 
response).
    Collectively, the total decrease in burden for Sec.  685.202 would 
be 681 hours under OMB Control Number 1845-0094. This would eliminate 
all but 47 hours of burden in OMB Control Number 1845-0094. The burden 
associated with the form (47 hours) would be associated with OMB 
Control Number 1845-NEW.

Sections 685.208 and 685.209--Revised Pay As You Earn Repayment Plan

    Requirements: Application, recertification, documentation of 
income, and certification of family size.
    Under proposed Sec.  685.209(c)(4), a borrower selecting the REPAYE 
plan would apply for the plan, provide documentation of his or her 
income and, as applicable, his or her spouse's income, and provide a 
certification of family size. The borrower must provide this 
information annually. If a borrower who repays his or her Direct Loans 
under the REPAYE plan leaves the plan and subsequently wishes to return 
to the REPAYE plan, the borrower must provide income documentation and 
family size certifications for each year in which the borrower was not 
repaying his or her loans under the REPAYE plan after having left the 
plan before being allowed to re-enter the REPAYE plan.
    Burden Calculation: These information collection requirements are 
calculated as part of the Income-Driven Repayment Plan Request, under 
OMB Control Number 1845-0102. This collection is associated with this

[[Page 39632]]

rulemaking because the proposed regulations require that the collection 
be modified to encompass the REPAYE plan. Currently, we estimate that 
it takes 20 minutes (0.33 hours) to complete the Income-Driven 
Repayment Plan Request and that 3,159,132 Direct Loan and FFEL Program 
borrowers complete the form. Even though this form will be revised to 
include the REPAYE plan, we do not believe that it will take any 
additional time for a borrower to complete the form. Therefore, we 
expect the burden hours per response to remain 20 minutes (0.33 hours). 
However, we are making an adjustment to the number of borrowers who 
complete the form based on new data and an overall increase in the 
borrower population. The adjustment to the number of borrowers who 
complete the form would increase that number from 3,159,132 borrowers 
to 4,840,000 borrowers. However, because the REPAYE plan would be 
available to all Direct Loan borrowers, regardless of when the borrower 
took out their loans, and because there would be no requirement for the 
borrower to demonstrate PFH to enroll in the REPAYE plan, we estimate 
that the number of respondents would increase by 1,250,000 borrowers. 
This would bring the total number of respondents to 6,090,000 
borrowers, of which only 1,250,000 of the increase would be 
attributable to the REPAYE plan.
    Collectively, the total increase in burden for Sec. Sec.  685.208 
and 685.209 would be 967,186 hours (2,930,868 additional borrowers 
multiplied by 0.33 hours per response), of which 412,500 hours 
(1,250,000 additional borrowers multiplied by 0.33 hours per response) 
would be attributable to the REPAYE plan under OMB Control Number 1845-
0102. Collectively, the total increase in burden under Sec. Sec.  
685.208 and 685.209 under OMB Control Number 1845-0021 would be 0 
hours.
    Consistent with the discussion above, the following chart describes 
the sections of the proposed regulations involving information 
collections, the information being collected, and the collections that 
the Department will submit to OMB for approval and public comment under 
the PRA, and the estimated costs associated with the information 
collections. The monetized net costs of the increased burden on 
institutions, lenders, guaranty agencies, and borrowers, using wage 
data developed using U.S. Bureau of Labor Statistics data, available at 
www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is $11,969,686 as shown in the 
chart below. This cost was based on an hourly rate of $36.55 for 
institutions, lenders, and guaranty agencies and $16.30 for borrowers.

                                                                Collection of Information
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        OMB control No. and
           Regulatory section              Information collection     estimated burden (change                       Estimated costs
                                                                             in burden)
--------------------------------------------------------------------------------------------------------------------------------------------------------
668.16, 668.204, 668.208, 668.214--PRI   This regulation would       OMB 1845-0022--This would                                                   -$2,741
 challenge and appeal.                    permit an institution to    be a revised collection.
                                          bring a timely PRI          We estimate that burden
                                          challenge in any year the   on institutions would
                                          institution's draft or      decrease by 75 hours.
                                          official CDR is less than
                                          or equal to 40 percent,
                                          but greater than or equal
                                          to 30 percent, for any of
                                          the three most recently
                                          calculated fiscal years
                                          (for challenges, counting
                                          the draft rate as the
                                          most recent rate),
                                          provided that the
                                          institution has not
                                          brought a PRI challenge
                                          or appeal with respect to
                                          that rate before, and
                                          that the institution has
                                          not previously lost
                                          eligibility or been
                                          placed on provisional
                                          certification based on
                                          that rate.
682.202 and 682.208--SCRA in the FFEL    Would expand current        OMB 1845-0093--This would                                                $4,480,876
 Program.                                 regulations to require      be a revised collection.
                                          loan holders to determine   We estimate that burden
                                          a borrower's active duty    on loan holders would
                                          military status for         increase by 122,854
                                          application of the SCRA     hours and that all
                                          maximum interest rate       except 20 hours of
                                          based on information from   burden on borrowers
                                          the authoritative           would be eliminated.
                                          electronic database        OMB 1845-NEW--This would
                                          maintained by the           be a new collection. We
                                          Department of Defense.      estimate that burden on
                                                                      borrowers would increase
                                                                      by 20 hours.

[[Page 39633]]

 
682.405--Loan rehabilitation...........  This change would require   OMB 1845-0020--This would                                                  $777,272
                                          a guaranty agency to        be a revised collection.
                                          provide information to a    We estimate that burden
                                          FFEL Program borrower       on loan holders would
                                          with whom it has entered    increase by 21,266 hours.
                                          into an agreement to
                                          rehabilitate a defaulted
                                          FFEL Program loan.
685.202................................  Would modify current        OMB 1845-0094--This                                                         -$9,471
                                          regulations to require      collection would be
                                          loan holders to determine   revised. We estimate
                                          a borrower's active duty    that all but 47 hours of
                                          military status for         burden on borrowers
                                          application of the SCRA     would be eliminated.
                                          maximum interest rate      OMB 1845--NEW This would
                                          based on information from   be a new collection. We
                                          the authoritative           estimate that burden on
                                          electronic database         borrowers would increase
                                          maintained by the           by 47 hours.
                                          Department of Defense..
685.208 and 285.209--REPAYE plan.......  Would add a new income-     OMB 1845-0021--This          $15,764,838, of which $6,723,750 would be attributable
                                          contingent repayment        collection would not                                   to the proposed regulation.
                                          plan, called the Revised    change because all
                                          Pay As You Earn repayment   burden associated with
                                          plan (REPAYE plan), to      the collection
                                          Sec.   685.209 of the       requirements is
                                          Direct Loan Regulations.    contained in 1845-0102.
                                          The REPAYE plan is         OMB 1845-0102--This would
                                          modeled on the Pay as You   be a revised collection.
                                          Earn (PAYE) repayment       We estimate that burden
                                          plan, and would be          would increase on
                                          available to all Direct     borrowers by 967,186
                                          Loan student borrowers      hours, of which 412,500
                                          regardless of when the      hours would be
                                          student borrowers           attributable to the
                                          received their Direct       proposed regulation.
                                          Loans.
685.219--Public Service Loan             Would permit lump sum       OMB 1845-0021--This                                                              $0
 Forgiveness.                             payments made on a          provision contains no
                                          borrower's behalf by the    collection requirements.
                                          Department of Defense to
                                          be treated like certain
                                          other payments made on
                                          behalf of borrowers who
                                          have served in AmeriCorps
                                          or the Peace Corps.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by the proposed regulations follows:

------------------------------------------------------------------------
                                                  Total       Proposed
                 Control No.                    proposed      change in
                                              burden hours  burden hours
------------------------------------------------------------------------
1845-0020...................................     8,241,898      + 21,266
1845-0022...................................     2,216,045          - 75
1845-0093...................................       122,874     + 122,275
1845-0094...................................            47         - 634
1845-0102...................................     2,009,700     + 967,186
1845--NEW...................................            67          + 67
                                             ---------------------------
  Total.....................................    12,590,631   = 1,110,085
------------------------------------------------------------------------

    We have prepared Information Collection Requests for these 
information collection requirements. If you want to review and comment 
on the Information Collection Requests, please follow the instructions 
in the ADDRESSES section of this notice.

    Note: The Office of Information and Regulatory Affairs in OMB 
and the Department review all comments posted at 
www.regulations.gov.

    In preparing your comments, you may want to review the Information 
Collection Requests, including the supporting materials, in 
www.regulations.gov by using the Docket ID number specified in this 
notice. These proposed collections are identified as proposed 
collections 1845-0020, 1845-0022, 1845-0093, 1845-0094, 1845-0102, and 
1845--NEW.
    We consider your comments on these proposed collections of 
information in--

[[Page 39634]]

     Deciding whether the proposed collections are necessary 
for the proper performance of our functions, including whether the 
information will have practical use;
     Evaluating the accuracy of our estimate of the burden of 
the proposed collections, including the validity of our methodology and 
assumptions;
     Enhancing the quality, usefulness, and clarity of the 
information we collect; and
     Minimizing the burden on those who must respond. This 
includes exploring the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques.
    Between 30 and 60 days after publication of this document in the 
Federal Register, OMB is required to make a decision concerning the 
collections of information contained in these proposed regulations. 
Therefore, to ensure that OMB gives your comments full consideration, 
it is important that OMB receives your comments on these Information 
Collection Requests by August 10, 2015. This does not affect the 
deadline for your comments to us on the proposed regulations.
    If your comments relate to the Information Collection Requests for 
these proposed regulations, please specify the Docket ID number and 
indicate ``Information Collection Comments'' on the top of your 
comments.

Intergovernmental Review

    These programs are not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to one of the persons 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 Number does 
not apply.)

List of Subjects

34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs-education, Loan 
programs-education, Reporting and recordkeeping requirements, Selective 
Service System, Student aid, Vocational education.

34 CFR Part 682

    Administrative practice and procedure, Colleges and universities, 
Loan programs-education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

34 CFR Part 685

    Administrative practice and procedure, Colleges and universities, 
Loan programs-education, Reporting and recordkeeping requirements, 
Student aid, Vocational education.

    Dated: July 1, 2015.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary of 
Education proposes to amend parts 668, 682, and 685 of title 34 of the 
Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority: 20 U.S.C. 1001-1003, 1070g, 1085, 1088, 1091, 1092, 
1094, 1099c, and 1099c-1, unless otherwise noted.

0
2. Section 668.16 is amended by:
0
A. Revising paragraph (m)(2)(ii)(B).
0
B. Adding paragraph (m)(2)(ii)(C).
0
C. Revising paragraphs (m)(2)(iv) and (v).
    The revisions and addition read as follows:


Sec.  668.16  Standards of administrative capability.

* * * * *
    (m) * * *
    (2) * * *
    (ii) * * *
    (B) If it has timely filed an appeal under Sec.  668.213 after 
receiving the second such rate, and the appeal is either pending or 
successful; or
    (C)(1) If it has timely filed a participation rate index challenge 
or appeal under Sec.  668.204(c) or Sec.  668.214 from either or both 
of the two rates, and the challenge or appeal is either pending or 
successful; or
    (2) If the second rate is the most recent draft rate, and the 
institution has timely filed a participation rate challenge to that 
draft rate that is either pending or successful.
* * * * *
    (iv) If the institution has 30 or fewer borrowers in the three most 
recent cohorts of borrowers used to calculate its cohort default rate 
under subpart N of this part, we will not provisionally certify it 
solely based on cohort default rates;
    (v) If a rate that would otherwise potentially subject the 
institution to provisional certification under paragraph (m)(1)(ii) and 
(m)(2)(i) of this section is calculated as an average rate, we will not 
provisionally certify it solely based on cohort default rates;
* * * * *
0
3. Section 668.204 is amended by revising paragraphs (c)(1)(ii) and 
(iii) and (c)(5) to read as follows:


Sec.  668.204  Draft cohort default rates and your ability to challenge 
before official cohort default rates are issued.

* * * * *
    (c) * * *
    (1)(i) * * *
    (ii) Subject to Sec.  668.208(b), you may challenge a potential 
loss of eligibility under Sec.  668.206(a)(2), based on any cohort 
default rate that is less than or equal to 40 percent, but greater than 
or equal to 30 percent, for any of the three most recently calculated 
fiscal years, if your participation rate index is equal to or less than 
0.0625 for that cohort's fiscal year.
    (iii) You may challenge a potential placement on provisional 
certification under Sec.  668.16(m)(2)(i), based on any cohort default 
rate that fails to satisfy the standard of administrative capability in 
Sec.  668.16(m)(1)(ii), if your participation rate index is equal to or 
less than 0.0625 for that cohort's fiscal year.
* * * * *
    (5) If we determine that you qualify for continued eligibility or 
full

[[Page 39635]]

certification based on your participation rate index challenge, you 
will not lose eligibility under Sec.  668.206 or be placed on 
provisional certification under Sec.  668.16(m)(2)(i) when your next 
official cohort default rate is published. Unless that next official 
cohort default rate is less than or equal to your draft cohort default 
rate, a successful challenge that is based on your draft cohort default 
rate does not excuse you from any other loss of eligibility or 
placement on provisional certification. However, if your successful 
challenge under paragraph (c)(1)(ii) or (iii) of this section is based 
on a prior, official cohort default rate, and not on your draft cohort 
default rate, or if the next official cohort default rate published is 
less than or equal to the draft rate you successfully challenged, we 
also excuse you from any subsequent loss of eligibility, under Sec.  
668.206(a)(2), or placement on provisional certification, under Sec.  
668.16(m)(2)(i), that would be based on that official cohort default 
rate.
* * * * *
0
4. Section 668.208 is amended by revising paragraphs (a)(2)(ii) and 
(b)(2) and (3) to read as follows:


Sec.  668.208  General requirements for adjusting official cohort 
default rates and for challenging or appealing their consequences.

    (a) * * *
    (2) * * *
    (ii) A participation rate index challenge or appeal submitted under 
this section and Sec.  668.204 or Sec.  668.214;
* * * * *
    (b) * * *
    (2) You may not challenge, request an adjustment to, or appeal a 
draft or official cohort default rate, under Sec.  668.204, Sec.  
668.209, Sec.  668.210, Sec.  668.211, Sec.  668.212, or Sec.  668.214, 
more than once on that cohort default rate.
    (3) You may not challenge, request an adjustment to, or appeal a 
draft or official cohort default rate, under Sec.  668.204, Sec.  
668.209, Sec.  668.210, Sec.  668.211, Sec.  668.212, or Sec.  668.214, 
if you previously lost your eligibility to participate in a Title IV, 
HEA program, under Sec.  668.206, or were placed on provisional 
certification under Sec.  668.16(m)(2)(i), based entirely or partially 
on that cohort default rate.
* * * * *
0
5. Section 668.214 is amended by revising paragraphs (a)(1) through (3) 
and (c)(2) to read as follows:


Sec.  668.214  Participation rate index appeals.

    (a) Eligibility. (1) You do not lose eligibility under Sec.  
668.206(a)(1), based on one cohort default rate over 40 percent, if you 
bring an appeal in accordance with this section that demonstrates that 
your participation rate index for that cohort's fiscal year is equal to 
or less than 0.0832.
    (2) Subject to Sec.  668.208(b), you do not lose eligibility under 
Sec.  668.206(a)(2) if you bring an appeal in accordance with this 
section that demonstrates that your participation rate index for any of 
the three most recent cohorts' fiscal years is equal to or less than 
0.0625.
    (3) Subject to Sec.  668.208(b), you are not placed on provisional 
certification under Sec.  668.16(m)(2)(i) based on two cohort default 
rates that fail to satisfy the standard of administrative capability in 
Sec.  668.16(m)(1)(ii) if you bring an appeal in accordance with this 
section that demonstrates that your participation rate index for either 
of those two cohorts' fiscal years is equal to or less than 0.0625.
* * * * *
    (c) * * *
    (2) Notice under Sec.  668.205 of a cohort default rate that equals 
or exceeds 30 percent but is less than or equal to 40 percent.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

0
6. The authority citation for part 682 continues to read as follows:

    Authority: 20 U.S.C. 1071-1087-4, unless otherwise noted.

0
7. Section 682.202 is amended by revising paragraph (a)(8) to read as 
follows:


Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (8) Applicability of the Servicemembers Civil Relief Act (SCRA) (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(4) of this section, a loan holder must use the official electronic 
database maintained by the Department of Defense to identify all 
borrowers with an outstanding loan who are active duty servicemembers, 
as defined in 10 U.S.C. 101(d)(1) and (5), and ensure the interest rate 
on a borrower's qualified loans with an outstanding balance does not 
exceed the six percent maximum interest rate under 50 U.S.C. 527, App. 
section 207(a) on FFEL Program loans made prior to the borrower 
entering active duty status. For purposes of this paragraph, the 
interest rate includes any other charges or fees applied to the loan.
* * * * *
0
8. Section 682.208 is amended by adding paragraph (j) to read as 
follows:


Sec.  682.208  Due diligence in servicing a loan.

* * * * *
    (j)(1) Effective July 1, 2016, a loan holder is required to use the 
official electronic database maintained by the Department of Defense, 
to--
    (i) Identify all borrowers who are active duty servicemembers and 
who are eligible under Sec.  682.202(a)(8); and
    (ii) Confirm the dates of the borrower's active duty status and 
begin, extend, or end, as applicable, the use of the SCRA interest rate 
limit of six percent.
    (2) The loan holder must compare its list of borrowers against the 
database maintained by the Department of Defense at least monthly to 
identify servicemembers who are in active duty status for the purpose 
of determining eligibility under Sec.  682.202(a)(8).
    (3) A borrower may provide the loan holder with alternative 
evidence of active duty status to demonstrate eligibility if the 
borrower believes that the information contained in the Department of 
Defense database is inaccurate or incomplete. Acceptable alternative 
evidence includes--
    (i) A copy of the borrower's military orders; or
    (ii) The certification of the borrower's military service from an 
authorized official using a form approved by the Secretary.
    (4)(i) When the loan holder determines that the borrower is 
eligible under Sec.  682.202(a)(8), the loan holder must ensure the 
interest rate on the borrower's loan does not exceed the SCRA interest 
rate limit of six percent.
    (ii) The loan holder must apply the SCRA interest rate limit of six 
percent for the longest eligible period verified with the official 
electronic database, or alternative evidence of active duty status 
received under paragraph (j)(3) of this section, using the combination 
of evidence that provides the borrower with the earliest active duty 
start date and the latest active duty end date.
    (iii) In the case of a reservist, the loan holder must use the 
reservist's notification date as the start date of the military service 
period.
    (5) When the loan holder applies the SCRA interest rate limit of 
six percent to a borrower's loan, it must notify the borrower in 
writing within 30 days that the interest rate on the loan has been 
reduced to six percent during the borrower's period of active duty 
service.
    (6)(i) For PLUS loans with an endorser, the loan holder must use 
the official electronic database to begin, extend, or end, as 
applicable, the SCRA interest rate limit of six percent on the loan 
based on the borrower's or

[[Page 39636]]

endorser's active duty status, regardless of whether the loan holder is 
currently pursuing the endorser for repayment of the loan.
    (ii) If both the borrower and the endorser are eligible for the 
SCRA interest rate limit of six percent on a loan, the loan holder must 
use the earliest active duty start date of either party and the latest 
active duty end date of either party to begin, extend, or end, as 
applicable, the SCRA interest rate limit.
    (7)(i) For joint consolidation loans, the loan holder must use the 
official electronic database to begin, extend, or end, as applicable, 
the SCRA interest rate limit of six percent on the loan if either of 
the borrowers is eligible for the SCRA interest rate limit under Sec.  
682.202(a)(8).
    (ii) If both borrowers on a joint consolidation loan are eligible 
for the SCRA interest rate limit of six percent on a loan, the loan 
holder must use the earliest active duty start date of either party and 
the latest active duty end date of either party to begin, extend, or 
end, as applicable, the SCRA interest rate limit.
    (8) If the application of the SCRA interest rate limit of six 
percent results in an overpayment on a loan that is subsequently paid 
in full through consolidation, the underlying loan holder must return 
the overpayment to the holder of the consolidation loan.
    (9) For any other circumstances where application of the SCRA 
interest rate limit of six percent results in an overpayment of the 
remaining balance on the loan, the loan holder must refund the amount 
of that overpayment to the borrower.
* * * * *
0
9. Section 682.405 is amended:
0
A. In paragraph (a)(2)(ii), by adding the words ``or assigned to the 
Secretary'' after the word ``lender''.
0
B. In paragraph (b)(1)(vi), by adding the words ``or assignment to the 
Secretary'' after the words ``repurchase by an eligible lender'' and 
removing the word ``other'' after the words ``The agency may not impose 
any''.
0
C. By revising paragraph (b)(1)(vi)(B).
0
D. In paragraph (b)(1)(xi), by removing the word ``During'', and 
adding, in its place, the words ``Except as provided in paragraph (c) 
of this section, during''.
0
E. By redesignating paragraph (b)(2) as paragraph (b)(2)(i).
0
F. By adding paragraph (b)(2)(ii).
0
G. In paragraph (b)(3), by adding the words ``or assignment to the 
Secretary'' after the words ``to an eligible lender''.
0
H. In paragraph (b)(3)(i), by adding the words ``or assignment'' after 
the words ``of the sale''.
0
I. In paragraph (b)(3)(i)(A), by adding the words ``or assignment'' 
after the words ``such sale''.
0
J. In paragraph (b)(4), by removing the citation ``Sec.  682.209(a) or 
(h)'', and adding, in its place, the citation ``Sec.  682.209(a) or 
(e)''.
0
K. By revising paragraph (c).
    The addition and revisions reads as follows:


Sec.  682.405  Loan rehabilitation agreement.

* * * * *
    (b) * * *
    (1) * * *
    (vi) * * *
    (B) Of the amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is sold to an eligible lender or 
assigned to the Secretary, which may not exceed 16 percent of the 
unpaid principal and accrued interest on the loan at the time of the 
sale or assignment; and
* * * * *
    (2) * * *
    (ii) If the guaranty agency has been unable to sell the loan, the 
guaranty agency must assign the loan to the Secretary.
* * * * *
    (c) A guaranty agency must make available to the borrower--
    (1) During the rehabilitation period, information about repayment 
plans, including the income-based repayment plan, that may be available 
to the borrower upon rehabilitating the defaulted loan and how the 
borrower can select a repayment plan after the loan is purchased by an 
eligible lender or assigned to the Secretary; and
    (2) After the successful completion of the rehabilitation period, 
financial and economic education materials, including debt management 
information.
* * * * *
0
10. Section 682.410 is amended by revising paragraph (b)(3) to read as 
follows:


Sec.  682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (3) Interest charged by guaranty agencies. (i) Except as provided 
in paragraph (b)(3)(ii) of this section, the guaranty agency shall 
charge the borrower interest on the amount owed by the borrower after 
the capitalization required under paragraph (b)(4) of this section has 
occurred at a rate that is the greater of--
    (A) The rate established by the terms of the borrower's original 
promissory note; or
    (B) In the case of a loan for which a judgment has been obtained, 
the rate provided for by State law.
    (ii) If the guaranty agency determines that the borrower is 
eligible for the interest rate limit of six percent under Sec.  
682.202(a)(8), the interest rate described in paragraph (b)(3)(i) shall 
not exceed six percent.
* * * * *

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
11. The authority citation for part 685 continues to read as follows:

    Authority:  20 U.S.C 1070g, 1087a, et seq., unless otherwise 
noted.

0
12. Section 685.202 is amended by revising paragraph (a)(11) to read as 
follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) * * *
    (11) Applicability of the Servicemembers Civil Relief Act (50 
U.S.C. 527, App. sec. 207). Notwithstanding paragraphs (a)(1) through 
(10) of this section, upon the Secretary's receipt of evidence of the 
borrower's active duty military service, the maximum interest rate 
under 50 U.S.C. 527, App. section 207(a), on Direct Loan Program loans 
made prior to the borrower entering active duty status is six percent 
while the borrower is on active duty military service. For purposes of 
this paragraph, the interest rate includes any other charges or fees 
applied to the loan.
* * * * *
0
13. Section 685.208 is amended:
0
A. By revising paragraph (a)(1)(i)(D).
0
B. In paragraph (a)(4)(i), by removing the word ``the'' before the 
words ``income-contingent'' and adding, in its place, the word ``an''.
0
C. In paragraph (a)(5), by removing the word ``or'' after the words 
``income-contingent'' and adding, in its place, the words ``repayment 
plans and the''.
0
D. By redesignating paragraphs (k)(3) and (4) as paragraphs (k)(4) and 
(5), respectively.
0
E. By adding a new paragraph (k)(3).
    The revision and addition read as follows:


Sec.  685.208  Repayment Plans.

    (a) * * *
    (1) * * *
    (i) * * *
    (D) The income-contingent repayment plans in accordance with 
paragraph (k)(2) or (3) of this section; or
* * * * *
    (k) * * *
    (3) Under the income-contingent repayment plan described in

[[Page 39637]]

Sec.  685.209(c), a borrower's required monthly payment 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, unless the borrower's monthly 
payment amount is adjusted in accordance with Sec.  
685.209(c)(4)(vii)(E).
* * * * *
0
14. Section 685.209 is amended:
0
A. By revising the introductory text of paragraph (a)(1).
0
B. In the second sentence of paragraph (a)(2)(iii), by adding the words 
``or the Revised Pay As You Earn repayment plan'' immediately after the 
words, ``the income-based repayment plan''.
0
C. In paragraph (a)(6)(i)(E), by adding the punctuation and words ``, 
the Revised Pay As You Earn repayment plan described in paragraph (c) 
of this section,'' immediately after the words ``this section''.
0
D. By redesignating paragraph (a)(6)(i)(F) as paragraph (a)(6)(i)(G).
0
E. By adding a new paragraph (a)(6)(i)(F).
0
F. In paragraph (a)(6)(iii)(A), by adding the punctuation and words ``, 
the Revised Pay As You Earn repayment plan described in paragraph (c) 
of this section,'' immediately after the words ``this section''.
0
G. In paragraph (a)(6)(iii)(B), by adding the punctuation and words ``, 
the Revised Pay As You Earn repayment plan described in paragraph (c) 
of this section,'' immediately after the words ``this section''.
0
H. In paragraph (b)(3)(iii)(B)(3), by adding the words ``or the Revised 
Pay As You Earn repayment plan'' after the words ``repayment plan''.
0
I. By adding paragraph (b)(3)(iii)(B)(4).
0
J. By adding paragraph (c).
    The revision and additions read as follows:


Sec.  685.209  Income-contingent repayment plans.

    (a) * * *
    (1) Definitions. As used in this section, other than as expressly 
provided for in paragraph (c)--
* * * * *
    (6) * * *
    (i) * * *
    (F) Made monthly payments under the alternative repayment plan 
described in Sec.  685.209(c)(4)(vi) and (vii) prior to changing to a 
repayment plan described under Sec.  685.209 or Sec.  685.221;
* * * * *
    (b) * * *
    (3) * * *
    (iii) * * *
    (4) Periods in which the borrower made monthly payments under the 
alternative repayment plan described in Sec.  685.209(c)(4)(vi) and 
(vii) prior to changing to a repayment plan described under Sec.  
685.209 or Sec.  685.221;
* * * * *
    (c) Revised Pay As You Earn repayment plan. The Revised Pay As You 
Earn repayment plan (REPAYE plan) is an income-contingent repayment 
plan under which a borrower's monthly payment amount is based on the 
borrower's AGI and family size.
    (1) Definitions. As used in this paragraph (c)--
    (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 and is used to calculate the monthly payment amount. For a 
married borrower filing separately, the AGI for each spouse is combined 
to calculate the monthly payment amount, unless the borrower certifies, 
on a form approved by the Secretary, that the borrower is--
    (A) Separated from his or her spouse; or
    (B) Unable to reasonably access the income information of his or 
her spouse.
    (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) 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. Family size does not include the borrower's 
spouse for a borrower filing separately if the borrower is separated 
from his or her spouse, or if the borrower is filing separately and is 
unable to reasonably access the spouse's income information. A 
borrower's family size includes other individuals if, at the time the 
borrower certifies family size, the other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs;
    (iv) Partial financial hardship means a circumstance in which--
    (A) For an unmarried borrower, 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 elected the REPAYE 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, 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 
elected the REPAYE 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
    (v) 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 Revised Pay As You Earn repayment plan. (i) The 
aggregate monthly loan payments of a borrower who selects the REPAYE 
plan 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, unless the borrower's 
monthly payment amount is adjusted in accordance with paragraph 
(c)(4)(vii)(E) of this section.
    (ii) The Secretary adjusts the calculated monthly payment if--
    (A) Except for borrowers provided for in paragraph (c)(2)(ii)(B) of 
this section, the borrower's eligible loans are not solely 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, in 
which case the Secretary determines--

[[Page 39638]]

    (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 
(c)(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 (c)(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 (c)(2)(i) or 
(c)(2)(ii)(A) or (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 (c)(2)(i) or 
(c)(2)(ii)(A) or (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 loan--
    (A) Except as provided in paragraph (c)(2)(iii)(B) of this section, 
for a 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 REPAYE plan. Following this three-year period, the Secretary 
charges the borrower 50 percent of the remaining accrued interest on 
the Direct Subsidized Loan or the subsidized portion of a Direct 
Consolidation Loan.
    (B) For a Direct Unsubsidized Loan, a Direct PLUS Loan made to a 
graduate or professional student, the unsubsidized portion of a Direct 
Consolidation Loan, or for a Direct Subsidized Loan or the subsidized 
portion of a Direct Consolidation Loan for which the borrower has 
become responsible for accruing interest in accordance with Sec.  
685.200(f)(3), the Secretary charges the borrower 50 percent of the 
remaining accrued interest.
    (C) The three-year period described in paragraph (c)(2)(iii)(A) of 
this section--
    (1) Does not include any period during which the borrower receives 
an economic hardship deferment;
    (2) Includes any prior period of repayment under the income-based 
repayment plan or the Pay As You Earn repayment plan; and
    (3) For a Direct Consolidation Loan, includes any period in which 
the underlying loans were repaid under the income-based repayment plan 
or the Pay As You Earn repayment plan.
    (iv)(A) Except as provided in paragraph (c)(2)(iii) of this 
section, accrued interest is capitalized--
    (1) When the Secretary determines that a borrower does not have a 
partial financial hardship; or
    (2) At the time a borrower leaves the REPAYE plan.
    (B)(1) The amount of accrued interest capitalized under paragraph 
(c)(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 REPAYE plan.
    (2) After the amount of accrued interest reaches the limit 
described in paragraph (c)(2)(iv)(B)(1) of this section, interest 
continues to accrue, but is not capitalized, while the borrower remains 
on the REPAYE 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 leaves the REPAYE plan or the Secretary 
determines the borrower does not have a partial financial hardship.
    (vi) A borrower who no longer wishes to repay under the REPAYE plan 
may change to a different repayment plan in accordance with Sec.  
685.210(b).
    (3) Payment application and prepayment. (i) The Secretary applies 
any payment made under the REPAYE 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 (c)(3)(i) of this section.
    (4) Eligibility documentation, verification, and notifications. 
(i)(A) For the year the borrower initially selects the REPAYE plan and 
for each subsequent year that the borrower remains on the plan, the 
Secretary determines the borrower's monthly payment amount for that 
year. For each subsequent year that the borrower remains on the plan, 
the Secretary also determines whether the borrower has a partial 
financial hardship. To make these determinations, 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) Unless otherwise directed by the Secretary, 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 the determinations described in paragraph 
(c)(4)(i)(A) of this section for the initial year that the borrower 
selects the REPAYE plan and for each subsequent year that the borrower 
remains on the plan, 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 (c)(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 (c)(4)(i) of this 
section, if the borrower chooses to remain on the REPAYE 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 
(c)(4)(i)(C) and (c)(4)(vi) and (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 (c)(4)(ii)(A) through (D) of 
this section.

[[Page 39639]]

    (iii) For each subsequent year that a borrower remains on the 
REPAYE plan, the Secretary notifies the borrower in writing of the 
requirements in paragraph (c)(4)(i) of this section no later than 60 
days and no earlier than 90 days prior to the date specified in 
paragraph (c)(4)(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 (c)(4)(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, as described in paragraphs (c)(4)(vi) and (vii) of this 
section.
    (iv) Each time the Secretary makes a determination that a borrower 
does not have 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 unpaid interest will be 
capitalized in accordance with paragraph (c)(2)(iv) of this section.
    (v) If a borrower who is currently repaying under another repayment 
plan selects the REPAYE plan but does not provide the documentation 
described in paragraph (c)(4)(i)(A) or (B) of this section, the 
borrower remains on his or her current repayment plan.
    (vi) Except as provided in paragraph (c)(4)(viii) of this section, 
if a borrower who is currently repaying under the REPAYE plan remains 
on the plan for a subsequent year but the Secretary does not receive 
the documentation described in paragraph (c)(4)(i)(A) or (B) of this 
section within 10 days of the specified annual deadline, the Secretary 
removes the borrower from the REPAYE plan and places the borrower on an 
alternative repayment plan under which the borrower's required monthly 
payment is the amount necessary to repay the borrower's loan in full 
within the earlier of--
    (A) Ten years from the date the borrower begins repayment under the 
alternative repayment plan; or
    (B) The ending date of the 20- or 25-year period as described in 
paragraphs (c)(5)(i) and (ii) of this section.
    (vii) If the Secretary places the borrower on an alternative 
repayment plan in accordance with paragraph (c)(4)(vi) of this section, 
the Secretary sends the borrower a written notification informing the 
borrower that--
    (A) The borrower has been placed on an alternative repayment plan;
    (B) The borrower's monthly payment amount has been recalculated in 
accordance with paragraph (c)(4)(vi) of this section;
    (C) The borrower may change to another repayment plan in accordance 
with Sec.  685.210(b);
    (D) A borrower who has been removed from the REPAYE plan in 
accordance with paragraph (c)(4)(vi) of this section or changes to 
another repayment plan in accordance with paragraphs (c)(2)(vi) or 
(c)(4)(vi)(C) of this section may return to the REPAYE plan if he or 
she provides the documentation, as described in paragraphs (c)(4)(i)(A) 
or (B) of this section, necessary for the Secretary to calculate the 
borrower's current REPAYE plan monthly payment amount and the monthly 
amount the borrower would have been required to pay under the REPAYE 
plan during the period when the borrower was on the alternative 
repayment plan or any other repayment plan;
    (E) If the Secretary determines that the total amount of the 
payments the borrower was required to make while on the alternative 
repayment plan or any other repayment plan is less than the total 
amount the borrower would have been required to make under the REPAYE 
plan during that period, the Secretary will adjust the borrower's 
monthly REPAYE plan payment amount to ensure that the difference 
between the two amounts is paid in full by the end of the 20- or 25-
year period described in paragraphs (c)(5)(i) and (ii) of this section;
    (F) If the borrower returns to the REPAYE plan or changes to the 
Pay As Your Earn repayment plan described in paragraph (a) of this 
section, the income-contingent repayment plan described in paragraph 
(b) of this section, or the income-based repayment plan described in 
Sec.  685.221, any payments that the borrower made under the 
alternative repayment plan after the borrower was removed from the 
REPAYE plan will count toward forgiveness under the REPAYE plan or the 
other repayment plans under Sec.  685.209(a), Sec.  685.209(b), or 
Sec.  685.221; and
    (G) Payments made under the alternative repayment plan described in 
paragraph (c)(4)(vi) of this section will not count toward public 
service loan forgiveness under Sec.  685.219.
    (viii) The Secretary does not take the action described in 
paragraph (c)(4)(vi) of this section if the Secretary receives the 
documentation described in paragraph (c)(4)(i)(A) or (B) of this 
section more than 10 days after the specified annual deadline, but is 
able to determine the borrower's new monthly payment amount before the 
end of the borrower's current annual payment period.
    (ix) If the Secretary receives the documentation described in 
paragraph (c)(4)(i)(A) or (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 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 REPAYE 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(c)(3)(i).
    (2) If the new monthly payment amount is equal to or greater than 
the borrower's previously calculated REPAYE 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.
    (5) Loan forgiveness. (i) A borrower who meets the requirements 
specified in paragraph (c)(5)(iii) of this section may qualify for loan 
forgiveness after 20 or 25 years, as determined in accordance with 
paragraph (c)(5)(ii) of this section.
    (ii)(A) A borrower whose loans being repaid under the REPAYE plan 
include only loans the borrower received as an undergraduate student or 
a consolidation loan that repaid only loans the borrower received as an

[[Page 39640]]

undergraduate student may qualify for forgiveness after 20 years.
    (B) A borrower whose loans being repaid under the REPAYE plan 
include a loan the borrower received as a graduate or professional 
student or a consolidation loan that repaid a loan received as a 
graduate or professional student may qualify for forgiveness after 25 
years.
    (iii) The Secretary cancels any remaining outstanding balance of 
principal and accrued interest on a borrower's Direct Loans that are 
being repaid under the REPAYE plan after--
    (A) The borrower has made the equivalent of 240 or 300, as 
applicable, qualifying monthly payments as defined in paragraph 
(c)(5)(v) of this section; and
    (B) Twenty or 25 years, as applicable, have elapsed, beginning on 
the date determined in accordance with paragraph (c)(5)(v) of this 
section.
    (iv) For the purpose of paragraph (c)(5)(iii)(A) of this section, a 
qualifying monthly payment is--
    (A) A monthly payment under the REPAYE plan, including a monthly 
payment amount of $0.00, as provided under paragraph (c)(2)(ii)(C) of 
this section;
    (B) A monthly payment under the Pay As You Earn repayment plan 
described in paragraph (a) of this section, 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 
monthly payment amount of $0.00;
    (C) A monthly payment made under--
    (1) The Direct Loan standard repayment plan described in Sec.  
685.208(b);
    (2) The alternative repayment plan described in paragraphs 
(c)(4)(vi) and (vii) of this section prior to changing to a repayment 
plan described in paragraph (a), (b), or (c) of this section or Sec.  
685.221;
    (3) Any other Direct Loan repayment plan, if the amount of the 
payment was not less than the amount required under the Direct Loan 
standard repayment plan described in Sec.  685.208(b); or
    (D) A month during which the borrower was not required to make a 
payment due to receiving an economic hardship deferment on his or her 
eligible Direct Loans.
    (v) For a borrower who qualifies for the REPAYE plan, the beginning 
date for the 20-year or 25-year repayment period is--
    (A) If the borrower made payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, 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; or
    (B) If the borrower did not make payments under the Pay As You Earn 
repayment plan described in paragraph (a) of this section, 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 qualifying monthly payment on the 
consolidation loan, before the date the borrower qualified for the 
REPAYE plan;
    (2) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a qualifying monthly payment on that loan, 
before the date the borrower qualified for the REPAYE plan;
    (3) For a borrower who did not make a qualifying monthly payment on 
the loan under paragraph (c)(5)(v)(B)(1) or (2) of this section, the 
date the borrower made a payment on the loan under the REPAYE plan;
    (4) If the borrower consolidates his or her eligible loans, the 
date the borrower made a qualifying monthly payment on the Direct 
Consolidation Loan; or
    (5) If the borrower did not make a qualifying monthly payment on 
the loan under paragraph (c)(5)(v)(A) or (B) of this section, the date 
the borrower made a payment on the loan under the REPAYE plan.
    (vi) Any payments made on a defaulted loan are not qualifying 
monthly payments and are not counted toward the 20-year or 25-year 
forgiveness period.
    (vii)(A) When the Secretary determines that a borrower has 
satisfied the loan forgiveness requirements under paragraph (c)(5) 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--
    (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 (c)(5) 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 (c)(5)(vii)(A)(3) of this section; and
    (3) Returns to the sender any payment received on a loan after loan 
forgiveness has been granted.
* * * * *
0
15. Section 685.219 is amended:
0
A. In paragraph (c)(1)(iii), by adding the words and punctuation ``or 
who qualifies for partial repayment of his or her loans under the 
student loan repayment programs under 10 U.S.C. 2171, 2173, 2174, or 
any other student loan repayment programs administered by the 
Department of Defense,'' after ``Peace Corps position''.
0
B. In paragraph (c)(1)(iv)(D), by removing the word ``Any'' and adding, 
in its place, the words ``Except for the alternative repayment plan, 
any'' and removing the word ``paid'' immediately after the words 
``monthly payment amount''.
0
C. In paragraph (c)(2), by adding the words and punctuation ``or if a 
lump sum payment is made on behalf of the borrower through the student 
loan repayment programs under 10 U.S.C. 2171, 2173, 2174, or any other 
student loan repayment programs administered by the Department of 
Defense,'' after the words ``leaving the Peace Corps''.
0
D. By adding a new paragraph (c)(3).
    The addition reads as follows:


Sec.  685.219  Public Service Loan Forgiveness Program.

* * * * *
    (c) * * *
    (1) * * *
    (3) The Secretary considers lump sum payments made on behalf of the 
borrower through the student loan repayment programs under 10 U.S.C. 
2171, 2173, 2174, or any other student loan repayment programs 
administered by the Department of Defense, to be qualifying payments in 
accordance with paragraph (c)(2) of this section for each year that a 
lump sum payment is made.
* * * * *
0
16. Section 685.221 is amended:
0
A. In the second sentence of paragraph (b)(3), by adding the words

[[Page 39641]]

``or the Revised Pay As You Earn repayment plan'' immediately after the 
words ``the Pay As You Earn repayment plan''.
0
B. By redesignating paragraph (f)(1)(vi) as paragraph (f)(1)(vii).
0
C. By adding a new paragraph (f)(1)(vi).
0
D. In paragraph (f)(3)(i), by adding the punctuation and words ``, the 
Pay As You Earn repayment plan, or the Revised Pay As You Earn 
repayment plan,'' immediately after the words ``repayment plan''.
0
E. In paragraph (f)(3)(ii), by removing the words ``the income-
contingent repayment plan'' and adding, in their place, the words ``one 
of the repayment plans described in paragraph (f)(3)(i) of this 
section''.
    The addition reads as follows:


Sec.  685.221  Income-based repayment plan.

* * * * *
    (f) * * *
    (1) * * *
    (vi) Made monthly payments under the alternative repayment plan 
described in Sec.  685.209(c)(4)(vi) and (vii) prior to changing to a 
repayment plan described under Sec.  685.209 or Sec.  685.221;
* * * * *
[FR Doc. 2015-16623 Filed 7-8-15; 8:45 am]
 BILLING CODE P