[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Notices]
[Pages 19153-19157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07517]


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DEPARTMENT OF EDUCATION


Annual Updates to the Income Contingent Repayment (ICR) Plan 
Formula for 2016--William D. Ford Federal Direct Loan Program

AGENCY: Federal Student Aid, Department of Education.

ACTION: Notice.

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

SUMMARY: The Secretary announces the annual updates to the ICR plan 
formula for 2016, as required by 34 CFR 685.209(b)(1)(ii)(A), to give 
notice to Direct Loan borrowers and the public regarding how monthly 
ICR payment amounts will be calculated for the 2016-2017 year.

DATES: The adjustments to the income percentage factors for the ICR 
plan formula contained in this notice are effective from July 1, 2016, 
to June 30, 2017, for any borrower who enters the ICR plan or has his 
or her monthly payment amount recalculated under the ICR plan during 
that period.

FOR FURTHER INFORMATION CONTACT: Ian Foss, U.S. Department of 
Education, 830 First Street NE., Room 113H2, Washington, DC 20202. 
Telephone: (202) 377-3681 or by email: [email protected].
    If you use a telecommunications device for the deaf or a text 
telephone, call the Federal Relay Service, toll free, at 1-800-877-
8339.

SUPPLEMENTARY INFORMATION: Under the William D. Ford Federal Direct 
Loan (Direct Loan) Program, borrowers may choose to repay their non-
defaulted loans (Direct Subsidized Loans, Direct Unsubsidized Loans, 
Direct PLUS Loans made to graduate or professional students, and Direct 
Consolidation Loans) under the ICR plan. The ICR plan bases the 
borrower's repayment amount on the borrower's income, family size, loan 
amount, and the interest rate applicable to each of the borrower's 
loans.
    ICR is one of the income-driven repayment plans. Other income-
driven repayment plans include the Income-Based Repayment (IBR) plan, 
the Pay As You Earn (PAYE) Repayment plan, and the Revised Pay As You 
Earn (REPAYE) Repayment plan. The IBR, PAYE, and REPAYE plans provide 
lower payment amounts than the ICR plan for most borrowers.
    A Direct Loan borrower who repays his or her loans under the ICR 
plan pays the lesser of: (1) The amount that he or she would pay over 
12 years with fixed payments multiplied by an income percentage factor; 
or (2) 20 percent of discretionary income.
    Each year, to reflect changes in inflation, we adjust the income 
percentage factor used to calculate a borrower's ICR payment. We use 
the adjusted income percentage factors to calculate a borrower's 
monthly ICR payment amount when the borrower initially applies for the 
ICR plan or when the borrower submits his or her annual income 
documentation, as required under the ICR plan. This notice contains the 
adjusted income percentage factors for 2016, examples of how the 
monthly payment amount in ICR is calculated, and charts showing sample 
repayment amounts based on the adjusted ICR plan formula. This 
information is included in the following three attachments:

 Attachment 1--Income Percentage Factors for 2016

[[Page 19154]]

 Attachment 2--Examples of the Calculations of Monthly 
Repayment Amounts
 Attachment 3--Charts Showing Sample Repayment Amounts for 
Single and Married Borrowers

    In Attachment 1, to reflect changes in inflation, we have updated 
the income percentage factors that were published in the Federal 
Register on March 25, 2015 (80 FR 15757). Specifically, we have revised 
the table of income percentage factors by changing the dollar amounts 
of the incomes shown by a percentage equal to the estimated percentage 
change between the not-seasonally-adjusted Consumer Price Index for all 
urban consumers for December 2015 and December 2016.
    The income percentage factors reflected in Attachment 1 may cause a 
borrower's payments to be lower than they were in prior years, even if 
the borrower's income is the same as in the prior year. However, the 
revised repayment amount more accurately reflects the impact of 
inflation on the borrower's current ability to repay.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the contact person listed 
under FOR FURTHER INFORMATION CONTACT in this section of the notice.
    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 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.

Attachment 1--Income Percentage Factors for 2016

                   Income Percentage Factors for 2016
------------------------------------------------------------------------
                       Single                          Married/head  of
----------------------------------------------------      household
                                                    --------------------
                  Income                    Factor                Factor
                                               %       Income       %
------------------------------------------------------------------------
$11,382..................................    55.00     $11,382     50.52
$15,662..................................    57.79     $17,959     56.68
$20,152..................................    60.57     $21,402     59.56
$24,745..................................    66.23     $27,979     67.79
$29,131..................................    71.89     $34,661     75.22
$34,661..................................    80.33     $43,536     87.61
$43,536..................................    88.77     $54,601    100.00
$54,602..................................   100.00     $65,671    100.00
$65,671..................................   100.00     $82,275    109.40
$78,929..................................   111.80    $109,938    125.00
$101,065.................................   123.50    $148,672    140.60
$143,142.................................   141.20    $207,925    150.00
$164,125.................................   150.00    $339,766    200.00
$292,335.................................   200.00
------------------------------------------------------------------------

Attachment 2--Examples of the Calculations of Monthly Repayment Amounts

    General notes about the examples in this attachment:
     We have a calculator that borrowers can use to estimate 
what their payment amount would be under the ICR plan. The calculator 
is called the ``Repayment Estimator'' and is available at 
StudentAid.gov/repayment-estimator. This calculator provides a 
detailed, individualized assessment of a borrower's loans and repayment 
plan options, including the ICR plan.
     The interest rates used in the examples are for 
illustration only. The actual interest rates on an individual 
borrower's Direct Loans depend on the loan type and when the 
postsecondary institution first disbursed the Direct Loan to the 
borrower.
     The Poverty Guideline amounts used in the examples are 
from the 2016 U.S. Department of Health and Human Services (HHS) 
Poverty Guidelines for the 48 contiguous States and the District of 
Columbia. Different Poverty Guidelines apply to residents of Alaska and 
Hawaii. The Poverty Guidelines for 2016 were published in the Federal 
Register on January 25, 2016 (81 FR 4036).
     All of the examples use an income percentage factor 
corresponding to an adjusted gross income (AGI) in the table in 
Attachment 1. If your AGI is not listed in the income percentage 
factors table in Attachment 1, calculate the applicable income 
percentage by following the instructions under the ``Interpolation'' 
heading later in this attachment.
     Married borrowers may repay their Direct Loans jointly 
under the ICR plan. If a married couple elects this option, we add the 
outstanding balance on the Direct Loans of each borrower and we add 
together both borrowers' AGIs to determine a joint ICR payment amount. 
We then prorate the joint payment amount for each borrower based on the 
proportion of that borrower's debt to the total outstanding balance. We 
bill each borrower separately.
     For example, if a married couple, John and Sally, has a 
total outstanding Direct Loan debt of $60,000, of which $40,000 belongs 
to John and $20,000 to Sally, we would apportion 67 percent of the 
monthly ICR payment to John and the remaining 33 percent to Sally. To 
take advantage of a joint ICR payment, married couples need not file 
taxes jointly; they may file separately and subsequently provide the 
other spouse's tax information to the borrower's Federal loan servicer.

Calculating the Monthly Payment Amount Using a Standard Amortization 
and a 12-Year Repayment Period

    The formula to amortize a loan with a standard schedule (in which 
each payment is the same over the course of the repayment period) is as 
follows:

M = P x < (I / 12) / [1 - {1 + (I / 12){time}  [supcaret]-N] >

In the formula--
 M is the monthly payment amount;
 P is the outstanding principal balance of the loan at the 
time the calculation is performed;
 I is the annual interest rate on the loan, expressed as a 
decimal (for example, for a loan with an interest rate of 6 percent, 
0.06); and
 N is the total number of months in the repayment period 
(for example, for a loan with a 12-year repayment period, 144 
months).

    For example, assume that Billy has a $10,000 Direct Unsubsidized 
Loan with an interest rate of 6 percent.
    Step 1: To solve for M, first simplify the numerator of the 
fraction by which we multiply P, the outstanding principal balance. To 
do this divide I, the interest rate, as a decimal, by 12. In this 
example, Billy's interest rate is 6 percent. As a decimal, 6 percent is 
0.06.

 0.06 / 12 = 0.005

    Step 2: Next, simplify the denominator of the fraction by which we 
multiply P. To do this divide I, the interest rate, as a decimal, by 
12. Then, add one. Next, raise the sum of the two figures to the 
negative power that corresponds to the length of the repayment period 
in months. In this example, because we are amortizing a loan to 
calculate the monthly payment

[[Page 19155]]

amount under the ICR plan, the applicable figure is 12 years, which is 
144 months. Finally, subtract the result from one.

 0.06 / 12 = 0.005
 1 + 0.005 = 1.005
 1.005 [caret] -144 = 0.48762628
 1 - 0.48762628 = 0.51237372

    Step 3: Next, resolve the fraction by dividing the result from step 
one by the result from step two.

 0.005 / 0.51237372 = 0.0097585

    Step 4: Finally, solve for M, the monthly payment amount, by 
multiplying the outstanding principal balance of the loan by the result 
of step 3.

 $10,000 x 0.0097585 = $97.59

    The remainder of the examples in this attachment will only show the 
results of the formula.
    Example 1. Brenda is single with no dependents and has $15,000 
in Direct Subsidized and Unsubsidized Loans. The interest rate on 
Brenda's loans is 6 percent, and she has an AGI of $29,131.
    Step 1: Determine the total monthly payment amount based on what 
Brenda would pay over 12 years using standard amortization. To do 
this, use the formula that precedes Example 1. In this example, the 
monthly payment amount would be $146.38.
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table (see Attachment 
1 to this notice) that corresponds to Brenda's AGI. In this example, 
an AGI of $29,131 corresponds to an income percentage factor of 
71.89 percent.
     0.7189 x $146.38 = $105.23
    Step 3: Determine 20 percent of Brenda's discretionary income 
and divide by 12 (discretionary income is AGI minus the HHS Poverty 
Guideline amount for a borrower's family size and State of 
residence). For Brenda, subtract the Poverty Guideline amount for a 
family of one from her AGI, multiply the result by 20 percent, and 
then divide by 12:
     $29,131-$11,880 = $17,251
     $17,251 x 0.20 = $3,450.20
     $3,450.20 / 12 = $287.52
    Step 4: Compare the amount from Step 2 with the amount from Step 
3. The lower of the two will be the monthly ICR payment amount. In 
this example, Brenda will be paying the amount calculated under Step 
2 ($105.23).

    Note: Brenda would have a lower payment under other income-
driven repayment plans. Specifically, Brenda's payment would be 
$89.31 under the PAYE and REPAYE repayment plans. However, Brenda's 
payment would be $133.96 under the IBR plan, which is higher than 
the payment she would have under the ICR plan.

    Example 2. Joseph is married to Susan and has no dependents. 
They file their Federal income tax return jointly. Joseph has a 
Direct Loan balance of $10,000, and Susan has a Direct Loan balance 
of $15,000. The interest rate on all of the loans is 6 percent.
    Joseph and Susan have a combined AGI of $82,275 and are repaying 
their loans jointly under the ICR plan (for general information 
regarding joint ICR payments for married couples, see the fifth and 
sixth bullets under the heading ``General notes about the examples 
in this attachment'').
    Step 1: Add Joseph's and Susan's Direct Loan balances to 
determine their combined aggregate loan balance:
     $10,000 + $15,000 = $25,000
    Step 2: Determine the combined monthly payment amount for Joseph 
and Susan based on what both borrowers would pay over 12 years using 
standard amortization. To do this, use the formula that precedes 
Example 1. In this example, the combined monthly payment amount 
would be $243.96.
    Step 3: Multiply the result of Step 2 by the income percentage 
factor shown in the income percentage factors table (see Attachment 
1 to this notice) that corresponds to Joseph and Susan's combined 
AGI. In this example, the combined AGI of $82,275 corresponds to an 
income percentage factor of 109.40 percent.
     1.094 x $243.96 = $266.90
    Step 4: Determine 20 percent of Joseph and Susan's combined 
discretionary income (discretionary income is AGI minus the HHS 
Poverty Guideline amount for a borrower's family size and State of 
residence). To do this subtract the Poverty Guideline amount for a 
family of two from the combined AGI, multiply the result by 20 
percent, and divide by 12:
     $82,275-$ 16,020 = $66,225
     $66,225 x 0.20 = $13,251
     $13,251 / 12 = $1,104.25
    Step 5: Compare the amount from Step 3 with the amount from Step 
4. The lower of the two will be Joseph and Susan's joint monthly 
payment amount. Joseph and Susan will jointly pay the amount 
calculated under Step 3 ($266.90).

    Note: For Joseph and Susan, the Income-Contingent Repayment plan 
provides the lowest monthly payment of all of the income-driven 
repayment plans. Joseph and Susan would not be eligible for the IBR 
or Pay As You Earn Repayment plans, and would have a combined 
monthly payment under the REPAYE Repayment plan of $485.38.

    Step 6: Because Joseph and Susan are jointly repaying their 
Direct Loans under the ICR plan, the monthly payment amount 
calculated under Step 5 applies to both Joseph's and Susan's loans. 
To determine the amount for which each borrower will be responsible, 
prorate the amount calculated under Step 4 by each spouse's share of 
the combined Direct Loan debt. Joseph has a Direct Loan debt of 
$10,000 and Susan has a Direct Loan Debt of $15,000. For Joseph, the 
monthly payment amount will be:  $10,000 / ($10,000 + 
$15,000) = 40 percent
     0.40 x $266.90 = $106.76
    For Susan, the monthly payment amount will be:
     $15,000 / ($10,000 + $15,000) = 60 percent
     0.60 x $266.90 = $160.14
    Example 3. David is single with no dependents and has $60,000 in 
Direct Subsidized and Unsubsidized Loans. The interest rate on all 
of the loans is 6 percent, and David's AGI is $34,661.
    Step 1: Determine the total monthly payment amount based on what 
David would pay over 12 years using standard amortization. To do 
this, use the formula that precedes Example 1. In this example, the 
monthly payment amount would be $585.51.
    Step 2: Multiply the result of Step 1 by the income percentage 
factor shown in the income percentage factors table (see Attachment 
1 to this notice) that corresponds to David's AGI. In this example, 
an AGI of $34,661 corresponds to an income percentage factor of 
80.33 percent.
     0.8033 x $585.51 = $470.34
    Step 3: Determine 20 percent of David's discretionary income and 
divide by 12 (discretionary income is AGI minus the HHS Poverty 
Guideline amount for a borrower's family size and State of 
residence). To do this subtract the Poverty Guideline amount for a 
family of one from David's AGI, multiply the result by 20 percent, 
then divide by 12:
     $34,661-$11,880 = $22,781
     $22,781 x 0.20 = $4,556.20
     $4,556.20 / 12 = $379.68
    Step 4: Compare the amount from Step 2 with the amount from Step 
3. The lower of the two will be David's monthly payment amount. In 
this example, David will be paying the amount calculated under Step 
3 ($379.68).

    Note: David would have a lower payment under each of the other 
income-driven plans. Specifically, David's payment would be $140.34 
under the PAYE and REPAYE repayment plans and $210.51 under the IBR 
plan.

    Interpolation. If an income is not included on the income 
percentage factor table, calculate the income percentage factor through 
linear interpolation. For example, assume that Joan is single with an 
income of $50,000.
    Step 1: Find the closest income listed that is less than Joan's 
income ($50,000) and the closest income listed that is greater than 
Joan's income ($50,000).
    Step 2: Subtract the lower amount from the higher amount (for this 
discussion we will call the result the ``income interval''):

 $54,602-$43,536 = $11,066

    Step 3: Determine the difference between the two income percentage 
factors that correspond to the incomes used in Step 2 (for this 
discussion, we will call the result the ``income percentage factor 
interval''):

 100.00 percent-88.77 percent = 11.23 percent

    Step 4: Subtract from Joan's income the closest income shown on the 
chart that is less than Joan's income of $50,000:

 $50,000-$43,536 = $6,464

    Step 5: Divide the result of Step 4 by the income interval 
determined in Step 2:


[[Page 19156]]


 $6,464 / $11,066 = 58.41 percent

    Step 6: Multiply the result of Step 5 by the income percentage 
factor interval:

 11.23 percent x 58.41 percent = 6.56 percent

    Step 7: Add the result of Step 6 to the lower of the two income 
percentage factors used in Step 3 to calculate the income percentage 
factor interval for $50,000 in income:

 6.56 percent + 88.77 percent = 95.33 percent (rounded to the 
nearest hundredth)

    The result is the income percentage factor that we will use to 
calculate Joan's monthly repayment amount under the ICR plan.

Attachment 3--Charts Showing Sample Income-Driven Repayment Amounts for 
Single and Married Borrowers

    Below are two charts that provide first-year payment amount 
estimates for a variety of loan debt sizes and incomes under all of the 
income-driven repayment plans. The first chart is for single borrowers 
who have a family size of one. The second chart is for a borrower who 
is married or a head of household and who has a family size of three. 
The ICR plan calculations assume that the loan debt has an interest 
rate of 6 percent. For married borrowers, the calculations assume that 
the borrower files a joint Federal income tax return with his or her 
spouse. A field with a ``-'' character indicates that the borrower in 
the example would not be eligible to enter the applicable repayment 
based plan based on the borrower's income, loan debt, and family size.

                                            Sample First-Year Monthly Repayment Amounts for a Single Borrower
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                                                                                                          Family size = 1
                                                                         -------------------------------------------------------------------------------
                  Income                                Plan                                               Initial debt
                                                                         -------------------------------------------------------------------------------
                                                                              $20,000         $40,000         $60,000         $80,000        $100,000
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$20,000...................................  ICR.........................            $118            $167            $195            $219            $240
                                            IBR.........................              27              --              --              --              --
                                            PAYE........................              18             185              --              --              --
                                            REPAYE......................              18             185             352             518             685
$40,000...................................  ICR.........................             135             333             390             439             480
                                            IBR.........................              27             277              --              --              --
                                            PAYE........................              18             185             352              --              --
                                            REPAYE......................              18             185             352             518             685
$60,000...................................  ICR.........................             135             469             586             658             720
                                            IBR.........................              27             277             527              --              --
                                            PAYE........................              18             185             352             518              --
                                            REPAYE......................              18             185             352             518             685
$80,000...................................  ICR.........................             135             469             781             877             960
                                            IBR.........................              27             277             527             777              --
                                            PAYE........................              18             185             352             518             685
                                            REPAYE......................              18             185             352             518             685
$100,000..................................  ICR.........................             135             469             802           1,097           1,200
                                            IBR.........................              27             277             527             777           1,027
                                            PAYE........................              18             185             352             518             685
                                            REPAYE......................              18             185             352             518             685
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                                 Sample First-Year Monthly Repayment Amounts for a Married or Head-of-Household Borrower
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                                                                                                          Family size = 3
                                                                         -------------------------------------------------------------------------------
                  Income                                Plan                                               Initial debt
                                                                         -------------------------------------------------------------------------------
                                                                              $20,000         $40,000         $60,000         $80,000        $100,000
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$20,000...................................  ICR.........................              $0            $161            $195            $211            $233
                                            IBR.........................               0             122              --              --              --
                                            PAYE........................               0              81              --              --              --
                                            REPAYE......................               0              81             248             415             581
$40,000...................................  ICR.........................               0             323             390             422             466
                                            IBR.........................               0             122             372              --              --
                                            PAYE........................               0              81             248             415              --
                                            REPAYE......................               0              81             248             415             581
$60,000...................................  ICR.........................               0             331             586             633             699
                                            IBR.........................               0             122             372             622              --
                                            PAYE........................               0              81             248             415             581
                                            REPAYE......................               0              81             248             415             581
$80,000...................................  ICR.........................               0             331             664             844             932
                                            IBR.........................               0             122             372             622             872
                                            PAYE........................               0              81             248             415             581
                                            REPAYE......................               0              81             278             415             581
$100,000..................................  ICR.........................               0             469             664             997           1,165
                                            IBR.........................               0             277             372             622             872
                                            PAYE........................               0             185             248             415             581
                                            REPAYE......................               0             185             248             415             581
--------------------------------------------------------------------------------------------------------------------------------------------------------



[[Page 19157]]

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

    Dated: March 29, 2016.
James W. Runcie,
Chief Operating Officer, Federal Student Aid.
[FR Doc. 2016-07517 Filed 4-1-16; 8:45 am]
BILLING CODE 4000-01-P